Every year thousands of businesses are at risk of business insolvency – that is, they can’t pay their debts on time or their total debt is greater than the value of its assets. Fortunately, some steps can be taken to avoid or lift your business out of insolvency.
There are several factors that can lead to the insolvency of a company, including poor financial management, cash flow problems, overspending and poor credit management. Other reasons can include overtrading (which occurs when a business receives an unexpected increase in orders and can’t handle the extra work, leading to a loss on sales) and inadequate cash flow forecasting.
Understanding Business Insolvency: A Comprehensive Guide
One way to avoid insolvency is through a debt restructuring process, which involves putting together a plan that shows creditors how the business could continue operating and paying its debts with reduced or frozen overheads. Another is equity financing, where new funds are raised through the sale of shares in the company.
If a company you have done business with has gone bust and you are owed money, you can register as an unsecured creditor with the administrator of the company to have a chance of getting your money back. You can also contact your state or territory consumer protection agency to find out if any funds compensate consumers when companies in certain industries go bust. The administrator of the company will decide whether to sell the business as a going concern or liquidate it, and you will receive your money once that is finished.