Insolvent Trading Signs

insolvent tradingInsolvent trading is an extremely serious issue for a company and the civil and criminal consequences can be devastating for the company directors.

The Australian Securities and Investment Commission (ASIC) is the corporate watchdog regulating corporate behaviour. They list the following danger signs of when a company may be at risk of insolvent trading.

•  poor cash flow

•  absence of a business plan

•  incomplete financial records or disorganised internal accounting procedures

•  lack of cash-flow forecasts and other budgets

•  increasing debt (liabilities greater than assets)

•  problems selling stock or collecting debts

•  unrecoverable loans to associated parties

•  creditors unpaid outside usual terms

•  solicitors’ letters, demands, summonses, judgements or warrants issued against your company

•  suppliers placing your company on cash-on-delivery (COD) terms

•  issuing post-dated cheques or dishonouring cheques

•  special arrangements with selected creditors

•  payments to creditors of rounded sums that are not reconcilable to specific invoices

•  overdraft limit reached or defaults on loan or interest payments

•  problems obtaining finance

•  change of bank, lender or increased monitoring/involvement by financier

•  inability to raise funds from shareholders

•  overdue taxes and superannuation liabilities

•  board disputes and director resignations, or loss of management personnel

•  increased level of complaints or queries raised with suppliers

•  an expectation that the ‘next’ big job/sale/contract will save the company

Photo by Thomas Hawk

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About Mark Toohey

Mark Toohey is an experienced commercial lawyer who has worked with both major law firms and as general counsel in the media, telecommunications, software and IT industries. He has been a lawyer, company director, marketing director, company secretary and entrepreneur. Mark's commercial experience extends way beyond the theoretical. He has helped launch a number of start-up businesses and his hands on experience was gained from negotiating and documenting deals for a wide variety of business initiatives.