Pre insolvency advisors can pose a significant risk to distressed individuals and companies. In Australia, pre-insolvency advisors are largely unregulated. Unlike a qualified insolvency practitioner, an advisor is not trained to actively manage insolvency processes. They can be expensive and time-consuming, often only contributing to further financial distress.
Untrustworthy advisors pose a significant threat to the overall integrity of the insolvency system. The elderly or those with a disability are particularly vulnerable.
Illegal phoenix activity and creditor defeating dispositions
Pre insolvency advisors sometimes provide concerning advice to the directors of failing companies. Often, these directors do not have the adequate skills to run a business effectively. They are often unaware of the significant implications of certain actions, such as creditor defeating dispositions and illegal phoenix activity. Dodgy advice can be costly.
The three advantages of a qualified insolvency professional
There are significant advantages to appointing a qualified insolvency professional.
- Regulation and experience
Insolvency practitioners undergo extensive training, and are subject to strict licensing, ethical standards and guidelines. Insolvency can carry some significant legal implications if not handled correctly. Insolvency professionals are also required to have professional indemnity insurance.
- Holistic solutions
Insolvency is the intersection of law, accounting, finance and business strategy. Insolvency practitioners are well versed in these areas and can provide a unique solution for each matter, drawing on the necessary professional support networks when needed.
- Creditor relations
The key to navigating financial difficulty is effective communication with creditors. Insolvency practitioners are skilled and experienced in these negotiations, understanding the different interests of the ATO, financiers, trade creditors, ASIC and other key stakeholders.
The takeaway
There is no magic, fix-all solution to becoming insolvent. Pre insolvency advisors cannot make all your worries disappear. If they promise to do so, exercise caution and seek advice from a trusted third party. There are many effective, formal insolvency procedures that can help clients navigate financial difficulty.