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Business directors have been urged to turn their attention to their solvency as safe harbour protections for directors expire in 50 days.
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Insolvent trading protections end in 50 days, warns insolvency firm
12 November 2020
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12 minute read
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With temporary insolvency and bankruptcy protections introduced at the height of the pandemic due to expire on 31 December, Jirsch Sutherland national managing partner Bradd Morelli believes it is now “crunch time” for businesses to reassess their current position and ensure they are not trading while insolvent.
“It’s vital that businesses don’t ignore the warning signs of insolvency – otherwise they could miss the window to take corrective action,” Mr Morelli said.
“Not only that, but directors could also retrospectively be held personally liable for insolvent trading – from when the temporary COVID-19 Safe Harbour changes to the Corporations Act came into play on March 25 this year.
“It’s crucial that business owners and directors understand that while it might not be their fault that their business is in trouble, it is their responsibility.”
BDO business restructuring partner Andrew Sallway also believes the expiry of safe harbour protections for directors from insolvent trading will form part of a three-tiered debt cliff that includes the recommencement of loan and lease repayments, and the end of JobKeeper in March 2021.
“Over the past few months, we’ve seen many businesses go from panic to information overload to an understanding of how they will make it through. Yet, while some businesses have begun to acclimatise, many aren’t thinking too far into the future,” said Mr Sallway.
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“While it’s true that directors need to be planning for the here and now, they must also plan to deal with their accrued debts and assess whether they will make it past this tiered debt cliff.
“Debts such as ATO debt, rent, payroll tax and loan repayments have continued to accrue during 2020 as many businesses were given payment holidays but not permanent debt relief from these liabilities.”
Mr Morelli has now urged directors to identify any red flags that their business could be heading towards insolvency, including poor or no cash flow, inability to pay bills, and being unable to pay staff wages or superannuation.
Other warning signs could include substantial bad debt write-offs, inability to access finance and securing special payment arrangements with creditors.
“By recognising the signs your business is in trouble and acting on them early, you could give your business the best chance of survival or to wind it up with minimal losses and achieve the best possible outcome,” said Mr Morelli.
“Working with a business recovery/insolvency specialist also means that if you have been trading while insolvent, the matter will be handled in a controlled manner, mitigate risk and prevent against subsequent action once the insolvent trading moratorium ends.”
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