As a director of an Australian company, it is your responsibility to ensure that the company remains solvent and can meet its financial obligations.
Insolvent trading happens when a company incurs a debt while it is insolvent or becomes insolvent by incurring that debt. Insolvency happens when a company is unable to pay its debts as they fall due. To prevent insolvent trading, directors must be aware of the company’s financial position at all times and take steps to ensure that the company remains solvent.
Directors should regularly review the company’s financial statements, cash flow projections, and budgets to identify any potential financial issues. If a director suspects that the company may be insolvent, they must take immediate action to seek professional advice and develop a plan to address the company’s financial issues. This may include restructuring the company’s operations, negotiating with creditors, or placing the company into voluntary administration.
In addition to seeking professional advice, directors should also take the following steps if they suspect that the company may be insolvent:
If a director fails to take appropriate action to prevent insolvent trading, they may be held personally liable for any debts incurred by the company while it was insolvent. This can include fines, disqualification from managing a company, and even imprisonment in severe cases.
In conclusion, directors must take a proactive approach to managing the company’s financial affairs and seek professional advice whenever necessary to prevent insolvent trading. By doing so, directors can ensure that the company remains solvent and can continue to operate effectively for the benefit of its stakeholders.
How we can help
We have helped many clients navigate their way through this process. As your accountant we can help you right from the very start to identify if the company is insolvent and provide you with the right steps to move forward.
Keeping great records is important for every business. It’s tied to legal and tax obligations, but it also allows you to keep track of how your business is performing. In this article we’re going to explore the pros and cons of using an electronic record-keeping system, and what you should consider when choosing one.
When it comes to accounting for your business, there are several types of records you’ll need to keep. These are used for capturing information, generating reports, and meeting your tax and legal obligations. They also help you monitor profit and loss, minimise risk, and protect your rights.
Keep records relating to income and expenses, as well as those showing how you came to a conclusion (i.e. using methods, calculations, estimates). Any records that relate to both personal business affairs should show the portion that relates to your business.
As a general rule, you’ll need to keep your records for 5 years.
Business QLD has a great guide on what type of records to keep.
Some of the benefits of keeping electronic records are obvious. Using an electronic record-keeping system allows you to easily run reports, quickly search and access information, and often access your records from remote locations. It also provides security in that you are not reliant on a physical copy and the risk that comes with loss or destruction.
The ATO recommends keeping your records using an electronic record-keeping system. Bear in mind the ATO may need to access your records in the future – this is another reason to ensure everything is filed and labelled systematically and is easily accessible.
While the advantages of an electronic record-keeping system are many, there are a few drawbacks to consider if you’re looking to make the switch.
It’s a good idea to first chat with your accountant, before making a decision about the software or platform to use.
At QCA, we use Xero but we have experience with other systems. Give us a call to discuss your options.
Have a chat with us about the software and platforms we recommend. We’ve seen a few so we can listen to your requirements and suggest some options.
If you’re unsure about whether a specific record must be kept, ask your accountant or financial advisor. It always pays to be safe. Speak to us if there is something you’re not sure about.
If you have any questions at all, do not hesitate to contact our team of professionals on 07 5593 6060 – we are here to help you.