One of the difficulties almost all business hope never to encounter is the issue of financial breakdown. Unfortunately, many companies face financial breakdown on an annual basis and this result in the business facing the decision of whether or not to declare insolvency. Contrary to belief, there is a difference between financial insolvency and bankruptcy. Bankruptcy relates to individuals who fail to settle an outstanding debt; however, insolvency refers to the inability of a corporation to settle payments.
The reason for the declaration of insolvency will differ from company to company. However, some of the more common causes include the mishandling of company funds, the malpractice of accounts, the use of funds for personal use or the inability to get a response from company debtors to pay outstanding debts.
Regardless of the reason for voluntary liquidation, the basic fact of the matter is that a company facing this financial crisis has no means of income to settle different payment responsibilities. Businesses in this situation will often find themselves owing money to vendors, employees, the government tax office, financial institutions, and any additional services that may have been obtained. Many companies will try to avoid a declaration of insolvency for as long as possible, but the point for insolvency will arrive if the company is in dire straits.
One of the best methods to handle an issue of insolvency is to consult with reputable insolvency practitioners. The insolvency practitioners are typically a team of professional attorneys, tax consultants, and expert accounts who can better explain the situation to a company owner. While an explanation of the situation is a core feature for professional insolvency services, the primary intent of these services is to safeguard the client. In fact, insolvency services will attempt to find alternative means for the client to continue commercial activity without declaring insolvency at all.
The majority of states require insolvency professionals to have licenses to practice; therefore, it is essential that you review the team’s certification before hiring the service. This information can be obtained via the associated licensing authority. A licensed insolvency practitioner is more beneficial than an unlicensed professional as they will have completed different state examinations. This can ensure their competency and that they will adhere to a set of state regulations.
Upon engagement, the insolvency practitioner would examine the company’s accounts, financial reports and bank statements. If the financial crisis is due to the director, this will be explained to the owner immediately, and a strategy to clear the problem will be considered. If, however, the problem is due to non-payment of debtors, the professionals will consult the debtors and find ways to ensure settlement of the amount. As is mentioned above, these practitioners will try to avoid a declaration of insolvency as much as possible.
In addition to working with the company, the practitioners will prepare reports based on the financial accounts in order to negotiate with the banks and government tax department. The aim of this engagement is to negotiate potential reductions for the company and request an extension for payment arrangements.