NEWSLETTER SUMMER 2007
07 02 2007
This publication is produced by Foremans Business Advisors specifically focusing on insolvency issues relevant to accountancy practices. In this edition we look at INDICATORS OF INSOLVENCY and also your responsibilities when served with a GARNISHEE NOTICE from the Australian Taxation Office.
GARNISHEE NOTICES - YOUR RESPONSIBILITIES
Most Insolvency Practitioners that we speak with believe that the use of Garnishee Notices by the ATO is on the increase. The Garnishee Notice enables the Commissioner to recover tax debts from third parties owing money to, or holding money for, the Tax Office debtor.
That third party may be YOU, as the accountant, holding money for your client who owes money to the ATO.
Therefore the following are some things that you need to be aware of should you be served with a Garnishee Notice:
- the Commissioner may take action against you if you refuse or fail to comply with a Garnishee Notice.
- this action may be to order you to pay the amount sought by the Garnishee Notice.
- the service of a Garnishee Notice on you creates a Statutory Charge over the monies held by you on behalf of the third party to the Tax Office debtor to the extent of the debt owing to the ATO.
- the charge created does not rank ahead of an existing fixed charge but does rank ahead of any floating charge that has not yet crystallised at the time of the serving of the Garnishee Notice.
INDICATORS OF INSOLVENCY
Insolvency, by definition, is an inability to pay your debts as and when they fall due. In short, it is substantially a cash flow test and thus “CASH IS KING”. A business can therefore be Balance Sheet solvent but technically insolvent. Most people come and seek specialist insolvency advice when it is far too late “and the horse has bolted”. Survival rates of businesses in these circumstances can only be increased if the problems are recognised earlier and the issues addressed immediately.
If problems are allowed to progress, experience suggests that a turnaround is far more unlikely and the results can be devastating for the individual or company, its director’s personally, its employees and its creditors. But what are the indicators of insolvency? There are many indicators that a business may be headed towards the path of insolvency. Some of these include, but are not limited to:
FINANCIAL SIGNS
- unable to pay superannuation on time
- unable to pay GST and other taxes on time
- insurance not in place or assets not fully insured
- no cash forecasts or budgets have been prepared
- continued loss making
- default on loans
- increased borrowing against personal assets (e.g. family home) to fund business
- some creditors outstanding for greater than 90 days
- dishonoured cheques and/or post dated and/or held cheques
- exceeding of credit limits
COMMON SENSE SIGNS
- change of accounting firm
- change of financier
- disorganised internal accounting procedures and controls
- management dispute surfaces in public
- difficulty in obtaining finance or having to use “lenders of last resort”
- suppliers insisting on COD
- statutory demands and other means of legal enforcement
- ATO having issued directors penalty notices
- directors or senior management increasingly uncontactable
- loss of major client
- high employee turnover or loss of key personnel
PRODUCT SIGNS
- increase in obsolete stock
- new competitors enter market
- other firms products seem to be generations ahead
- always seem to be overstocked
- consistent return of faulty products and stock
FREE ONE HOUR INITIAL CONSULTATION
ACT SOONER RATHER THAN LATER! We see much too often businesses and individuals who don’t recognise the warning signs and who didn’t act early enough …. and paid a high price.
Why are we trying to help you and your client? Simply because we’d like the opportunity to work with you for the benefit of your clients – and in return we’d be happy to utilise your services where we need them. For a start, we stress that Foremans Business Advisors don’t do taxation, audit and general accounting matters so we never compete against you. Neither are we interested in “poaching” your clients. We’re professionals who concentrate on what we do best - working with businesses and individuals to recognise the signs of insolvency and creating strategies to prevent, where possible, that very final outcome.
We always need companies like yours to provide a range of complementary services (for instance completing the financials of the business, preparing the Director’s Report as to Affairs, lodging outstanding tax returns etc). We’d be more than happy to direct that work to you.
Fortunately most of your clients won’t ever need our help, but it’s a certainty that some will benefit enormously from our specialist advice at some stage. We offer a free initial consultation with you and/or your client to discuss the needs and possible solutions. After that you and your client can decide whether you want our help or not.
Cairns - Call Todd Kelly or Peter Morris to arrange a free consultation on 07 4052 1655
Melbourne - Call Dean McVeigh or Vincent Savage to arrange a free consultation on 03 9521 6662