Exiting a business

Insolvent trading is when a company can't pay its existing debts as and when they fall due.

If you have reasonable grounds to suspect the company cannot pay its way, or won't be able to if you take on more debt, you should stop trading and act quickly to get professional advice.

In the interests of creditors, shareholders and employees, when a company faces insolvency, the earlier you act, the more likely the chance of saving the business.

The Corporations Law sets out directors' responsibilities to manage insolvency even when it is only suspected.

Signs of financial difficulty

Signs that may indicate your company is in financial difficulty include:

• ongoing losses
• poor cash flow
• unpaid creditors outside usual trading terms; and
• problems obtaining finance.

Actions you can take if your company is insolvent

• do not allow it to incur further debt
• relieve pressure from creditors
• sell underperforming assets
• reduce costs
• refocus on profit making areas of the business.
• if possible, promptly restructure, refinance or obtain equity funding to recapitalise the company

As a last resort, your options are to appoint a voluntary administrator or a liquidator.

To find an organisation that can help you, contact the ASIC infoline on 1300 300 630 or visit the ASIC web site

The consequences of insolvent trading?

Insolvent trading can have serious consequences for directors. There are various penalties associated with insolvent trading, including civil penalties, compensation proceedings and criminal charges.