Boston Commercial Services Pty Ltd (ABN 87 114 658 070) CAPI Licence Number 409 456 759

You are here: Home / News / Insolvency Legal FAQs Part 1

Insolvency Legal FAQs Part 1

The term “insolvency” might come across as a somewhat foreign language to those individuals who may have missed out on their Commercial Law 101 class. And while the word “bankruptcy” may ring a bell for most people, a solid definition is often just beyond most fingertips. These two words, however, are part of a family of commercial law jargon that we, at Boston Commercial Service Pty, believe essential for every individual in business to understand. We have therefore compiled this list of Insolvency Legal FAQs that are sure to help you understand this concept better. The FAQs will be discussed over two blogs to help clarify these points as much as possible.

So, let’s get started.

1. What is insolvency?

Insolvency is a broad term that refers to the state of an individual or a company when he/she/it is unable to pay their debts when they are due. A person or company that is unable to pay their debt is referred to as an insolvent, according to corporation Act 2001 s.95A (2).

2. How is the insolvency of a company or individual determined?

When determining the insolvency of a company, one must ask the following question: Does the company have the ability to fully pay off all of their debt when it’s due? The following should be taken into consideration while answering this question:

  • Presence of cash reserves and what will be available when the debt is due
  • Venture capital, current cash flow and projected cash flow
  • Access to funding sources
  • The borrowing capacity of the firm.
  • Available assets for sale i.e. the realisation of cash
  • Flexibility of the debt due date

It’s of utmost importance to note that it is illegal for the directors of an insolvent company to continue operating and incurring more debt.

3. What are the early indicators that a company might be moving towards insolvency?

Insolvency often happens over an extended period. It’s therefore essential to look out for signs that may indicate a company’s degeneration to a state of insolvency. These may include inadequate internal accounting procedures, sketchy financial records, a marked drop in annual cash flow, as well as continued engagement in activities that result in losses.

Also, having an unmanageable number of debtors could be a sign that an individual or company may not be running with an adequate cash turnover to keep afloat.  In this case, the company or individual should hire a debt collection agency who can accrue their debts efficiently and professionally.

Other signs that may serve as red flags include defaults on loans, low credit scores, loss of key employees (such as managers) and involvement of financiers. If you have noticed any of these signs in your company, please contact Boston Commercial Services Pty Ltd on 1300 668 699 for professional advice on the best way forward.

That is all for part one. Read part two to know more about insolvency, bankruptcy and the steps that one should take if they are caught up in a financial crisis.

 

Read Also:

Insolvency Legal FAQs Part 2

Common Traps for Small Businesses Managing Their Own Accounts Receivable

How Big Does Your Company Need to be to Warrant Legal Services?

Get In Touch

Get an obligation free assessment now


Categories

Get in touch with us

Talk to our experts in Debt Recovery, Legal Services and Finance Solutions

admin 7:00 am
  • I have known the principal of the BOSTON Group (Derryn HARRISON) as well as key staff members (including Ben GOWER) for well over 2 decades and have been using their professional services for myself as well as for Powerhouse Logistics Pty. Ltd. on a regular basis, not only in Sydney but on a national basis.

    At all times BOSTON have been extremely pro-active, attentive, courteous and professional with all matters we threw at them. Their advice has always been extremely sound and commercial and I find them to be a "breath of fresh air" within the legal fraternity and have no hesitation whatsoever to highly recommend them.

    Peter Brueckner

    Powerhouse Logistics Pty Ltd (CEO)

  • Expect A Star has worked with The Boston Group for 10 years. In this time we have appreciated the ongoing support of Boston for all of our collection and legal requirements. Like most businesses cashflow is critical to ongoing success and growth, with Boston we have found a partner who are an extension of our business and play a key part in our cashflow management. The Boston Group bring a level of expertise to our business which is valuable and coupled with their excellent customer service we look forward to continuing to work with them for many years to come.

    Ryan Meldrum

    Former CEO

  • I have been using the services of The Boston Group and their legal entity for over 11 years. During this time I have found their service to be impeccable, delivered with the utmost professionalism and integrity. The vast majority of cases that I have placed with Boston were far from straightforward, requiring legal acumen and delicate handling. Having used all methods available without success to procure payment, I confidently placed these matters into their safe hands. In all instances a successful outcome was achieved.

    Mark Parish

    Credit Manager

  • SNP Security has had the pleasure of working with Boston Commercial Services for the past 11 years. Boston has played an integral part in the continuing success of SNP Security’s low DSO’s, 90 Day % Debt & of course Bad Debts Written Off.

    Amanda Griffiths

    National Administration Manager

Boston Commercial Services prides itself in offering specialised, professional services, through a highly experienced team of debt collector, with personalised client attention.