Business owners who fear their companies may be trading while insolvent need to seek advice before a disaster occurs, the liquidator leading the investigation into failed white-goods franchise Kleenmaid has warned.
Deloitte partner Richard Hughes says it is critical for businesses which are experiencing cashflow problems to seek help immediately before the entire operation could collapse
“The message from this investigation is if you are having trouble then seek advice. There are certainly laws about trading while insolvent, and companies need to be aware of that. If you think you may be trading while insolvent, then try to avoid carrying debt and think about early intervention. No one wants to shut you down, we want to help you.”
Last Friday the Australian Securities and Investments Commission approved funding for the investigation into Kleenmaid, which was placed into administration by founders Andrew and Brad Young earlier this year. The company had about 10,000 creditors, with 15 of its 20 stores franchised.
In a leaked copy of a report sent to creditors, Deloitte administrator Join Greig said creditors were owed $102 million, with $3 million owed to company employees.
“Unfortunately there is no good news for employees, customers, suppliers or creditors of the Kleenmaid Group. The financial position… is worse than we initially expected,” administrator John Greig said in a statement.
“Our investigations have revealed evidence of Kleenmaid’s cashflow difficulties since at least June 2007, which confirms our initial view expressed at the first meeting of creditors that the group could not possibly have such a significant deficiency by reason of events that occurred in the weeks preceding our appointment as administrators.
Hughes says while the investigation was already underway before ASIC funds were approved, the money will help cover some costs and may quicken the release of the report.
“We are still working through our investigations, and they are still in a preliminary stage. But I think at this time it looks like the company has been insolvent for some time, and that’s what’s likely to come out of the report.”
Hughes also says his work in assisting companies which are determined insolvent is made more frustrating as many wait until the last minute to ask for help.
“It is often the case that businesses wait until they are deep into a situation until they ask for help. What businesses need to do is recognise when they are in cashflow difficulties, and then go and see a professional straight away.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
