What are the indicators of insolvency?

This is the elephant in the Board room – Having clear transparency for where your organisation is heading is crucial. Below we list the indicators of business insolvency. 

  • Continuing losses
  • Liquidity ratios
  • Overdue tax payments
  • Poor relationship with present Bank, including inability to borrow further funds
  • No access to alternative finance
  • Inability to raise further equity capital
  • Suppliers demanding special payments before resuming supply
  • Creditors unpaid outside trading terms
  • Issuing of post-dated cheques
  • Dishonoured cheques
  • Special arrangements with selected creditors
  • Solicitors’ letters, summons[es], judgments or warrants issued against the company
  • Payments to creditors of rounded sums which are not reconcilable to specific invoices
  • Inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and make reliable forecasts. These indicators which came the ASIC v Plymin are relied upon to guide potential defendants (i.e. company directors) and their professional advisers about indicators of corporate insolvency. No single indicator is determinate of a finding of insolvency but in the Water Wheel case the Court found that all the indicators of insolvency were proven by the Plaintiff (ASIC) to have occurred. Engage a professional before it is only the elephant that is left.

Michael’s insights are drawn directly from working with and in SMBs in senior finance roles for the last 25 years. If you need practical advice or assistance when dealing with these indicators of business insolvency, then reach out; you will be glad you did.