How public practitioners can work with clients facing insolvency

Speaker 1:
Hello, and welcome to the CPA Australia Podcast. Your weekly source for accounting, education and career and leadership discussion.

Brent Kirchner:
My name is Brent Kirchner. I'm a CPA and I run a small practice. This week on The CPA Australia Podcast, we'll be discussing some key points on insolvency. A very real issue facing our clients in the world post COVID-19. With me is Kristen Beadle, partner at Hall Chadwick, and Damian Pearce, client director at Pitcher Partners. Welcome guys.

Kristen Beadle:
Thank you. Pleasure to be here.

Damian Pearce:
Pleased to be here. Thanks.

Brent Kirchner:
Kristen and Damian are commenting generally based on their expertise and experience, which should not be treated as advice. There are commonly exceptions to many insolvency rules and principles where specific circumstances need to be considered and advice obtained. The listener information in this ever changing environment of COVID-19, this podcast is being recorded on 17th of June, 2020 and just to get things rolling, what is insolvency guys?

Kristen Beadle:
Oh, I might kick that off if I will. So insolvency in its most basic form is an entity’s inability to pay its debts as in when they fall due in payable. There are some very well-established principles in determining insolvency that a liquidator such as myself and Damian would look at and these are things like... You know, some indicators such as receipt of payments or company makes payments outside its normal trading terms. Cheques bouncing if people are still using cheques or payments not clearing through a bank account. Suppliers placing a company on alternate payment arrangements such as cash on delivery or demanding special payments before resuming supply. Special arrangements with creditors such as providing services in lieu of payment.

Kristen Beadle:
So you know, I'll mow your lawn if you don't accept payment, that kind of thing. Rounded payments other than paying specific invoices. Issuing solicitor letters or judgement or obtaining a judgement against a company and more importantly, things like, and these are the most common ones, I think that an inability to pay state and Commonwealth taxes, so everyone knows that the ATO is quite prevalent in this area on its debt collection, or be it a little bit quiet during COVID-19. Having a poor relationship with their current bank and an inability to borrow further funds to fund trading going forward and there's been no ability to further finance or raise equity. So it's a detailed list, but not overly exhaustive, but these are general well-accepted indicators of insolvency.

Damian Pearce:
Yep. I agree with everything Kristen has said. Look, I think that last one's an important one with the ATO because often they're the ones that aren't getting paid and those debts can build up rather quickly and also the ageing of creditors I think is a big one when they're struggling in insolvency. You know, those 60, 90 day categories of creditors are going to really start slipping out and adding up and becoming unrealistic in terms of whether they can be ever paid and that's... You know, they're starting to slip in towards insolvency much further by that stage.

Kristen Beadle:
Yep.

Brent Kirchner:
Excellent. Thank you Damian. Thank you Kristen. On that a lot of those indicators that you've just spoken about, we can't always see them. So from a practitioner perspective and a client perspective, what are the warning signs that we can look for? How can we help clients to try and avoid them becoming a casualty when they're trying to support what might be a long term customer or client? How do we avoid falling into our own trap and suffering from the insolvency outcomes?

Kristen Beadle:
I think there's always some red flags which people should look for and Damian you chip in when I have missed some, but I think most of the ones are behavioural and you know, you would normally have... You know, an accountant would have their client deal with the customer and the customer... The client would know best and it's those behavioural things such as all of a sudden your phone call isn't being returned or being picked up. You know, there's been... Your debt... The debt is being paid late when usually all the time it's been paid usually on time or within a few days of the due date.

Kristen Beadle:
You know, being asked by a director of a company to no longer pay into one bank account, but pay into another. Those are significant red flags, I think and another issue might be, and I think a good one and Damian, you might go into this a little bit further, but you know, in industry speculation about what's going on. Everyone usually knows everyone else's business and that you will normally have people in an industry that are quite tight and supportive of each other and they might say, did you know X, Y, Z proprietary limited, they haven't returned my calls for a couple of weeks, I'm getting concerned. So I think those behavioural issues are pretty important.

Damian Pearce:
Okay, great.

Brent Kirchner:
Yeah.

Damian Pearce:
Again, everything Kristen said... You know, Melbourne is not a small town or wherever you're listening to this in Australia, but there are small industries and word does travel around and... Especially at the moment, there's a lot of quiet industries so when you hear about things like these it tends to get noticed a fair bit more, but I think a lot of accountants would appreciate the trust that they... The trusted role that they have with their clients and that's really enhanced when you have a good understanding of your client's industry.

Damian Pearce:
So certainly with COVID at the moment, a lot of the exposed businesses in the industries like restaurants and so forth are quite obvious, but in addition to that, there are those where it's not so obvious that they might say for example, a logistics company and so helping them having an understanding and you having an understanding of their customer profile, whether they're logistics for discretionary retails, or non-discretionary, it's a big difference and so you know, those customers would really... Your clients, sorry, would really appreciate your contact and just open discussions around how they're progressing and what they can do to face it.

Brent Kirchner:
Excellent. So really what you're saying guys is keep your eyes open or advise clients, keep your eyes open. Look at the characteristics of your customers to see how they are tracking it and if they are changing in their demeanours or any of their common practices. Is that pretty much the simplicity of where we're looking and understand the industry in general?

Kristen Beadle:
Yes. I believe that's correct. Yes.

Damian Pearce:
Yeah. I think so as well. I mean, certainly when all this started you know, business was slowed down completely and then the difficulty to be paying payments started and just staying on top of that is very important. That whole side.

Brent Kirchner:
Yep. Excellent. So we get out there and we try and support as we do as Australians, we try and support our mates when they're down. So you do run with your clients and keep them going, but what protections are available to our clients? What can they do to try and avoid becoming that casualty?

Damian Pearce:
Look there's a couple of things. There could be... For example, if there's an opportunity for clients to enter into security agreements with their customers and you know, whether that's commercially realistic is another thing, but certainly some type of guarantee and set that back by security such as a charge against property can assist. Also, there might be circumstances where they're entitled to lodge, or they have the type of agreement where it's appropriate to lodge a straight registration on their personal properties and securities register. So what that is, is a public register of certain agreements. The ones we're traditionally used to such as security of equipment and debtor's and these sorts of things. Those sorts of arrangements are now required to be registered on the personal property securities register, which I'll just call PPSR from this point.

Brent Kirchner:
Yup.

Damian Pearce:
They used to be registered on ASIC, but haven't been for some... Well, I'm sure a lot are aware of this now. What many aren't aware of is that that extends to other types of arrangements that never used to be captured such as a lease for example, with the equipment is still owned by the less or retention of total arrangements. So often suppliers are going to believe that they can go and reclaim this stock should a customer collapse into liquidation, only to find out that's not the case because they haven't registered that retention of total interest on the PPSR.

Kristen Beadle:
Yeah.

Brent Kirchner:
Yeah. And a PPSR is pretty strong. If registered properly, it holds water?

Damian Pearce:
That's right and I'm glad you pointed it out because they should be very careful and get advice in terms of registering on the PPSR. Small mistakes can have big consequences. The idea is being a public register that anyone engages with this customer and is thinking of advancing a credit can search the PPSR and if your registration from an earlier agreement doesn't show up because the name or the IBN or something has been entered incorrectly, then you could be facing not being protected down the track if that company goes on liquidation and someone else gets security, either your security.

Brent Kirchner:
Yep. Great advice. Great advice. Kristen?

Kristen Beadle:
There are some other considerations and it might be around amendment to existing trading or credit agreements. So you know, you might have a standard clause that goods are supplied and payable within 30 days of invoice or something like that, and so you might want to look at different ways of cash flow management now. So look at things like if you can amend those terms, even if it's in the short term to something like cash on delivery, or allowing charging clauses on personal property, which I think Damian, you mentioned before and that would be on the real estate of a... So a personal real estate of a director and, or spouse if you could get it in.

Kristen Beadle:
A lot of directors mode asset plan. So if you could capture the related property, that would be helpful. Invoicing upfront or even progressively and seeking payments against specific invoices and you know, just be mindful about your recovery action and if a company does collapse into liquidation as Damian mentioned before, a liquidator would look at the ways in which recoveries have been undertaken by clients. So you know it needs to be agreed and try and get monies upfront just to avoid that credit debt relationship.

Brent Kirchner:
Yep. Excellent. So we've gone down the path, we're working with our customers and we come across a situation where we've got a bad debt, what exposure is there to preferential payment rules and I know you've covered off on a little bit of this, but how can we protect against this?

Kristen Beadle:
I'll quickly define it so everyone knows what it is and Damian and I can put some mate on it, but... So basically a preferential payment is a recovery available to a liquidator whereby there's been a transaction between a company and a creditor and the creditor receives a payment for an unsecured debt more than it would have received in the wind-up of the company. So that payment time is six months before the relation backdate for non-related creditors and it increases substantially if the creditor is related. So that's basically it in a nutshell.

Kristen Beadle:
Protections which your clients could undertake and some of those things that we discussed earlier about obtaining the charge and clauses on personal property, so if you don't get paid and the company goes into liquidation you can try and get it later. You know, obtaining bank guarantees for example, that might be one. Cash on delivery and upfront payments to avoid that credit debt relationship that I talked about and even try and negotiate perhaps third party payments. So for example if you're a builder and you know, there's certain milestones in a project or you're offering something and you're worried about the middle man's liquidity, but perhaps you ask company A, who owes company B, who owes company C. Company C is trying to recover from company B. Company C goes to company B and says, can you go to company A and get me paid directly by them.

Brent Kirchner:
Yep.

Damian Pearce:
Yeah. I think also it can be very, very difficult for suppliers in this situation as to whether they should continue supplying a customer where they've got doubt because I mean, it really is a catch 22 and what they do from the moment they suspect insolvency, it would be very easy to say just don't supply and cut everything off and so forth, but of course that can have consequences whereby that can actually precipitate the collapse in itself, if you're an essential supplier and so forth. So you know, it's not that simple for a lot of suppliers and there's a lot of things I have to consider about whether they continue supplying or not, even when they're facing that sort of risk. Do they throw good money after bad? It's a big decision.

Kristen Beadle:
Yep.

Damian Pearce:
But look, let's... It's easy to say, no. We know what the consequences are. I mean, the debt could grow, but if they were to do it, some of the factors that go the other way and could encourage them [inaudible 00:16:52], further suppliers and invoicing for those suppliers can have the effect of reducing a preference client from a liquidator related debt under what's called the running account defence. So that's a bit of a silver lining there. There's also other commercial factors they'd need to consider such as... Look, if you supply them something that is only of value to that particular customer, such as branded stock. It might be the case that you choose to do it because you haven't got as much to lose because that stock isn't as valuable to somebody else.

Damian Pearce:
That might make the decision easier for you, at least in respect of stock that's already been completed or is in production. Another one is just to be mindful of is we... I've spoken a bit about PPSR before and security as has Kristen and where creditors are supplying under ROT for example. So they've registered on the PPSR to protect that entitlement, that collateral, those assets, their security can also potentially be offset against the value of the preference climb to the value of the security. Possibly more. So look, I'll come back to my original point. Ongoing supply with these... Customers are in trouble, it's a tight rope they're walking. It's so important that they get advice and have someone help them through this, because there's a lot of intricacies to be understood before you make a call.

Kristen Beadle:
Yeah. I think too it all goes down to management of cashflow and collection processes, because whilst it is a very tight line and you might've been trading with someone for a long time. You know, you shouldn't be doing it to the detriment of your own company for example. So I think if tough calls need to be made, they should be made early and also, now might be the time to consider from a management perspective where everyone sits and if you're offering a service, which you've been in because you've been in it for a long time and it's no longer as profitable, now might be the time to pivot and move to a bit more profitable and rationalise your business.

Brent Kirchner:
Yeah. Great advice. So would you suggest that as we come out of these COVID restrictions and businesses start to come back, it's always wide open, we just need to be evaluating the landscape at every level to make sure that we don't become a casualty. Is that pretty much the simplicity of it?

Kristen Beadle:
Yes.

Damian Pearce:
Yeah. I think so. It's very important to keep your eyes wide open. Look the government's done a lot of things with policies that have sort of kept things in control and we haven't had mask collapses everywhere. Like some might've been thinking in the early days. There's of course the view that that has just delayed a lot of businesses from making those tough decisions and that it could be still yet to come and as these policies are relaxed and things return to normal, you know it's then where your customers that owe you money, or whether you're the decision to continue to trade with them or not is going to become a lot more crucial.

Brent Kirchner:
Yap and really to do the right thing by our clients, we need to help them identify with our clients though, where they're at risk and not think that we can solve it ourselves, but basically throw it to the professionals in the industry because there are some very simple things that can be done to protect clients somewhat, as opposed to a general practitioner trying to just do it themselves. Would that be fair to say?

Kristen Beadle:
Yeah, I think so. I think it's, it's probably more important to... If there's a company experiencing those insolvency indicators that we were mentioning before, I think it's better to look at what can be done in the now rather than continuing to incur debt and kicking a can down the road, because it could be that a lot of directors have personal exposures in terms of you know, they've already provided guarantees to banks on personal property. So they're paying a mortgage plus they're securing a company debt and it's much better to get in early and mitigate loss than continue on down a path where it's really probably not salvageable and you can... Or you could make... You had more decisions available to you in the now rather than sort of six to 12 months down the line.

Brent Kirchner:
Perfect. Perfect. Well, that's great. So we really just addressed looking at our clients and the environment there of insolvency, so once we come back from a very short break, I'll ask you guys again, just on some probably more points to do with our clients themselves and the insolvency exposures there for them.

Speaker 5:
We hope you're enjoying this episode so far. To access all of CPA Australia's COVID-19 related resources, including articles, videos, checklists, and advice, go to cpaaustralia.com.au/COVID-19 and now back to the episode.

Brent Kirchner:
Well, welcome back. Let's get right back on track and let's start talking about our own client businesses in themselves. So guys protecting yourself from personal exposure as the business owner, what are the headline factors in determining insolvent trading?

Damian Pearce:
Yeah, look, thanks Brent. That's a very good question. Very relevant question at this point in time. Many would be aware that the government announced back at the start of COVID that the insolvent trading duties have been relaxed somewhat and other than extreme circumstances, directors are unlikely to be liable for that during this interim period. So just to explain how insolvent trading works. First point to recognise is that it is a personal claim against the directors. So you know, the small business owners and so forth, that's a way that debts incurred by a company that used to be full behind the corporate vial are now penetrating the corporate vial and directors can be liable for that. It can only be pursued by a liquidator, although in extremely rare cases ACIC or accreditor can do it, but most often a liquidator and the company would need to go into liquidation first.

Damian Pearce:
So the way it works is the liquidator investigates what they think is a reasonably strong indicators of insolvency to establish what date the business first became insolvent, running through those indicators that Kristen and I spoke about back at the start of the webcast and once they have that date, they will essentially add up all of the debts that have been incurred since that date, that remain unpaid at the date of liquidation and so as each of these debts are added towards the... Let's call it... You know, the date that the company collapses. Those debts could be getting added to an insolvent trading claims that the director is facing in the future.

Damian Pearce:
Now, not all debts are captured, it's commonly rental instalments, like on a lease or something aren't going to be included because they're not incurred as debts in that there isn't some deliberate act to go out and incur the debt such as you would with ordering stock, say for example, which requires a deliberate act. With a lease it tends to be... You know, back towards the start of the lease when the debt was incurred, that's when the liability arose. It just happens to fall due monthly or whatever sometime in the future. So for that reason, looks supply debts, trade supplies are often included in insolvent trading claims, debts to supplier, should I say. Things like utilities are less commonly, but still applicable. You know ITI debts such as JST superannuation, that sort of thing.

Brent Kirchner:
Yup. Are there any other personal exposures?

Damian Pearce:
Yeah. Look there's a couple where it was mentioned before the ATO and I mean, the ATO is a huge player in the insolvency area. Obviously they're quite often the ones that aren't getting paid and the ATO has a few special weapons for want of a better term that they can use to recover their debts. One thing they can do that can affect the directors personally is to issue a director's penalty notice. I'm sure many accountants are familiar with this. They're essentially a mechanism, a notice that the ATO issues in respect of a company's debt, but they sent it to the director's personal address and it provides the director with 21 days to undertake certain steps and if they don't undertake any of those steps within that 21 days then they're likely to be liable for the debts listed in the notice itself which are tax debts of the company.

Damian Pearce:
Historically PAYG, more recently superannuation was added and then since April, this year JST as well, and a few other obscure ones. So you know, most Texas now the common ones can be the subject of those director's penalty notices. So if your clients come to you with one of these, you've got to act very quickly because that 21 days, and they should also take care to make sure that their personal details on ASIC are up to date and current, because if you don't receive the notice in the mail, it's not a defence that you never received, and you never had the chance to act within that 21 days period.

Brent Kirchner:
That's a great call to action really, isn't it?

Kristen Beadle:
Yeah.

Damian Pearce:
That's right. Now with that said, the ATO is not particularly active at the moment. They've slowed down in their activity and they're being more accommodating with payment arrangements and so forth, but you know, everyone expects the day will come where that that'll change. So that's more one for the future. The other one I was going to mention is personal guarantees. Kristen touched on it before. Commonly leases, premises leases, operating leases, HP agreements, other banking facilities. Bank debts for a business, they'll have a personal guarantee attached to them and I'm often surprised when advice is sought from us and the focus can often be, and their concern on insolvent trading and whether they should cease trading, but they're less often aware of that ceasing to try it and liquidating has this other big exposure in terms of a breached premises lease and banking facilities [crosstalk 00:29:06]. Yep.

Kristen Beadle:
And often a company director has no idea where they've signed personal guarantees. So you'll come in and you'll go so let's look at it holistically, what are we talking about here and have you signed personal guarantees? And they'll say, "I've got no idea." And you're like

Brent Kirchner:
Well they [inaudible 00:29:30], pick up a car on the weekend and then they let us know the next week and they've signed away if there's no guarantee.

Kristen Beadle:
Yeah.

Damian Pearce:
Yeah.

Brent Kirchner:
Yeah. Excellent. So are there any other ways to try and go about minimising their exposure in this environment?

Kristen Beadle:
Well, there's... Obviously, asset planning and it's important when you do that to get in early, so you can look at different types of structures. So placing assets in a trust structure might help or a spouse's name who carries no risk. So someone who's not a director of a company, so hasn't got that personal liability exposure. You know, who hasn't signed any of the personal guarantees that's the one sort of way where you would want to look at placing your assets. Obviously there's some family law concerns around that which we're not discussing today, but it is a risk.

Kristen Beadle:
You know Some people when they do their asset planning usually it is only for the taxation purpose, and just given where we're at the moment, a lot of directors might be scrambling to sort of get in now and potentially move assets around and look that's less than ideal and obviously whilst, that's not a recommendation which I think people should do, it is a way in which if I are personally exposed it may lead to a roadblock of recovery. So it can be... It adds to the difficult nature of recovery. Again, reiterate I don't think everyone should go out and do it and there are certain offences in relation to that. So anyone who is considering asset planning should seek advice, but I think we need to look at if there are exposures personally to two debts, a creditor can take action and bankrupt a director to take recovery action and if unpaid then they move into bankruptcy and so a bankruptcy trustee actually has some fairly significant powers to void certain transactions and so if you're looking at what dimmed an undervalue transaction for example.

Kristen Beadle:
So yeah, and the most common one that I see as a trustee in bankruptcy is the transfer of real property from usually between spouses for natural love and affection so it avoids the stamp duty, but some natural love and affection needs a consideration and so a bankruptcy trustee can look at recoveries in this space against anyone for a period of two years, but if they're related it can go up to four years from the date the transaction happened to the date of bankruptcy and this can increase to five years if the person was insolvent at the time, and there's also... You know, you think, Oh, well, I did it 10 years ago I'm right, but there is a... If someone does transfer with the intention to defeat creditors, there is no time limit on how a trustee can get that as long as the trustee can prove insolvency.

Kristen Beadle:
A lot of people now to... You know, and so that was basically more talking about real property. A lot of people too, I see now are using self managed super funds a lot more and usually bankruptcy superannuation is an exempt asset. However, if there's been transfers of property that were personally owned into superannuation with the intention to defeat creditors, that also can be recovered now and has been for a few years now by a bankruptcy trustee. So it's not as simple as let's just transfer things out and we'll worry about it later.

Kristen Beadle:
There are ways in which recoveries can occur and there are also recoveries available to a trustee to look at the wealth in which someone has obtained from the benefit of a bankrupt. So for example, husband and wife, the wife's a high income earner and she's placed all of her money into a property, but that's not in her name. There are recoveries available and mechanisms available to a trustee to actually attack that property even if that property hasn't been in the name of the bankrupt in that whole time, we just need to do a review of how the funds went in and what contributions were made by the bankrupt person to the non-bankrupt person. So there are a lot of exposures there and ways of recovery.

Brent Kirchner:
Beautiful. Thank you.

Damian Pearce:
I think also there's going to be an interesting period as the COVID legislation comes off of as we were talking about before. With insolvent trading of course a lot of businesses are closed down and so not a lot of debts are being incurred at the moment. So even though those rules are in place, they're having limited effect with closed businesses, but as... This expires I think September 24th, so is the second half of September starts to come around and they're winding up and they're looking at incurring debts and so forth. If they're still facing difficulty and uncertain about whether they should be trading in the first place, directors have to look at their exposure there and I think it would be remiss of us not to mention the Safe Harbour rules, which is another defence to insolvent trading that's been around for just a few years.

Damian Pearce:
It hasn't been overly popular at this point in time and many of us thought that with COVID and prior to the government announcements, it would become very popular. The insolvent trading announcements kind of put it on the back burner but as September 24th, 25th comes around, I think it's going to become very relevant again. So at this point in time if clients are coming out and they're looking at it and they think their businesses has a real chance they're real positives, but winding up the business and getting going again is kind of their had some cause and doubt and some worries. Look at the safe harbour rules, it's a way that the risk of going into administration or liquidation is minimised and really the thing to remember about it is that if there's a plan to get through it and avoid administration or liquidation or ultimately return a better outcome for stakeholders and the company and creditors if it does end up collapsing, that could provide a defence to insolvent trading. It's one to look out for.

Kristen Beadle:
Yep.

Brent Kirchner:
Yep. Excellent. I'm just going to... I've got one last question I think and it might go back over what we've just spoken about, but if one of our clients appear to be trading while insolvent and found to be insolvent, what are the claw back provisions to that client if they've tried to do something to minimise their losses? As you've just said, moving the money around. Things like that. What exposures are there?

Damian Pearce:
Yeah. Kristen mentioned the bankruptcy and personal time frames before. I suppose I could talk about the corporate situation with businesses, where they're going to think about moving assets around and so forth and look we... Phoenixing is a very big topic in insolvency, has been for a long time. It's been looked at by the authorities and it's very relevant to this question. So Phoenixing is essentially where assets predominantly a business transferred from one company to another, with the liability is being left behind and for questionable consideration. To the outside world they don't notice anything at the... You know, the doors close on a business one day and it's in one company in the next day, it opens up and it's in another company. The parties that really notice that are creditors of course because they get burnt with their debts left behind in the old party, in the old company should I say. Sorry.

Brent Kirchner:
Yep.

Damian Pearce:
So look, they've always been a transaction that liquidators can overturn. Often it can be... It's provable, it's just a question of funding as to how hard they can investigate it and how hard they can go actually seeking orders to overturn it. So there's usually a four year time frame for that and it's the same time frame for most voidable transactions taking place prior to liquidation. So that includes preferences as well, where... Because we're really talking about related parties here, so clients are... we're talking about the directors are doing it from one of their related party companies to another, the time it's four years. If it's a arm's length like creditor, they're paying a preferential payment to, it's shortened to six months, but where clients are doing it in their own personal interest, it's usually going to be four years. There can also be high time timeframe such as where some of them can be up 10 years [crosstalk 00:40:39], it's to defeat creditors again.

Brent Kirchner:
Yeah. So quite simply, if they do go out there to try and defeat a creditor, it can be open long term and

Damian Pearce:
[inaudible 00:40:51].

Brent Kirchner:
... they're getting it. Yep. Kristen, anything you'd like to add?

Kristen Beadle:
Yeah, just... Yeah, and Damian touched on it. I think everyone is under pressure now. You know, it doesn't matter if you're a partner in an accounting firm or you're the person that... The barista that makes the coffee in the morning. Everyone is experiencing their pressure due to the current situation and how quickly it happened really. So it's important though that whilst there maybe a moratorium on insolvent trading because of the changes to the insolvent trading rules up to at this time 24, September, 2020.

Kristen Beadle:
It doesn't opt out of the other duties, which a director needs to fulfil and again as Damian said the anti Phoenixing legislation so not transferring to diff... A business or assets for less than market value with the intention to defer creditors to put that in its most simple form, I think that would be not... Well, that would be ill advised to do that, but also other things like... And as Damian was saying, it goes to those voidable transactions that we were talking about, is that when a director makes decisions they've got to be for the benefit of the company and they have to exercise their judgement .

Brent Kirchner:
Well, I suppose we've been through a heck of a lot of information on insolvency and different factors there, Kristen I believe you've been involved in developing some insolvency fact sheets for CPA practitioners to use.

Kristen Beadle:
Yes.

Brent Kirchner:
Could you give us an update on it?

Kristen Beadle:
Absolutely. I believe they're live now, so there's a couple of fact sheets that have been put out by CPA Australia. Just dealing with the outbreak of COVID-19, and there's a couple of fact sheets. So there's one on the meaning of insolvency which is quite a detailed paper that has been put out by CPA just dealing what insolvency is, recoveries and that kind of thing. It's actually very detailed and very good. I didn't do that one, but there's also once which is a little bit briefer and sort of a bit more punchy in relation to options for clients in financial distress.

Kristen Beadle:
So helping clients go through what the COVID-19 measures are and what options I have available if they fear insolvency and then there's another one that's been released on directors duties, insolvent trading and you. so having a look at what insolvent trading is and the implications for the members and also the implications for accountants as trusted advisors as well and where they might be exposed as well. So some very quick reading there, if anyone wants to go and have a look at them.

Brent Kirchner:
Fantastic. Well, thanks guys. Are there any final messages you'd like to give us today?

Damian Pearce:
Yeah. Look Brian, I think something that's changed a bit in recent years and even like since a decade or so ago is, when businesses are struggling one of the first things I tend to let go of and not maintain properly as their books and records and it's worth noting that there's a lot of advantages now, given recent law changes and so forth and reasons to keep those records maintained. Firstly it can help them with the safe harbour rules, doing the records to an extent of keeping your bases up to date and logged will allow safe harbour to apply.

Damian Pearce:
It'll also provide options when direct penalty notices are issued by the ATO there's problems there if bases aren't kept up to date and also in, I talked about preferences earlier if invoices are being maintained for a particular client that you keep raising them rather than ignoring them because you think they might be hopeless. Keep posting them and so forth so that you might have a better chance with a running account offence. So things like that, I think it's important that they're aware of.

Brent Kirchner:
Beautiful thinking. Kristen?

Kristen Beadle:
Well, I just think finally it's quite important that if there is a company or an individual facing financial distress that they actually see a registered liquidator and bankruptcy trustee quickly and first, I think it's important to speak to professionals in the industry rather than people that might not be as well aware of obligations and offences under the act. So under the various acts. So I think it's very important that advice be obtained from registered professionals.

Brent Kirchner:
Thank you very much Kristen and Damian for your insights today.

Kristen Beadle:
Thank you.

Damian Pearce:
Thanks Brian.

Brent Kirchner:
And to our listener, be sure to check the show notes on The CPA Australia Podcast web page for links and more information on this week's episode. So thanks for listening.

Speaker 1:
Thanks for listening to The CPA Australia Podcast. For more information on today's episode, please visit the show notes at www.cpaaustralia.com.edu/podcast. Never miss an episode by subscribing to our podcast on Apple podcasts, Spotify or Stitcher.