Business Recovery And Insolvency The key to avoiding insolvency is to seek professional help as soon as the first signs of difficulty appear. If your business is struggling  under financial and operational difficulties, being proactive is vital for avoidance or minimisation of the ramifications. No one sets out in  business to fail and when difficulties arise business owners should seek help.   Your accountant at Accountants Hawkes Bay Limited is able to assist business owners to identify problem areas and suggest real  solutions to improve business results and your financial position, so that your business can continue.    What is Insolvency?  Insolvency is when you cannot pay accounts as they fall due or when liabilities exceed assets. When that happens steps need to be  taken to protect creditors from real or potential financial losses.   Directors cannot continue trading a company when they know the company is insolvent. They must not “do nothing”. · Early signs of insolvency are generally in cash flow when there is difficulty in paying creditors, Inland Revenue Department and  where it is a struggle to pay wages.   A business is not necessarily insolvent when there is creditor pressure. Often there are other keys that can turn the cash flow around.  Personal Insolvency Personal insolvency or bankruptcy is where an individual is declared bankrupt because they cannot pay their bills. The bankruptcy is  administered by the New Zealand Trustee & Insolvency.   During the time of bankruptcy the person cannot be in business and there are procedures to be adhered to before you can travel  overseas or work for a family member. You cannot incur credit and you cannot be self employed. Bankruptcy lasts for 3 years and most  debts are written off at bankruptcy.   Company Liquidation When a company is insolvent it needs to be liquidated and the Liquidator realizes the assets for the benefit of all creditors, with some  creditors having preferential or secured status and the remainder being unsecured.   Voluntary administration The appointment of a voluntary administrator puts a freeze on claims by creditors against a company that is insolvent or about to become  insolvent.   The freeze provides a window in which the administrator can consider and formulate a proposal to address the company’s problems. It  continues until the “watershed meeting”. At this time, a decision will be made to:  · Enter into a deed of company arrangement (“DOCA”) approving a work out arrangement which binds creditors; •   · Appoint a liquidator; or •   · Pass control back to the company’s directors.   Voluntary administration provides some respite for the company’s directors. During the administration, they are protected from  enforcement of personal guarantees.   Receivership A receivership is where a secured creditor appoints a Receiver should the company default under the terms of the security. When a  company is in receivership the management of the company is transferred to the appointed Receiver. The Receiver acts solely on behalf  of the party that instigated the receivership and is focused on realizing as much as possible from the assets that provided security for the  debt which is now in default.   So, the appointment of a Receiver stops the company directors from taking any further actions involving the company’s business and  assets that are caught up in the receivership - although they do retain authority over assets outside the scope of the receivership.  At the end of the receivership, i.e. when the secured party is repaid the business is either returned to the Directors or more typically is put  into liquidation.   Creditors Positions There is no doubt that when a business fails creditors are unlikely to be paid. When credit is extended to customers there should be  terms of trade and wherever possible a guarantee from the Directors and a PPSR over company assets. When a business is in  liquidation creditors will need to file a proof of debt. A creditor led liquidation is where a creditor incurs the legal costs to bring a petition to  the Court to liquidate a company. The costs of this are preferential.  When a Company has finished its business activity Companies that have finished their business and are no longer required have options on how to finish with the company. This could be a  solvent liquidation, amalgamation with another company, an informal wind up or simply being struck from the Companies Register.   The people to talk to for business recovery advice are Trish or Grahame Please click on their pictures to email them for information or call us on 06 8434868 If you requre and appointment please click on the words request appointment.  Request Appointment Request Appointment