What Is Insolvency And What Are The Signs Your Business Is Facing It?

Law Blog

Being a business owner can be quite challenging. It takes a significant amount of dedication as well as drive to get a startup off the ground and make it into a profitable endeavor. However, you are bound to face some obstacles on the road. In some situations, these obstacles may be too much to overcome and this could lead to the decline of your business. This is what leads to bankruptcy and eventual insolvency.

What is insolvency? 

The term insolvency refers to the situation whereby a business is unable to clear all the debts they owe when they are due to be paid. This is a critical situation and will require the directors of the company to ensure that it does not happen if they would like the company to still be operational. If a business continues trading while it is insolvent, the company directors could stand criminal charges and penalties. This is why as a business owner it would be prudent to enlist the services of a bankruptcy solicitor and see how best to liquidate the business. Knowing the warning signs of imminent bankruptcy and insolvency will enable you to face the matter before

Warning signs of impending insolvency

  • Your business is unable to pay taxes: A business that is going through tough financial times can opt to forgo the payment of taxes so that they could have enough money to pay off their employees and other pertinent financial demands. Although this may seem like a convenient short-term fix, it is quite risky as you expose your business to penalties from the tax office. The tax office could also opt to add interest to the back taxes that you owe and this could contribute further to your company's financial ruin.
  • Your business is making use of employee superannuation funds to keep trading: Generally, superannuation funds are remitted at a quarterly basis and should be paid within one month after every quarter. If the money is not remitted in the appropriate time, they amounts that are missing will be considered to be debt. If your business accumulates this debt, it will be subject to interest as well as some penalties.
  • Your business is experiencing continual losses and low cash flow: If your business is experiencing continual losses, chances are it is on its way to insolvency. At this juncture, you should consider selling off any assets that are idle or that are performing poorly. This can help you generate some income for the business.


29 July 2016

Sorting out my dad's estate

My dad died when I was still pretty young so it's been a big surprise all the stuff I've had to do to sort out his estate. I'm an only child and my folks divorced when I was a baby so most of the work fell to me. He was kind of disorganised and grumpy, but at least he'd spoken to his lawyer and got a proper will drawn up which saved on confusion at a tricky time. If you are a young person dealing with the estate of a deceased parent, this blog is designed to help you navigate the legal processes.