Directors need to consider whether new company debts can be paid, not only whether there is work to do. Warning signs require an informed response.
Corporate Recovery Partners
01 / 06
New orders are adding unpaid debt
A small contractor keeps ordering materials while old supplier balances grow. The director expects a large contract to repair the position, but it is not signed. The business is still operating and staff are busy, which makes the situation feel temporary. The question is whether taking on those new obligations is responsible given the actual financial position.
ASIC explains directors’ duty to prevent insolvent trading. The concern includes debts incurred when the company is insolvent, with legal responsibility depending on the relevant circumstances. Do not reduce that assessment to the bank balance on one morning.
A qualified adviser needs the debt schedule, available resources and evidence about expected receipts. The fact that a business has assets or possible future work does not answer when it can pay current obligations.
List proposed purchases, new contracts, finance and other commitments. Check what payment each creates and when. Do not assume continuing an established pattern of trading is harmless because it is familiar.
Ask advisers about immediate controls while the position is assessed. Staff placing orders need clear limits. A decision to seek advice should be accompanied by practical steps to prevent unsupported commitments, not treated as a solution by itself.
Prepare reliable accounts and forecasts, including a delayed-receipt scenario. Document overdue creditors, stopped facilities and other warning signs. Explain missing records promptly.
Record the advice received, assumptions used and actions taken. A forecast based on a customer payment must be revised if that payment fails. Decisions should follow current evidence rather than a report that has become outdated.
Seek qualified guidance on whether a viable course of action, formal restructuring or another process is appropriate. Legal protections and defences have requirements; they should not be assumed to apply from a blog or informal conversation.
Set review triggers and responsibility for monitoring them. The practical goal is to avoid adding debts without a credible payment basis while choosing a lawful response to the company’s difficulties.
