Even in New Zealand’s currently comparatively benign economic conditions, some businesses inevitably find themselves struggling to survive. If you want your business to survive and then flourish, you need to put a business recovery plan in place.

Managing a struggling business is stressful and demanding on directors, management and staff alike. The thought of impending failure is emotionally taxing on all stakeholders. Gambling on the business’ success with money from your family or friends, or extending credit with suppliers just to get by is often a poor strategy. Hope is never a reliable method.
Moreover, the ethical challenges involved in risking other peoples’ money is a major stressor for most people.

Why Businesses Find Themselves Struggling

Businesses can often struggle when they grow beyond the directors’ skill set or their ability to control the business’ increasing complexity. Ill health can also pose problems for a business, as can losing interest in the business once the competition catches up or passes it by and the excitement of building something fresh and new fades.
Similarly, many businesses fall into the trap of relying too heavily on a single customer or supplier. Others find technology has eroded their competitive advantage or suffer from being poorly managed.

Corrective Action

Returning to a healthy, dynamic commercial standing requires a thoughtfully considered strategic plan of action. There are several short-term remedial actions which are often an option:

1. Identifying redundant assets and selling them off
2. Converting stocks to cash
3. Adopting a more aggressive recovery policy for debtors
4. Negotiating extended terms from suppliers
5. Exploring debtor factoring or looking at invoice financing options

There are also three well-established restructuring or turnaround options including hive down, compromise, and voluntary administration.

Hive Down

This strategy is appropriate where a struggling business is being restructured in the face of potential liquidation with a new corporate owner assuming control. The proposed restructure is pre-packaged and agreed with secured creditors prior to a formal liquidation process being initiated.

The problem business is sold to a new corporate entity at market value most often based on an independent market valuation. The trading name, associated goodwill and intellectual property is safeguarded. This may take the form of a sale to the failed entity’s current management team or its existing directors. It thus demands certain steps to be taken to avoid phoenix company issues emerging at a later date.

An arms-length sale by an insolvency practitioner following formal appointment to an unrelated third party where the director is not involved either in management or a directorship role avoids creating a phoenix company situation.

Company Compromise

This strategy falls under Part XIV of the Companies Act 1993. It is simply an offer to pay the compromised debt over an agreed time period and at an agreed rate. The debt involved is frozen at the date of the compromise agreement. This resolution requires agreement by the various classes of creditors and needs a majority of creditors representing 75 per cent of the value of each class of debt to agree.

This option provides breathing space for the company to turn its fortunes around while still being able to trade. The compromise manager may be involved in overseeing the trading on or hold a lesser position. The role is defined in the agreement and agreed by the requisite number of creditors.

Voluntary Administration

This option provides a struggling company experiencing financial difficulties with some breathing space. An externally appointed administrator reviews the business fundamentals and provides a report to creditors outlining a potential rescue plan together with a recommended course of action.

The outcome may take the form of a Deed of Company Arrangement (“DOCA”), the liquidation of the business or the return of the business to the hands of its directors.

A voluntary administration arrangement tends to benefit creditors, both secured and unsecured and often leads to a Deed Administrator managing the company for a set period of time through the aegis of a rescue plan.

A voluntary administration formally begins following the appointment of an administrator by a secured creditor, by the board, or as a result of a shareholder resolution. Voluntary administration is more expensive than a compromise model due to the mandated statutory compliance and reporting requirements for formal meetings and public advertising. For this reason, they are more suited to larger businesses.

Final Observation

Any business can find itself is troubled financial waters. The key to surviving and thriving is to identify a strategically solid path forward, involving some form of restructuring or combined with a hive down, compromise or voluntary administration solution.

As it is in all areas of business, when you are seeking advice or input on insolvency matters it is important to go to the right source.

There are lawyers and accountants that specialise in insolvency but, depending of the circumstances, and what you are looking to achieve, who you choose is important.

Under the current legislation, the Companies Act 1993, anyone, without conflict of interest, and with a few other exceptions, can take an appointment as an Insolvency Practitioner and be appointed as liquidator or receiver of a company. They do not have to have any formal qualification and do not have to be registered or subject to any particular code of conduct. This situation is likely to change with current law changes being considered but for the time being the current provisions of the Companies Act apply.

So both lawyers and accountants can be appointed as liquidators or receivers and can be referred to as Insolvency Practitioners.

There are also Insolvency Practitioners who may be neither a lawyer or an accountant, who can also be appointed as liquidators or receivers.

Generally speaking, there are two ways that a business could be involved with an insolvency matter – either as a creditor seeking to recover a debt, or as the business owners deciding on a course of action because of the financial situation the business is in. The information or advice you would need from a lawyer and / or an accountant is different in each case.

Insolvency Lawyer:

If you are a creditor of a business that has failed to pay its debts as they fall due, you may decide to take action to have the debtor company liquidated.

To do this, we recommend you consult a lawyer experienced in the insolvency field to prepare statutory demands for service on the debtor company and, in due course, to prepare and file the application in the High Court to have the debtor company liquidated.

The lawyer will, prior to the matter being heard in Court, obtain the written consent of  Insolvency Practitioner(s), to be appointed,

If you are a director/shareholder of a debtor company that has been served with a statutory demand or liquidation proceedings, you may want to consult with an insolvency practitioner to gain an understanding of your rights and obligations and the options that are available to you.

Insolvency Accountant:

Many of the insolvency practitioners practicing in New Zealand have formal accounting qualifications or accounting backgrounds. This is understandable given that a lot of the work carried out by insolvency practitioners involves the review and analysis of accounting information.

IP's often then engage lawyers. Some of the larger accounting firms will have an insolvency practice as part of their firm’s structure. McDonald Vague, are Chartered Accountants specialising in business recovery and insolvency

If you are the shareholders or director of an insolvent company, your business accountants, who prepare your annual financial reports etc, may identify the fact that you are technically insolvent but, under those circumstances, they cannot be appointed as liquidator of your company. You would need to appoint an independent insolvency practitioner.

Accreditation Protection:

Accreditation for insolvency practitioners acknowledges IPs with appropriate experience. The main benefit is, accredited IPs are subject to the code of ethics, CAANZ rules and standards, CPD, practice review and a disciplinary body. If the practitioner is a CA and accredited, the designation is CAANZ accredited IP, whereas a non-CA but member of RITANZ is RITANZ IP Accredited by CAANZ. Dealing with an accredited practitioner provides more assurance to the appointor that the appropriate actions will be taken.

You can check the accreditation status of a particular IP or look for an accredited IP by following the links to the RITANZ or CAANZ websites 

Conclusion:

Getting the right advice at the right time and from the right person can make a big difference to the final outcome in any given situation.

If you need legal advice in relation to an insolvency issue, then see a lawyer with expertise in that area of law.

If you need practical advice in relation to insolvency options and processes and the related accounting issues, then speak to an experienced insolvency practitioner.

The team at McDonald Vague are experienced and independent insolvency practitioners with the formal qualifications and experience to be able to provide good practical advice on your situation.

The winding up of a company in New Zealand can occur in three ways –

• A voluntary liquidation initiated by the shareholders of the company (solvent or insolvent companies); or
• A Court ordered winding up initiated by a creditor of the company; or
• A short form removal also known as Section 318(1)(d) process (solvent companies)

The purpose of this article is to set out the different processes involved with these options.

Voluntary Winding Up:

The process to be followed by the directors and shareholders of a company to wind the company up depends on the financial position of the company, that is whether it is solvent or insolvent.

Solvent Companies:

When the decision has been made that a solvent company is no longer required, it can be placed into liquidation by shareholder resolution after the directors have provided a Certificate as to Solvency pursuant to Section 243 (9) of the Companies Act 1993 (“the Act”), and a declaration that the company will be able to pay its debts in full within a period of not more than 12 months after the appointment of the liquidator, pursuant to  section 243A of the Act.

The process to place a solvent company into liquidation is as follows:

• The liquidators’ consent to their appointment in writing.

• Directors pass a resolution as to the solvency of company on liquidation.

• Directors sign a certificate stating the grounds on which they are relying for their opinion as to solvency.

• Directors sign a declaration.

• A copy of the directors’ resolution is filed at the Companies Office within 20 working days before the appointment of liquidators.

• A special resolution of shareholders is signed appointing liquidators.

• The liquidators give notice of their appointment to the Companies Office.

• A notice of appointment and notice to creditors to claim is published in the New Zealand Gazette and a newspaper for the region in which the company operated.

• The liquidators’ first statutory report is filed at the Companies Office with copies to the shareholders and any creditors.

The shareholder special resolution cannot be passed until after the resolution of solvency has been signed and filed at the Companies Office (but no later than 20 days thereafter).

There is also a second procedure for having a solvent company removed from the Register of Companies known as the short form removal process.

This short form process can be administered by the company’s directors / shareholders or by its external accountants and it is quicker and easier, without the requirement for public notice to be given or the filing of reports.

The down side to this process is that it does not confirm the solvency of the company and does not provide the level of certainty to 3rd parties that a formal liquidation, conducted by an independent accredited insolvency practitioner, does, leaving the possibility of someone making application to the Registrar to have the company reinstated to the Register. In liquidation, the process to reinstate a struck off company involves a High Court application and is costly.

Insolvent Companies:

When the directors of a company conclude that the company is insolvent and should stop trading they have the option to commence the voluntary winding up of the company by having the shareholders appoint a liquidator.

The process to place an insolvent company into voluntary liquidation is as follows:

• The liquidators’ consent to their appointment in writing.

• A special resolution of shareholders is signed appointing liquidators. This requires 75% or more of shareholders by number and by value of shareholding to sign to make the appointment valid.

• The liquidators give notice of their appointment to the Companies Office.

• A notice of appointment and notice to creditors to claim is published in the New Zealand Gazette and a newspaper for the region in which the company operated.

• The liquidators’ first statutory report is filed at the Companies Office with copies to the shareholders and any creditors.

The voluntary process is only available if the company acts before the service of a winding up proceeding (which follows after the expiry of the statutory demand) or with agreement of the applicant creditor after service, and for the purpose to avoid delay, by appointing a mutually agreed licensed insolvency practitioner.

Court Ordered Winding Up:

As the creditor of a company that is failing to make payment of amounts owed, you may reach the stage where the only option left to you is to have the debtor company wound up, or liquidated, by order of the High Court.

The process to have an insolvent company wound up by order of the High Court, on the application of a creditor, is as follows:

• Make sure that you have the correct legal name of the debtor company – not just a trading name.
• Have a statutory demand served on the company. This gives the debtor company 15 working days to make payment or enter into an arrangement to settle.
• If the statutory demand is not satisfied, an application must be filed in the High Court to have the company placed into liquidation.
• Have copies of the documents filed at Court formally served on the debtor company.
• Public notice of the application has to be given in the local newspaper.
• Have the liquidators provide their written consent to being appointed.
• The matter will be heard at the next Court day set for hearing insolvency matters and the liquidation will commence once the Associate Judge of the High Court makes the order.

It is advisable to have your lawyers involved from the beginning of the process to ensure that the statutory demand is properly prepared and served. They will have to be involved in the preparation and filing of the Court proceedings. The creditor making application can nominate an insolvency practitioner to act.

Conclusion:

The processes set out above are the basic steps that can be taken to wind a company up in New Zealand. The processes described may not always be appropriate because of the particular circumstances of the case.

If you are considering winding up your own company, or taking steps as a creditor to wind up another company, and would like to discuss the options, please contact the team at McDonald Vague

Colin Sanderson

Is your business struggling under a mountain of accumulating debts? Are you constantly juggling money between accounts in order to pay creditors? Are you days away from defaulting on a debt?

Accumulating too much debt has been the downfall of many businesses, but it does not have to be the case. If your business is struggling with bad debt and poor cash flow, there are several options open to you before you have to consider insolvency.

Creditors compromise

You may be able to reach an understanding with your creditors and negotiate better terms for your debt. If you show your creditors that you are taking steps to settle the debt – such as enlisting the help of a professional advisor – you’ll be more likely to reach an amicable compromise. For example, you may be able to negotiate extended payment dates without incurring additional penalties. If you continue to meet your debt obligations, this could see you on your way to being out of business debt.

Trying for a compromise with creditors should always be your first step.

Debt factoring

Debt factoring (also known as invoice factoring or invoice financing) is when a business sells their invoices on to a third party, who processes those invoices. The usual reason to do this is to receive a loan based on the expected revenue from the invoices. If you need cash in hand fast in order to meet your debtor obligations, debt factoring can be a good short term solution.

Caution is advised if you’re pursuing debt factoring. In the short term it can solve cash flow problems, especially for young firms who might not be able to borrow from a bank. But as an ongoing tactic, there are risks involved. Factoring is usually a more expensive option than a bank overdraft. The best idea is to seek professional, impartial advice before signing over your invoices to debt factoring. 

Debt consolidation

You may also be able to consolidate business debt from a series of smaller loans to one large loan with a more competitive interest rate. This is a common practice in the consumer debt market, that may be beneficial to help you manage debt in your business.

Investors

If you’re strapped for cash, you may be able to raise capital to meet debt obligations through investors. In most cases you’ll be giving away equity in your company, instead of borrowing money you have to pay back. Investors may be reluctant to invest capital if they sense the business is experiencing cash flow issues or is otherwise in trouble.

Asset divestment

Asset divestment is where you sell off business assets – such as property, contracts, plant and machinery – in order to raise funds to service debt. In some cases it can be a valuable strategy to inject new funds into a company – especially if you had assets on your books you were looking to divest for strategic reasons anyway – but is usually a drastic measure that should be carefully considered. Once sold, an asset can no longer perform for you.

Review of expenses and overheads

Conduct a critical review of your expenditures, and benchmark these against industry standards. Are you spending significantly more than other, similar businesses? You can use this information to help you reduce outgoing expenses by targeting the biggest areas of overspend and support the areas of business critical to your success. Telecommunications costs, vacant office space, expensive premises, printing/copying, motor vehicle costs – these could all be contributing to overspend.

If you’re stuck for ideas on how to reduce costs, speak with your staff. They often have a different perspective and clever ideas.

Are you struggling to figure out how to get out of business debt? Before making any drastic decisions, you should talk to a qualified professional advisor. Contact us to find out more.

Most businesses carry some form of debt, be that in the form of loans, mortgages, or overdrafts. Debt can be an excellent tool to help you grow your company, by allowing you to purchase new asset-producing machinery or expand your locations into new markets.

However, debt can also land your company in trouble. If you’re unable to service your debts, you can find yourself in trouble, or worse, risking insolvency. Not all debts are created equal, and understanding whether you’re taking on good or bad debt can help you to manage business risk.

In this article we look at good debt vs bad debt – which one does your business have?

Good debt

Debt owing on assets that earn income for you is considered good debt. Good debt might be in the form of a mortgage on property, or a loan enabling you to expand your business.

To define debt as “good”, it must:

• - Bring you positive returns. For example, a mortgage on a property with an interest rate of 6% must be returning a higher rate of profit.
• - Be something you require but cannot pay for in full. Good debt can be used to acquire assets for your business that you cannot purchase without wiping out your cash reserves. For example, equipment for your business that produces revenue.
• - Be on a payment schedule you can afford. Good debt fits within the everyday operating costs of your business.

Bad debt

This type of debt doesn’t produce any kind of asset. No bad debt will create an income greater than the interest it commands.

To define debt as “bad”, it:

• - Does not produce income: Instead of creating income for your business, bad debt only costs you money.
• - Doesn’t aid you in growing your business: Bad debt is spent on things you don’t need.
• - Is unaffordable: Your budget is stretched making payments on this debt, and it limits your ability to accumulate cash to acquire other assets.

Good debt vs bad debt: What’s the verdict?

Good debt, if managed well and payments are made on due dates, can be an excellent tool to grow your business. Bad debt can land you in trouble and heading toward insolvency.

Does your business carry a high level of debt? It might be time to undertake a debt audit. Look at each line of debt your business carries. Does it fit in the “good debt” category, or the “bad debt” category? You may be surprised to uncover just how much debt you’re actually carrying.

At McDonald Vague, we can help you figure out how to better manage your business debts. If you think your business may need help with managing its debts contact us now.

When it comes to due dates and business tax debt, the IRD don’t mess around. Business owners who shirk their tax obligations can quickly find themselves in trouble.

If you know your tax bill is going to be bigger than you can handle, it’s important to deal with that as soon as possible – ideally long before it’s due. If you can’t pay your tax bill, you should look at the following steps:

Contact the IRD as soon as possible

The IRD want to help you meet your tax obligations, so if you contact them as soon as you know there’s a problem, they can help you find a solution. It’s best to contact the IRD before the due date, if at all possible, as it increases your chances of being able to get favourable terms.

You should also file your tax returns on time, even if you’re unable to pay the tax owing. If you’re tax compliant, or seeking to be, the IRD will be happy to negotiate a payment arrangement for you to pay your debt off in instalments over time. This can help you with cash flow management while you try to turnaround the business.

If you are suffering from serious ill health then you may qualify for relief under the hardship provisions.

Call the IRD on 0800 377 771, fill out an installment arrangement form online, or see their website page on installment arrangements for more details.

If you're experiencing serious financial hardship 

In some circumstances, the IRD will write off an agreed amount of your debt if they determine – based on their criteria – you are in serious financial hardship. They will take into account your payment history, your current situation, and your ability to meet future obligations. You’ll need to fill in the Disclosure of financial position IR590 form.

Bear in mind the IRD will look carefully into your household expenditure, and will require you to make adjustments if it’s significantly above average for your region.

Will you be personally liable for business tax debt? 

In theory, your company structure is designed to protect your personal assets in the event of company insolvency or other financial difficulties. However, there are legal means to ensure you’re held liable.

Under a HD 15 of the Income Tax Act 2007, the Commissioner is able to go after personally-held assets of company directors and shareholders in order to recover tax debt. However, this only applies when director and stakeholders have entered into an agreement to purposefully deplete a company of its assets (an asset-stripping arrangement). Such an arrangement is also a breach of Director’s Duties. This clause is rarely utilised to recover debts.

Another Act, the Tax Administration Act 1994, makes provisions for non-compliance with tax laws. Under this Act penalties for a company’s non-compliance can be placed upon an officer of the company. A conviction under this Act could see a company director facing both a significant fine and time in prison. This same Act allows the commissioner to pursue a director personally for unpaid PAYE. The IRD has successfully brought many of these cases against company directors – in these cases the directors have been complicit in breaching their tax obligations.

Are you in trouble with the IRD?

If you’re having problems meeting your tax obligations, or you are trying to make arrangements with the IRD to pay arrears, it's best to be proactive, before you find yourself in even deeper trouble.

If you think your business is in financial trouble contact us to see how we can help.

Key Performance Indicators (KPIs) are quantifiable measurements you can make that help you understand how your company is performing. An effective KPI has to be:

• - measurable and well-defined.
• - crucial to achieving your goals.
• - applicable to your particular business.

When you think about the main reasons for company failure, they often come back to not being able to track how the company is performing. Without a defined method for measuring success and spotting issues, you might not see problems until they are critical. These financial performance indicators can help you monitor your results and gain a better overview of your company.

There are literally thousands of KPIs you could track and monitor. There are scientific calculators that are proven to predict insolvency.  Which financial performance indicators should you be monitoring to ensure your company remains solvent? Does your company meet the Zscore test?

Debt to equity ratio

Formula: Liabilities / shareholder equity

This KPI measures the amount of equity in a business relative to its debts. It’s one of the most important financial performance indicators to consider when looking at your company.

Current ratio

Formula: Current assets / current liabilities

What ability do you have to pay out current obligations? Your current or “cash asset” ratio shows you in one simple formula – the higher the ratio, the more easily you can cover your current obligations. (As a guide, 2:1 is considered a desirable level, with current assets being more than double liabilities.)

While a high ratio is usually desirable, there are some factors that can mean it’s actually a detriment (namely, slow-moving stocks piling up, cash balances remaining idle). Any conclusions drawn from your current ratio need to take into account the nature of your business, your products, and seasonal fluctuations that may impact the result.

Acid test ratio

Formula: (Current assets – Inventories) / Current liabilities

Also known as the “quick” or “quick assets” ratio, this KPI measures the short term liquidity of your firm. The higher the ratio, the better situation your business is in.

Net profit margin

Formula: Net profit / net sales

How efficient is your business’ cost control? The net profit margin reveals the amount of your revenue that is in actual profit. The net profit KPI can be a great tool to measure your profitability against other businesses in the same industry.

Debt service ratio

Formula: Earnings before interest and taxes (EBIT) / Fixed interest charges

What capability does your business have to service your long-term loans? The “debt service ratio” (also known as “interest coverage ratio”) shows how many times the interest charges can be covered by your company’s earnings.

Debt to total funds ratio

Formula: Total assets / total liabilities.

As a business, you have responsibilities under the Companies Act to remain solvent. This KPI can help you measure your solvency and ensure you’re not in trouble. It’s similar to the current ratio, but takes into account all assets and liabilities, not just those that are current.

Z Score Calculator

Your Z Score is a formula that incorporates five key KPIs into a single score, in order to give a good indication of financial health.

• - The Z Score is a scientifically based formula that measures how closely a firm resembles other firms that have faced insolvency and failure. It is not intended to predict insolvency, but rather uses probability in determining a company's financial state.
• - The model uses five financial ratios combined in a specific way to produce a single number. This number, called the Z Score, is a general measure of corporate financial health.
• - Discover your Z Score: Click here to take the test.

Useful tools for business performance indicators

You can use these tools to help you set your own KPIs.

• - Industry benchmarking: This tool from the IRD allows you to benchmark different KPIs against other businesses in your industry across the country. It allows you to zero in on problem areas.
• - ANZ financial benchmarking tools: Simple tools to assist you in benchmarking your company’s performance against your industry and your competitors.
• - ANZ Truckometer: This tool incorporates a set of economic indicators using traffic data around the country, and operates on a principle that demonstrates the correlation between traffic flow and economic activity.
• - Data for business: From Statistics NZ, Data for Business pulls together business statistics to help you make decisions about your company.  
• - Break even point calculator: Handy tool to help you figure out how much you need to sell in order to break even and meet your overheads.

There are many other KPIs that may be valuable for your business to track – talk to your accountant or financial team about which might be most beneficial for your company. 

Are you worried your business is heading for financial trouble? Contact us now to discuss your situation.

Picture yourself at the beach. It’s a beautiful day, and you decide to go for a swim. You’re so busy enjoying the sunshine and the refreshing water, you don’t realise you’re drifting further and further from the shore.

Little do you know you’re heading right into shark-infested waters.

Being in business can be the same. Sometimes, you are focused on the day-to-day tasks and you miss the bigger picture. It can be difficult to see when you’re heading for trouble. But it’s important to know there are five huge warning signs pointing you to change before it’s too late.

Sign 1: Your business cannot pay you a wage

If your business is not generating a return to you, why are you doing it? Are you risking or spending your personal equity in a business that is out of fashion or no longer sustainable?

When was the last time you asked yourself these questions? If the answer to the first is no, and there is no realistic prospect of a change in your circumstances, then you should get advice. Your personal equity may be at risk.

Sign 2: The IRD is asking questions

The IRD will only investigate a business if they see activity that is in some way out of the ordinary or you are in arrears. If the IRD is requesting an investigation, then it’s a sure sign you’re not compliant and need to clean up your accounting in terms of your tax obligations. Speak to your accountant immediately about how you might be in breach of your obligations.

If you are in arrears contact the IRD and arrange a repayment plan. If you are suffering from hardship you may qualify for a debt reduction or some form of relief.

Sign 3: You’re struggling to pay debts

• - Are you juggling money from one account to another in order to find the cash available to pay your debts?
• - Are you finding it difficult to restock shelves?
• - Is your overdraft exceeding its limit regularly?
• - Have you lost key customers?
• - Are you missing forecasts and budgets?

Answering yes to any of these questions suggests a poor cash flow strategy, and it can sink a business if caught unawares. You could also be in breach of your Director’s Duties if you do not have enough funds to pay your debts as they become due.

Speak to your accountant or an insolvency specialist about your debt situation. A simple solution might be to tweak your terms of trade, use invoice factoring, or to seek a creditor compromise to pay down debt over time. You may be able to give yourself more of a cash flow buffer to create a successful business turnaround.

Sign 4: Your best staff are leaving

If they sense the ship is sinking, are your staff going to brave those stormy waters instead of staying on the boat? Oceanic metaphors aside, if you’re seeing a huge exodus of staff, this could be a clue that your company is in trouble.

Luckily, you have an opportunity here to hire some great minds who can help you turn things around. By hiring some clever people with great problem-solving abilities, you may be able to rescue much of what has been lost.

Sign 5: Your accounts are a shambles

Do you have a balance sheet that you’re regularly reviewing? When was the last time you reviewed a profit and loss statement? Do you know at any given time what your liabilities are or if your business passes the “Solvency Test”?

This is where a business turnaround specialist – like McDonald Vague – can help. We can spot issues in your business and help you repair them … before they result in insolvency or liquidation. Contact us now.

If you feel like your finances are getting out of control, it’s a good idea to pause and take stock of your situation. The best solution for avoiding insolvency and preventing personal bankruptcy depends entirely on your situation and how soon you take action.Following these five key business due diligence points could help you stay in business.

An Independent Assessment

Too often business owners are so involved in their company they can’t see the wood for the trees. Your accountant or business advisor can provide an independent assessment of your company and suggest options. You may need to consider downsizing, restructuring, asset sales, or improving systems and processes. Seeking outside help might prevent you from going down the road to bankruptcy altogether.

Establish a Figure

Totalling all your financial documents so you know exactly how much debt you owe is essential. Establishing a total figure can determine which courses of action you can take.

• - If your personal debts are less than $40,000 you could apply for a Summary Installment Order instead of bankruptcy.
• - Creditors might dispute how much you owe. If you don’t have accurate, verified figures the Official Assignee might be relying on your creditors to determine how much you owe.

Build a Budget

Where is your money going? Are your lack of funds caused by bad decisions or bad luck? Seeking financial advice can help you gain an overview of your cash flow, and possibly rein in your spending. A financial advisor can help you spend within your means and cut down unnecessary costs which might make repayments more achievable.

Contact Your Creditors

Debt can be a very touchy subject, and your first instinct may be to avoid the people you owe money to at all costs. Avoidance reduces your options and makes insolvency more likely.

Be up front and attempt a Creditor’s Compromise for your company and for a personal proposal personally. These are informal agreements which may allow you to reduce the amount you owe, or alter your repayments to make the more affordable which could possibly allow you to keep running your business.

Despite being an informal agreement, a Creditors Compromise is best drafted with legal help so contact the team at MVP for more information.

Know Your Options

Simply declaring personal bankruptcy, or liquidating your business, might seem like a good option at the time, and a quick way to solve your financial worries, but there are longer lasting consequences. There are other formal ways to hold your creditors at bay while remaining in business. Depending on your circumstance, a financial advisor can recommend Voluntary Administration, Business Turnaround, Restructuring, Outsourcing, or temporarily ceasing trading. For you personally they may recommend  a No Asset Procedure, a Summary Instalment Order, or a Part 5 Proposal.

Every situation is different, so it’s important you seek professional financial advice and know all your options before taking action. If you recognize the symptoms early, take action and do your business due diligence, you may never have to consider declaring bankruptcy or insolvency.

The experienced team at McDonald Vague can help you realise the best course of action for your business, and walk you through every step along the way.

For a free consultation, contact MVP today on 09 303 0506, or download the free Guide for NZ Companies in Financial Difficulty to learn about your options for avoiding insolvency.