Accounts receivable, or debtors, are recorded as an asset on the company balance sheet on the basis that they represent funds that will be paid to the company by customers in the normal course of business. That’s fine if the amount recorded is accurate and properly reflects the anticipated level of income but, if it isn’t accurate, it inflates the level of current assets and may be disguising the true financial position of the company and becomes a potential liability for the company’s directors. In a recent liquidation, the accounts receivable figure for the company, at the date of liquidation, was approximately $155,000 however, when the process of collecting the outstanding amounts was started, it was quickly discovered that the…

What is a Shareholder Current Account? During the life of the company, funds taken out or put into the company by the shareholders is recorded to the shareholder current account. Usually at the start of a company, working capital is introduced. This balance is usually the opening balance of the shareholder current account. This is separate to the funds paid for share capital. A shareholder current account is a record of the net balance of funds introduced and withdrawn by the shareholder. This moving balance is recorded on the balance sheet and may fluctuate from being an asset of the company to a liability of the company. Drawings are recorded as deductions from the current account. Drawings are where you…

It is probably stating the obvious – but if you don’t ask your customers for payment for the goods or services you provide, there is a good chance they won’t pay you. A lack of cashflow causes issues for any business and particularly so for small businesses that operate on modest turnover and small margins of profit. It leads to the slow payment of creditors and can, if left unchecked, lead to the winding up of the business. The problem usually comes about, primarily in small businesses, when the owner is working in the business providing the goods and services etc during the week and the paperwork is done later if there is time. I am aware of one occasion…

Companies cease trading for many reasons including technological change, competition, ill health, directors’ retirement, ongoing financial problems, or simply because the company has sold its business or assets and serves no further purpose. When a business is profitable, a business can cease to trade following sale of its business or sale of its business assets and can resolve to wind up via a section 318(1)(d) procedure (known as the “short form removal”) or follow a formal solvent liquidation. In current New Zealand law, solvent liquidations are advanced to distribute capital gains and capital reserves tax free and to provide more certainty of finality. In insolvency, directors have a legal obligation to cease trading in accordance with insolvency laws and to…

Section 15 of the Companies Act 1993 states that a company is a separate legal entity, in its own right, separate from the shareholders, and continues in existence until it is removed from the New Zealand Register. Effectively that means it has the rights and obligations of person. It can own property, carry on a business, initiate legal action etc. It is also responsible for its actions and can be sued. The use of the company structure, with its separate identity, allows people to operate more than one business at the same time but keep the assets and liabilities of those separate businesses apart – so one business doesn’t drag the other down. CASE STUDY We were appointed as receivers…

So, yet another year is gone and a shiny fresh new year beckons. Will 2019 offer small business owners an opportunity to absorb the lessons from the best strategies and business results of 2018, and plan effectively for this year? Of course, business doesn't trade in isolation and small business trends are continually evolving. Whether the major small business trends are in customer service, marketing or technology, business owners need to understand the prevailing external factors in order to fine-tune their internal operations. Of course, some trends will have more of a direct impact on your business, than others regardless of your niche. However, the key is how you embrace and adapt them to your business’ needs and how successfully…

What is a General Security Agreement? A General Security Agreement (GSA) is a document recording a security provided by a debtor company to its creditor over a specific group of assets or over all assets of the business. The GSA records the terms which include a right of the creditor to register their interest on the Personal Property Securities Register (PPSR) so that there is a public record of that financial interest in the assets of the debtor company. We always recommend to directors/shareholders investing moneys into their business on start-up that they attend to completing the appropriate loan documentation (between company and individual) and a General Security Agreement recording the terms. It is important that this GSA is registered on…

Have greater flexibility and pay your income tax how and when it suits you Tax Management NZ (TMNZ) provides an IRD-approved service that gives businesses greater flexibility to do tax on their terms by letting them choose how and when they make their income tax payments. Upcoming provisional tax paymentsTMNZ has several payment options to help you manage upcoming income tax payments. This provides greater flexibility, wipes any late payment penalties, and reduces interest costs. The burden provisional tax payments can have on your cashflow can be eased by paying off what you owe in flexible instalments, where you pay what you can, when you can. If paying an upcoming provisional tax payment in instalments does not suit, you can…

The Solvency Test The Companies Act 1993 requires directors to focus on the financial state of the company and to consider whether the company meets the solvency test before permitting distributions and certain other actions by the company. The statutory Solvency Test is set out at section 4 of the Companies Act 1993. The Solvency Test requires that both the liquidity limb and the balance sheet limb of the test are satisfied immediately after a distribution or other action. Distributions are widely defined and include the direct or indirect transfer of money or property and incurring a debt for the benefit of shareholders. In making a distribution, directors who vote in favour of the distribution must sign a solvency certificate…

If you're a typical small business owner, your business lending is likely secured against your family property (or your family trust’s property). If your business is going well and the market is booming, securing your business lending against your property gives you the benefit of a good interest rate and the increasing equity in your property can give you the opportunity to borrow more so you can smooth out any bumps in the road.  The question is: What happens if you hit a bump in the road and the property market is on its way down? Over the last few years, the property market has been on an upward cycle but, like all market cycles, at some point the market…

In the words of Fredrick Nael: “It takes both sides to build a bridge.” An Alternative to Bankruptcy – Part 5 Subpart 2 Proposals Insolvent individuals are often unaware that there are alternatives to bankruptcy and what the impact of those alternative options will be, so they are ill equipped to make informed decisions. This article focuses on Part 5 Subpart 2 Proposals. There are other bankruptcy alternatives such as Debt repayment orders (DRO) formally known as the summary instalment orders (SIO) and no asset procedures (for debts less than $50,000) as well as informal settlements, none of which are discussed here. Resolving personal insolvency issues using a Part 5 proposal requires the insolvent to put his/her best foot forward…

Due to both a lack of sufficient legislative regulation and in order to bring New Zealand Insolvency Practitioners further in line with Australia and other jurisdictions, the Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ) working alongside Chartered Accountants Australia New Zealand (CAANZ) has developed a framework of self-regulation. Under the various acts Insolvency Practitioners are charged with administering, there are only negative licensing regimes in effect. These regimes only exclude individuals from acting as Insolvency Practitioners if they fail to meet a specific set of criteria. These include the Insolvency Practitioner being: over the age of 18; of sound mind; not currently an undischarged bankrupt; and having no continuing business relationship with the insolvent company.   This new framework requires…