INSOLVENCY
Spot the warning signs Jonathan Munnery examines the role of the accountant in corporate insolvency and restructuring proceedings.
Jonathan Munnery UK Liquidators
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t is an unfortunate fact of business that many companies will experience some form of financial distress at some point in their lifecycle. For some, this will be a temporary tightening of cash flow which is swiftly resolved; for others, however, the problems will become so severe that professional intervention is required to deal with a company which has found itself technically insolvent. While insolvency poses a real threat to the ongoing viability of a company, this does not necessarily mean that the business is beyond rescue at this stage. There are a variety of corporate restructuring and turnaround processes which can be implemented to reverse an ailing company’s fortunes. If the company’s problems have indeed taken it beyond the point of rescue, opting for a formal insolvency procedure to bring the company to a close can ensure that this is achieved in an orderly and compliant manner.
Accountants and insolvency practitioners
When insolvency threatens, a collaborative effort is needed in order to maximise the chances of effecting a successful turnaround. Although formal insolvency proceedings can only be entered into under the guidance of a licensed insolvency practitioner, the company’s accountant often plays a pivotal role before, during and after the process. Rather than operating in competing roles, the insolvency practitioner and the accountant work in tandem to ensure the best possible outcome for the client, whether that results in the rescue of the insolvent business or its ultimate closure.
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The initial stages of insolvency proceedings
When it comes to rescuing a distressed business, it is often what happens at the earliest stages of insolvency that proves to be a decisive factor in whether the business can be saved. The accountant is often there right at the start of the process, long before an insolvency practitioner is even appointed. In some instances, the accountant could well be the most informed individual regarding the financial and operational performance of the company, even more so than the company’s directors. They will often be the position to identify the company’s insolvent position and alert its directors to the fact that the company is in a perilous financial position. In other cases, directors who are on top of their company’s financial performance are likely to go to their accountant as trusted financial professionals when looking for advice and guidance as to what to do next. As an accountant, being aware of the early warning signs of potential insolvency can make all the difference when it comes to a client’s company being able to trade out of its current problems, albeit after a process of operational and/or financial restructuring, or one which succumbs to its challenges. Company insolvency is often a gradual process, so being alert to the early warning signs of impending insolvency means that action can be taken to remedy the situation before it escalates to a terminal point. Below are some key signs accountants and business owners should be alert to: ISSUE 132 | AIAWORLDWIDE.COM
