Risk management

Many NZ companies are currently affected by cash flow issues and are facing insolvency. To be insolvent means one of two things: Debts can’t be paid when they’re due. Total debt is more than the value of all assets. The Commissioner of Inland Revenue ("CIR") will take debt recovery action where debts are in arrears. The CIR is able to issue a statutory demand as a step necessary to advance a proceeding against a company. Ignorance Isn't Bliss It is recommended for any business struggling to meet tax arrears that negotiations are entered into promptly to avoid a potential winding up proceeding. Taxpayers are required to pay their tax in full and on time. Failure to do so leads to…
The start of the year can be a challenging time for many business owners, especially after the extended break over the Christmas and New Year period. The pressure is compounded by the need to settle various financial obligations, from employee holiday pay to tax payments. Many businesses are facing the strain from having paid employees holiday pay entitlements, a period where income has not been generated due to closure and then obligations such as November GST due 15 January, Paye due on 22 January, Oct to Dec FBT due on 22 January, provisional tax due on 15 January and for the larger employers more PAYE due on 5th of February. Some are now struggling with the reality that these obligations…
Managing cash flow during the Christmas close-down period is crucial for businesses, as it often involves reduced operations and potential disruptions. Implementing proactive measures can help mitigate cash flow challenges during this time: 1. Forecast Cash Flow:• Prepare in Advance: Anticipate the impact of reduced sales or operations during the holiday period. Review historical data to estimate income and expenses accurately.• Create a Cash Flow Forecast: Develop a detailed cash flow forecast covering the close-down period. This forecast should include expected revenues, expenses, and any planned payments. 2. Adjust Payment Schedules:• Invoice and Payment Timing: Expedite invoicing before the close-down period to ensure prompt receipt of payments. Request early payments from clients or customers to improve cash flow before the…
The impacts of global unrest and overseas bank failures can have various implications for businesses in New Zealand: 1. Financial Instability:• Market Volatility: Global unrest can lead to financial market volatility, impacting investment portfolios and affecting businesses relying on international trade.• Credit Availability: Overseas bank failures or financial crises may tighten credit availability, affecting businesses seeking loans or lines of credit from international financial institutions.• Exchange Rate Fluctuations: Currency fluctuations due to global instability can impact import/export businesses, affecting profit margins and pricing strategies. 2. Supply Chain Disruptions:• Dependency on Imports: New Zealand businesses reliant on imports may face challenges due to disruptions in global supply chains, leading to delays in raw materials or finished goods.• Export Market Instability: Instability…
What are the reasons that can be given for a debtor not complying with a statutory demand? What are the defences? Can they avoid liquidation at a High Court winding up proceeding? Section 289 of the Companies Act 1993 enables a creditor to issue a statutory demand to a company for a debt that is both due and payable. Issuing such a demand is a significant step that warrants careful consideration. If the indebted company fails to comply with the statutory demand within 15 working days, it is assumed to be insolvent. Consequently, the creditor may apply to the court to initiate the process of liquidating the company, which entails engaging a lawyer to serve a notice for winding up…
Accepting an informal instalment arrangement for a debt that is owing to you instead of being paid on trade terms is not obligatory, giving you the discretion to evaluate the situation before making a decision. However, it's crucial to assess both the potential advantages and the associated risks. If a debt is owing and not being paid there are common courses of action such as negotiating an agreeable solution and instalment plan, issuing a statutory demand, enforcing a judgment, engaging a debt collection agent, mediation, caveats (where there is a caveatable interest), lodging a report with credit agencies etc. There are benefits and risks to most options. We discuss the informal arrangements here. Risks of Accepting an informal Instalment Arrangement:…
Running a business is a rewarding venture, but it also comes with its fair share of challenges. One of the most critical challenges a business can face is the threat of insolvency. Insolvency refers to a situation where a company is unable to meet its financial obligations and pay off its debts when they become due. If left unaddressed, insolvency can lead to the collapse of the business, affecting not only the company's owners and employees but also suppliers, creditors, and other stakeholders. We discuss some key warning signs that indicate when a business is in serious danger of insolvency and what actions can be taken to address the situation. Key Warning Signs indicating a serious danger of Insolvency 1.…
Navigating Financial Difficulty: Essential Steps for Companies in Crisis Business is unpredictable. Even the most successful companies may find themselves facing financial difficulty at some point. Whether due to economic downturns, industry disruptions, or internal challenges, financial distress requires prompt and strategic action. In this article, we will explore the steps a company should take when encountering financial difficulty, encompassing a review of the big picture, operations, cost-cutting measures, tax management, and cash flow. Additionally, we will discuss the concept of company compromise (Part XIV of the Companies Act 1993) as a means to protect a viable business. 1. Review of the Big Picture: When a company encounters financial difficulty, it is essential to step back and take a comprehensive…
Economic recap May 2023 saw the Reserve Bank lifting the OCR by a final 25 basis points and stepping back saying job done in the belief they have broken the back of inflation with no further raises needed at this time, they do not anticipate any drops till 2024 however when inflation has dropped back somewhat. Of note from the below graphs, you will see the raised levels of appointments compared to the prior two years and heightened winding up application levels that highlight the challenging economic climate and financial difficulties experienced by companies, necessitating closer attention to their financial stability and operational viability. This will likely continue for some time. Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations Company…
The risk of not paying your company taxes to the Inland Revenue Department (IRD) in New Zealand can be significant and may include the following: Penalties and interest: If you do not pay your taxes on time, you may be subject to penalties and interest charges. These charges can quickly add up and significantly increase the amount owed. Legal action: The IRD has the power to take legal action to recover unpaid taxes. This can include issuing a statutory demand, taking court action, or placing a lien on your assets. Business closure: If a business fails to pay its taxes, the IRD may take steps to wind up the business. This can result in the forced sale of assets and…
Running a business successfully is a complex and challenging task that requires careful planning, strategic thinking, and effective management. Sometimes it can feel like you're barely keeping your head above water. One of the key challenges that business owners and managers face is ensuring that the company remains financially stable and solvent over the long term. Unfortunately, many businesses fail to recognize the warning signs of financial trouble until it's too late. One common mistake that many businesses make is overlooking warning signs or failing to address them in a timely and effective manner. For example, a company may continue to invest in an unprofitable product line or market, or delay making necessary cost-cutting measures until it's too late. In…
Legitimate business risk is the potential risk that a business faces in pursuing its legitimate objectives. When trading a company that has cash flow problems in New Zealand, there are several legitimate business risks that investors or directors need to consider. These risks include: 1. Credit Risk: If a company is experiencing cash flow problems, it may be at risk of defaulting on its debt obligations, which could harm its credit rating and affect its ability to obtain financing in the future. 2. Operational Risk: Cash flow problems can also affect a company's ability to operate effectively, leading to disruptions in production, delivery, or customer service. This can harm the company's reputation and lead to loss of market share. 3.…
1 2 3 4 5 6
Page 1 of 6