Contrary to popular belief, not all debts are bad. Debt is good when used to generate income, like when a business takes up a loan to increase its capital or buy items with 30 or 60 days repayment.
It becomes a huge challenge, however, when the business can no longer afford to pay its debt. At this point, it becomes insolvent.
Although insolvency happens to many businesses, it can still be stressful and unsettling. The important thing to remember, Australian law firm Cooper Grace Ward points out, is to understand the needs of all stakeholders in the insolvency process. To help ease your tension and worry, know what to do if you find yourself in this position.
Insolvency does not immediately mean bankruptcy
One of the biggest sources of anxiety among businesses is bankruptcy. While they are closely related, they are not the same thing. In fact, bankruptcy is just one of the many options you can explore, in which case you ask the help from the court to help pay off your creditors. Know, though, that bankruptcy has a huge impact on your ability to secure future loans or future travels.
You need to stop producing and selling goods
Once you consider your business insolvent, you should stop trading so you can focus your attention on making strategic decisions including how to pay off your company debts. Usually, once you feel you can no longer repay your debt, you enter into external administration: liquidation, receivership, and voluntary administration.
In voluntary administration, another person holds the business and determines a way to resolve the debt. In receivership, the secured creditor takes control of the company assets and appoints a receiver, who shall then be responsible for disposing of them in the hopes the creditor can recover the debt.
Many businesses chose to do liquidation, which is the orderly winding down of business. A creditor may appoint a liquidator, who is responsible for realizing the assets and distributing the proceeds to the claimants.
Going through insolvency can be complex, so as a parting tip, work with a Brisbane corporate law firm with several years’ experience in company strategy, reorganisation, and restructuring.