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Insolvent Trading Advice for Clients Affected by COVID-19

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group

In the current climate, many accountants may have clients experiencing financial distress, including directors seeking advice on how to avoid personal liability for trading whilst insolvent.

What advice should accountants be giving their clients in this environment? What advice do directors need to hear?

Insolvent Trading – The Danger

Firstly, it is important to understand how the law defines insolvent trading. The law defines insolvency as an inability to meet debts as and when they are due and payable. Insolvent trading, in simple terms, relates to debts incurred whilst a company is insolvent.

Secondly, however, determining insolvency at any point in time is a very complex assessment.  It does not include a temporary shortage of liquidity, but looks at the company’s assets as a whole and its cash-flow.  In the current COVID-19 climate, many businesses will be experiencing temporary liquidity problems, however the questions is whether these are going to lead to longer term shortages of capital.  Given what is going on in the world, who knows?
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Accountants Keeping Clients Afloat During COVID-19

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Accountants are being swamped by directors caught up in the effects of a global pandemic and the consequences of shutdowns and quarantine. Accountants’ own businesses are in the same boat.

How to advise clients during this time? The Australian Restructuring Insolvency and Turnaround Association (“ARITA”) has released helpful guidance for accountants seeking to help their clients at this time. These resources can be accessed via the below link:

Matthews Folbigg Lawyers has a legal team dedicated to Insolvency, Restructuring and Debt Recovery. All of the solicitors on this team are members of ARITA, and have been following the changes in this practice area closely.

Our team are ready to advise accountants with clients caught up in this complex area. If you have any questions about these changes, or would like to discuss these resources, please contact a Principal of Matthews Folbigg Insolvency, Restructuring & Debt Recovery Team:
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