What is the ugliest word in the business dictionary?
It's not "losses" or "expenses". These two are not pretty words, but they're not as ugly as "INSOLVENCY". INSOLVENCY is a serious matter. It is often irreversible. It is almost impossible for the directors of a company to recover from insolvency on their own, without the involvement of experts such as ASIC registered liquidators and/or insolvency lawyers. There are serious ramifications to a company that has become insolvent and this carries legal problems for its directors. Specifically their personal liability if it is shown that they allowed the company to "trade while insolvent".
ASIC information guide defines an insolvent company as "one that is unable to pay all its debts when they fall due for payment". Although this might appear to be a technical definition, it is always best to bring an expert to confirm if this isthe situation.
There is GOOD NEWS where a company could be in a state of "pre-insolvency" and might indeed become insolvent if immediate action is not taken. The distance from pre-insolvency to insolvency is very short. Prudent directors will act when this short distance has not yet been travelled.
Most companies in pre-insolvency can recover. Some companies which become insolvent do recover under the guidance of an appointed administrator.
When facing potential or actual insolvency, it is important for company directors and owners to note that they may require advice in their own right by different individual professionals from the ones engaged to rescue or administer the company. For example, an appointed administrator (or liquidator) will work for the best interest of creditors and others ahead of the best interest of directors and shareholders.
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