The Australian Government has introduced a number of temporary relief measures to support SME’s during these unprecedented times, including protecting directors from personal liability from insolvent trading.
Notwithstanding the above, a director still has a legal obligation to monitor the financial position of the business.
When a business is in financial distress, a director should undertake a review of the business together with their personal financial position as follows:
- Thoroughly and un-emotively evaluate the current financial position of the business which should include all outstanding liabilities being statutory creditors (ATO), rent, interest charges, employee liabilities (leave entitlements and superannuation), trade creditors and any other expenses of the business;
- Prepare an income and expenses forecast for the next 12 months based on best case, worst case, and likely case scenarios;
- Evaluate personal financial position (assets and liabilities), including risks in continuing to trade the business and whether personal guarantees have been provided in relation to company debts.
A director should contact their usual accountant or a trusted advisor to assist with preparing any of the figures discussed.
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