Your company owes more than it owns.

The balance sheet has moved below zero

A retailer receives accounts showing liabilities greater than assets after a stock write-down. The owner assumes liquidation is now automatic. Another director says the accounts do not matter because the shop is still busy. Both responses skip the assessment of what the company owes, what its assets are worth and whether due payments can be met.

Understand the balance-sheet change

Ask what produced the deficit: trading losses, asset write-downs, new borrowing or adjustments to liabilities. Confirm the figures are current and include related-party balances.

Review doubtful receivables and obsolete stock. An asset total based on amounts unlikely to be realised may overstate resources, while an unexplained accounting adjustment may need clarification before decisions are made.

Separate value from payment timing

Prepare a schedule of liabilities and due dates, including commitments not obvious from the summary accounts. Identify dependable receipts and available facilities.

ASIC’s guidance asks whether the company can pay due debts. Negative net assets are a serious signal to examine, but a qualified adviser must assess the full position rather than infer the answer from the balance-sheet total alone.

Source: ASIC — Insolvency for directors

Test proposed support carefully

If shareholders offer funding, establish the amount, timing, terms and evidence that it is available. Distinguish equity from a repayable loan and consider how each affects the position.

Do not assume an informal promise repairs the problem. Check whether the proposed funds cover ongoing operations and existing liabilities or merely make the next payment possible.

Agree the response with evidence

Use the reconciled accounts and cash schedule to obtain advice on viable operating changes, funding or formal options. Record what must happen for any proposed course to work.

Set review points around material risks such as stock sales and creditor arrangements. Neither a busy shop nor a single adverse balance should replace continuing assessment of the company’s actual payment ability.

Assess the deficit with the payment timetable

Explain the deficit and test asset quality.

Map due debts against realistic resources.

Verify proposed shareholder support before relying on it.

Call CRP today to coordinate a review of negative net assets and the company’s available options.