My company might be insolvent. What must I do as Director?
If your company is in financial distress, it’s important to determine if it is just a temporary cash flow issue or if you are on the brink of insolvency. Not only will this give your company a better chance of survival, but trading while insolvent is illegal and you could be found personally liable.
Thankfully, the law does provide protection from insolvent trading liability. However, you must do the following to be able to access these protections:
1. Get advice from a registered liquidator: The law requires that directors get advice from a qualified adviser (i.e. a registered liquidator – even when the solution is not liquidation). The sooner expert advice is obtained; the more options there are for business recovery.
2. Consider your creditors: Consider the impact of your decisions on creditors and do not favour one group of creditors over another. You can be deemed personally liable for the value of benefit obtained if creditors are given preferential payment.
3. Understand the financial position of the company: Know where the company’s debts are (including tax debts like GST or superannuation) and assess whether the company can pay them all when due.
4. Keep adequate financial records: Your company must keep financial records to explain all transactions and the company’s financial position and performance.
5. Meet your employer obligations: Pay all employees (including their superannuation) and make sure all tax reporting and payment obligations have been met.
6. Document and implement a restructure plan: All small business restructuring plans must be documented so you can ensure each step is met which will allow you to access legal protection if the plan is unsuccessful.
Understanding your rights and obligations as a Director is vital in this process and you should only seek advice from a qualified expert who is experienced in the complexities of insolvency law.
At Auxilium Partners the first meeting is free. Contact us today to find out how we can help you.