An extraordinarily high number of businesses fail, and if yours has as well – we are sorry to hear that, losing your business can be a very painful process. The following are your options when your business fails.
Can you trade your way out of it?
Try and strike a deal with your creditors if you can. Things may not be as dire as you think.
If that doesn’t work …
Then you should seek professional advice – don’t delay in making a decision. If it becomes clear things are going from bad to awful, then stop trading and speak to a professional.
Trying to save your business is certainly better, but this may involve stopping trading until things get cleared up. Of course stopping trading doesn’t mean you are winding-up the business, it just means you are taking time to try to work out the best solution.
There are a number of steps you can take if it appears you are heading towards insolvency, so you can relieve pressure from your creditors. You may need to:
- Reorganise your business
- Sell some assets
- Reduce your costs
- Put more energy into the areas of your business which are making money
- Identifying growth areas for your business
- Improve your debt management
- Get an entirely new outlook on your business by hiring multiple professionals
You can get into serious legal trouble if you fail to manage this process quickly as many businesses are bound by strict laws under the Corporations Act. You should definitely consider speaking with a business lawyer or getting online legal advice if your business is going broke.
You will also need to understand the differences with these concepts:
- External administration
- Voluntary administration
- Informal rescue
What is External Administration?
External administration is a broad term used to describe insolvency arrangements – it is the umbrella description for a person who may also be known as a:
- Voluntary administrator
- Insolvency practitioner
What is Voluntary Administration?
Voluntary administration means an external administrator comes in and takes control of the company. The administrator will take all responsibility for trading and decision making. The administrator will investigate the state of the company and make a formal recommendation about whether or not it should continue.
Your business is protected from legal action during this time and the administrator may be able to bring the company back to profitability.
What is Liquidation?
This often follows after a negative assessment from an administrator. A liquidator will wind the business up and sell all the assets to pay off its debts.
What is Receivership?
Receivership could be described as being half-way between liquidation and voluntary administration. A receiver is appointed by a secured creditor to sell a company’s assets to pay off the company’s debts. The business can still operate if it is able to after the receiver has sold off the assets it needed to pay off the debts.
If you have further questions, consider speaking to a business lawyer or getting online legal advice.