The most common causes of corporate insolvency are reported as poor cash flow, poor strategic management and trading losses. There are warning signs of insolvency that business owners and company directors should be aware of and seeking professional advice early can prevent further business loss. SV Partners can provide a range of options available to companies in distress and to creditors. We work with professionals and their clients to ensure the best possible outcome is achieved. If your business or your client’s business is experiencing financial difficulty, it is time to explore your options now.
Insolvency means an individual or entity (such as a company) can no longer pay its debts when they fall due. Insolvency can be personal (relating to an individual) or can be corporate (relating to a company). For each type of insolvency, there are different laws, rules and regulations that are applied.
The most common types of corporate insolvency are known as voluntary administration, liquidations and receiverships. The most common type of personal insolvency is known as bankruptcy and personal insolvency agreements.
If a company director suspects that their company is insolvent, may become insolvent or is in financial difficulty, it is crucial that professional advice is sought immediately. There are various consequences that a company director may face if they allow the situation to worsen.
A Voluntary Administration (also known as a VA) occurs when directors of a company recognise their business is in financial difficulty and appoint an external administrator in an attempt to save or restructure the business. A secured creditor with security interest over most of the company’s assets are also able to appoint an external administrator. SV Partners assists company directors throughout a voluntary administration to form an arrangement with creditors, which may save the company while maximising the return to creditors. We are able to serve as the independent party that will review the company’s affairs and deal with the pressure from creditors.
A creditors’ voluntary liquidation (also known as a CVL) occurs when the company’s members determine that the company can no longer satisfy its debts and is likely to become insolvent or is insolvent. If a business is unable to meet its liabilities, the company’s members must decide what action to take to maximise the return to creditors and avoid the possibility of insolvent trading. The aim of the administrator in this process is to sell the company’s assets and distribute the proceeds to creditors and shareholders, prior to the company being liquidated or ‘wound up’. SV Partners can assist businesses through this process as an independent party to ensure the process is conducted appropriately and in compliance with all relevant laws and governing bodies.
A court liquidation (previously known as an Official Liquidation) occurs when a creditor/s make an application to Court to wind up a company due to non-payment of a debt. A creditor can resort to this process if they have exhausted all other avenues to obtain payment for outstanding debts. A court liquidation involves a liquidator being appointed to realise the company’s assets, investigate the company’s failure and disburse the funds to creditors according to priority. Once this occurs, the liquidator will apply to ASIC to deregister the company in order for the company to no longer exist. SV Partners, as qualified and skilled professionals, are able to administer a company throughout this process while remaining mindful of the impact on all stakeholders.
A receivership is an option for secured creditors to recover unresolved debts under a secured loan in the event that a business defaults on its loan payments. Receiverships are caused when a company is unable to pay its debts and is receiving pressure from secured and unsecured creditors. A receivership allows a Receiver to be appointed to realise the company’s assets and distribute the funds accordingly. In order to prevent on-going losses and the inability to improve trading, a Liquidator or Administrator should be appointed to the business as soon as possible.
A simplified liquidation (also known as a simple liquidation) is one of two new formal insolvency processes introduced by the Federal Government, in the wake of the COVID-19 pandemic (the other being the Small Business Restructure). This new process has been designed to reduce the cost and time involved in completing the liquidation process. SV Partners can assist with a Simplified Liquidation by act as the independent third party to ensure the process is conducted appropriately and according to all relevant laws.
The Small Business Restructuring Process is one of two new formal insolvency appointments introduced by the Federal Government in 2021. In this new process, directors and management remain in control of the company (under supervision of a restructuring practitioner). The purpose of the Small Business Restructuring Process is to provide directors and the company time to put forward a plan to creditors to pay off their liabilities, in full or in part, within a period not exceeding 3 years.
A Members’ Voluntary Liquidation (MVL) is a process by which the assets of a company are able to be distributed to its creditors and members under the control of a liquidator. An MVL may also be used in the winding up of solvent associations and co-operatives, as the procedures set out in the Act are generally adopted by the various State Acts under which Associations and Co-Operatives are governed. An MVL can only be used when a company is solvent, i.e. able to pay its debts (including related entity debts such as shareholders’ loans) in full within 12 months of the commencement of the winding up.
At times, businesses may be impacted by a change in market conditions, new competing products in the market or major structural and management changes; all increasing a business’ risk and weakness in financial performance. Turnaround management involves a strategic analysis of a business’ performance and management systems to identify competencies and areas of business improvement. It is important that a business addresses performance issues early in order to mitigate further business risk and potential financial loss. SV Partners have a dedicated team that help businesses develop and implement a comprehensive plan to ensure the continued support from all key stakeholders for business improvement.