What does insolvency mean? - PowerPoint Presentation

Slide1

What does insolvency mean?

2. Accepted indicators of insolvency 3. What is a shadow director?4. Could a book-keeper be a shadow director?Slide2

Introduction

Brendan Nixon and Dikesh Bulsara, Directors. Stanley Morgan Accountants is an insolvency accounting practice.Personal and

corporate

insolvency administrations (bankruptcy, liquidation, administration, personal insolvency agreements).

Other related services (solvency reports).

Located in Upper Edward Street, Spring Hill. Slide3

What

does insolvency mean?Formal definition is simply the inability to pay a debt

as and when

it

falls

due.

Inherently, this definition implies greater importance on cash-flow (liquidity) over the balance sheet position.

Solvency analysis

usually examines aged

accounts

payable, cash-flow forecasts,

current liquidity

ratios

, profit margins, lending facilities, trading performance history, related party loan accounts.

A business may be

‘asset rich’,

but

‘cash poor’.

Enforcement action by the court

is

based

on whether a particular debt has been paid or

not

. Solvency may be raised as a defence, but can be difficult to prove. Slide4

Implications

of insolvency1.Business failure 2.Lifts the corporate veil

3.Limitation on future entrepreneurialism Slide5

Indicia

of insolvency i. Sustained losses ii. Liquidity ration below 1

iii

. Overdue taxes

iv. Poor

relationship with

financiers, including

inability to borrow additional

funds

v

. No

access to alternative

finance

vi

. Inability

to raise further equity

capital

vii

. Supplier

placing the debtor on COD terms, other otherwise demanding special payments before resuming

supply

viii. Creditors

unpaid outside trading

terms

ix. Issuing

of post dated

cheques

x. Dishonoured

cheques

xi. Special

arrangements with selected creditors

xii. Solicitors

’ letter,

summonses,

judgments or warrants issued against the company

xiii. Payments

to creditors of rounded figures, which are irreconcilable to specific invoices

xiv. Inability

to produce timely and accurate financial

information.Slide6

What

we find in practiceDisputes between parties. Inadequate budgets

& planning.

Not acting in the best interests of shareholders or creditors.

Poor relationships with

important creditors.Slide7

What is a

shadow director?People who “act in the position of a director” or who have such an influence that the formally appointed directors act “in accordance with the person’s instructions or wishes”.

Shadow directors have duties

to a company and may be pursued

personally the same as a properly appointed director.

Corporations Act

does accept that

external

expertise

is required in

the ordinary course of

a business

, and that people who provide such expertise will not automatically be considered shadow directors.

Protection for

those who explicitly make others aware that their powers are constrained and their role within the company is subject to a specific scope of engagement. Slide8

Could a

book-keeper be a shadow director? Consider the following typical tasks of a book-keeper and the implication for being deemed a shadow director:Attending board meetingsPaying creditorsReporting to the ATO & ASIC

Communicating on behalf of a company

Perceived managerial role.Slide9

Suggested action

if insolvency suspectedBring concerns to the Company’s directors. Be informed of options.Be

proactive with

creditors.

Obtain

legal advice as to

potential personal

implications.

Don’t necessarily rely entirely on a written agreement in respect of a shadow director defence. Slide10

Q & A

Thank you