The Impact of Legal Trouble on Solvency

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Some companies become insolvent due to poor business plans, a decline in market demand or bad management. Other companies may find themselves in legal difficulties which consume vital cash flow and lead to a company being unable to pay their debts and subsequently being forced into external administration. If your company finds itself embroiled in legal troubles, it is important to conclude proceedings as soon as possible to free up your cash. Money tied up in legal expenses is unable to support your business and can lead to delayed payment to creditors, disgruntled suppliers and even the appearance of a director penalty notice in the event of debts remaining outstanding against the Australian Taxation Office (ATO). Menzies Advisory offers business advisory services in the resolution of matters placing financial strain on a company and returning the organisation to solvency.

There are a number of legal problems which can affect businesses, of which we will provide a brief overview here. If your business is experiencing any of these, contact a business advisory service immediately. Former employees who were let go without final termination forms can cause serious problems if they so desire. Harassment or discrimination cases should be taken seriously by a business but wherever possible resolved in-house. Regular training sessions, competent legal departments and human resource services mitigates the chances of these cases being taken to court or even happening in the first place. Patent or copyright issues often impact cutting-edge industries such as technology. Thorough research and diligent development teams should be employed to reduce the risk of violating existing patent or copyright material. Finally, dissatisfied customers can file class action lawsuits which eat up valuable business time and money.

Complex legal proceedings are expensive which is how they can lead to external administration. They can direct cash flow away from the business and lead to a company being unable to pay their outstanding debts including the PAYG withholding tax or superannuation guarantee charges. In these cases, a company will become insolvent and will be forced to enter external administration, pursued by the ATO. A Director Penalty Notice will be issued holding the director personally accountable. Due to the obvious cause of insolvency stemming from legal trouble, it is often possible to resolve the issue and deliver a corporate turnaround which returns the company quickly to profitable territory. However, it is crucial to come to a swift legal conclusion to enable cash to become available again to resume trading. Particularly when a Director Penalty Notice has been delivered and the director themselves may be liable, a business advisory service should be retained to resolve the issue as quickly as possible.

When extensive legal proceedings drain a business financially, it will become insolvent and be placed in external administration. However, often the legal dispute continues and still requires money. In addition to the costs of the administration, therefore, the company will still be required to pay legal fees for the ongoing case. Lawyers for businesses are aware of the dangers of becoming entangled with complex legal problems and will seek to avoid this at all costs. If your legal team have expressed concerned about your company’s involvement in a dispute, contact Menzies Advisory today. We offer holistic business advisory services for companies throughout Australia and attempt to give second chances to the companies whom we believe can return to profitability through our services.

Menzies Advisory

Menzies Advisory Liquidation & Receivers are Certified Practicing Accountants and Registered Liquidators with over thirty years’ experience in commerce and insolvency. Company directors, accountants, lawyers and business consultants turn to us for expert, compassionate advice in difficult times. Our professional consultants implement the most practical solutions to meet your complex business and financial issues.

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