Skyrocketing insolvencies – Insolvency/Bankruptcy

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In our last newsletter, Andrew wrote about the likelihood of increasing insolvencies and the level of inquiries that are generally increasing for the insolvency and restructuring industry.

Since that article, we’ve seen fresh evidence that the insolvency tsunami is about to begin, with insolvency appointments in England and Wales at 60-year highs. The Australian Taxation Office has come out in the past few days and announced that it is issuing around 30-40 direct penalty notices every day, and a federal election that will see whoever rules the country a natural resumption of application of taxes after the elections. .

Combined with all of these recent observations, the near perfect storm of rising interest rates, rising cost of living, rising fuel costs, supply chain issues, staff shortages and the continued impact of Covid on the health and well-being of the population. It’s hard to see how Australia won’t follow as we’ve seen in the UK.

So how do you, as an advisor, ensure your clients are prepared for this storm?

In recent years, the fundamentals of advising clients in financial difficulty have not changed much. Therefore, the focus on cash flow and working capital is still the focus of close monitoring. Ask the following questions?

  • What is the cash flow?

  • How much cash does the business currently have?

  • What are your client’s cash needs over the next 2 years?

  • What is the aging of creditors?

  • How collectible are your debtors?

  • What is the current customer mix and ability to pay bills on time?

  • What industry does your client operate in?

  • Is your customer experiencing supply chain issues?

  • What is the impact on the business?

  • What are the current terms of their financing facilities and do they expire within the next 12 months?

  • Is your client short of staff?

  • What is your client’s industry outlook?

  • Are your client’s legal obligations up to date?

  • Does your client currently have a payment plan and are they compliant with it?

  • What does the pipeline or future revenue look like for your client’s business?

All of these questions suggest that advisors should now proactively analyze their client’s financial situation.

History tends to suggest that the Australian economy follows the economies of the United States and the United Kingdom. In recent times, the severity of financial difficulties in Australia has not been as severe as what has been seen in other countries, with the expectation of multiple interest rate hikes and debate over whether the Reserve Bank of Australia also let interest rates rise. later, thus causing runaway inflation in the economy, it is entirely possible that we are looking at a correction or even a great recession that we have not seen in decades.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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