Business Failure Advice:

For many people, starting their own business and being an entrepreneur is a hugely challenging, rewarding and liberating experience. However for many different types of reasons it may not be possible to establish, run and maintain a successful business. There may be an unanticipated change in market conditions; you may over-commit to a course of action and underestimate the level of risk; there might be a change in the law or regulation that renders your product less feasible or you may simply suffer from misfortune that causes you to be unable to pay. Generally speaking, when your business venture initially experiences some setbacks it may be practical and justified to seek legal advice. Consultation with an experienced commercial solicitor may allow you to adequately contain any business risks and establish appropriate company and trust structures to protect your assets. In addition, obtaining proper financial advice could greatly assist you to manage business risk, protect your cashflow and ensure the solvency of your business.

Another reason why you should seek business failure advice is timing. The law of bankruptcy and insolvency has some very rigid rules on when certain events are deemed to have occurred, such as the ‘first act of bankruptcy’, ‘insolvency event’ or ‘vesting dates’. It is crucial to manage your balance sheet and income in a manner in which you would be able to pay your debts when they become due and payable. This requires careful management of capital and income and the timing of earning income and incurring expenses. Improper management of your capital and income, without a suitable ‘buffer’ to meet expenses such as a loan facility or overdraft may cause a financially sound and profitable business to face liquidity and solvency problems. Failure to respond to creditor claims in a timely and sensible fashion may result in an application being made to wind up your company or a sequestration order for your own personal bankruptcy. Business failure risk is a very serious matter that should not be overlooked in any business plan and obtaining proper legal and financial advice in this regard may be immensely significant.

The consequences of not managing business risk may be dire, such as insolvency, personal bankruptcy and the related penalties. This might arise from the debts that you commit to and the risks that you take. Also, you may be personally responsible for the debts of your business if you have provided a personal guarantee. The personal property that you have an interest in, such as the equipment that you hire, any motor vehicles that you lease and furniture and appliances in your fit-out could be registered under the Personal Property and Securities Register (PPSR). This means that a creditor may have a security interest over the personal property in your possession and upon personal bankruptcy or insolvency of your business, your personal property may be exposed and available to satisfy creditor claims. If your business is unable to pay debts when they fall due and payable, this exposes you to creditors’ claims. An application could be made by your creditors to wind-up your company and distribute any assets to satisfy your creditors’ claims. Furthermore, a major creditor may appoint a Receiver & Manager and place your company into administration to recover the debt owing to them. Your company may enter voluntary or involuntary administration depending on the circumstances, and it may be placed into liquidation. Each of these courses of action have different features and issues that a qualified Asset Protection & Trusts Lawyer should have regard to in order to provide you with appropriate advice.

If you need further legal and financial advice in the area of business failure, you may book an appointment with us by telephone on (02) 9233 4048 or by email info@navado.com.au. 

This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.