Business Recovery

If your company is unable to meet the solvency test (Section 4 of the Companies Act 1993) as it cannot pay its debts as they fall due in the ordinary course of business, or if your company has more debt than the combined value of all its assets, you should seek professional advice immediately.

Unfortunately it is common for business owners to believe that the situation will improve “next week”, or “next month” or more commonly “soon” or “shortly”, rather than addressing the problem at an early stage where the problem can be more easily managed.

Many thousands of struggling but otherwise viable businesses fail because the owners get bad advice, poor advice, or no advice.

What are the Risks of Continuing to Trade while Insolvent?

As a director or shareholder of the company you must take proactive steps to minimise the potential impact on creditors. If the company continues to trade and incur more debt, you may be personally liable and could face prosecution for reckless or insolvent trading.

However, closing the doors should not be the first option considered by a business in financial difficulty or facing a financial crisis.

Trading an Insolvent Company; What are the Options?

The first issue you carefully need to identify is; “What is the problem or issue which needs to be resolved ?”. In looking at the issues facing your company now or in the future, the following questions are also important to consider your potential options going forward.

  1. “Is the company solvent ?” If the answer is yes, the second question is; “could the company become insolvent ?”. If the answer is no, the option to continue trading the company may be viable.
  2. If the company is insolvent, the question is; “can the company trade profitably ?”. If the answer is no, the only sensible option may be to liquidate the company.
  3. If the company can trade profitably, the questions are; “ has the company provided security to a creditor (bank, finance company, trade creditor) by the way of a “GSA”- General Security Agreement ?”, and the second question that follows is; “Is that secured creditor supportive to having the business continue ?” If the answer is no, the only sensible option may be to liquidate the company.
  4. If the GSA holder is supportive of the business continuing, the questions are; “Does the company have a large IRD debt ?”, and the following question would be; “are the creditors supportive to the business continuing ?”. If the answer is yes, a compromise with creditors could be a viable option.
  5. If the company has a large IRD debt, and the creditors are supportive of the business continuing including the GSA holder, the option to “hive down” or restructure the business into another business entity may be an option.
  6. The alternative to a “hive down” or restructure could be voluntary administration of the company.

Call NMSNZ today

Our specialist expertise may assist you with:

  1. Funding,
  2. Restructure options,
  3. Employment solutions,
  4. Sell down,
  5. Debt management,
  6. Accountancy and administration.