Insolvency And The Time Factor In Effective Decision Making
If there was one year know for the maximum number of corporate insolvencies
, it was 2003. But that record was long past last year. The world is in recession. It is more like a nuclear mushroom cloud hanging overhead in economic terms. Recent high profile insolvencies and fears of insolvency like what happened with Dubai World, has placed insolvency law and issues at the forefront of press and media attention.
All around the world, every county is seen rewriting its internal and external economic policy and standard procedures, altering it to suit the current economic climate and to tackle the expected and unexpected scenarios of the near future. And so the all corporate establishments are in various levels of restructuring and reestablishing themselves to suit a failing economic scenario. As much as liquidity is a concern so is insolvency. The impact of insolvency will be widely felt and can impinge on the interests of a society as a whole which is why we see lot of rewriting of existent rules and trials to create systems of better financial practices. It is not just the banks or the car companies and the large scale producers that are feeling the burnt of the economic downturn. The economic epidemic has spread its infectious shoots even into to ordinary and small scale sectors. And the directors of companies moving in the direction of insolvency face the risk being prosecuted for various offences if their decisions arent stead fast and timely.
Many companies have shadow directors other than the registered director or a de facto director acting in a professional capacity of the director in which case there might be more than one person in the role of decision making which might be delay any decision making process. Hence directors or persons at risk of being deemed directors need to make sure that there are no objective grounds to suspect that the company is on the path to insolvency. In the case of a director being unaware of the company being insolvent they are at risk of being personally liable for the company debts. As there would not be many chances at correction the best possible time to seek profession help and support to tide over their insolvency fears is when they begin to see the real signs of danger like when your company is into continuing losses, inability to pay taxes in time, loss of credibility with the bank, lack of alternative source of finance or further equity, being pushed into cash on delivery terms, bouncing cheques and so on. The presence of only a few indicators is in good times is common to any company and may not indicate insolvency. But the multiplication of these factors over a long term and that too in a recessive market would indicate that you are on the route to insolvency. Appointment of either a liquidator or voluntary administrator would help prevent the director and the company suffering more debts and damages. In the event of the company becoming insolvent, the directors have the primary legal responsibility to protect the creditors interests.
They might also face financial ruin when they are compelled to repay the debts incurred by the business - even in the case of an LLC. Though defense can be established on the grounds the director took steps to minimizing potential loss to the creditor, the whole process is not enjoyable by any yard.
by: Paul Smythe
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