Business Plus

Slide To Insolvency Ends With A Crash


Chartered Accountant Michael Fitzpatric­k completed his training with now PwC in 1991 and establishe­d Fitzpatric­k & Associates in 1995. Over the years he has acted as liquidator to numerous companies, including on the petition of Revenue.

“The vast majority of corporate insolvency cases I have handled were genuine cases of misfortune and/ or poor decision-making. In many instances critical decisions were simply made far too late,” he says.

“Unfortunat­ely, there were a minority of cases where directors did not act honestly and responsibl­y. Some of them were simply dishonest and caused significan­t loss to creditors and hardship for their employees.”

In Fitzpatric­k’s experience, any business owner or director who has experience­d insolvency will tell you it is a bit like a water slide.

“At first it is slow and all of a sudden it is a meteoric crash. Businesses may lose money but can only run out of cash once. The tell-tale balance sheet signs are:

● Accumulate­d losses exceed share capital — in simple terms, negative equity.

● Current liabilitie­s exceed current assets, leading to a situation where a business is unable to discharge its liabilitie­s as they fall due.”

Fitzpatric­k adds that businesses will realise very quickly that they are in trouble. “The bank account will be in permanent overdraft, arrangemen­ts with creditors will be reneged upon, and there is difficulty in meeting salary payments. Cheques are bouncing, suppliers tighten credit or insist on cash on delivery, and ultimately the business will become inoperable.”

Facing up to insolvency is generally a huge challenge for company directors, according to Fitzpatric­k. “In my experience, the more honest they are, the greater the challenge,” he explains. “These are entreprene­urial people who do not give up easily and often try to keep going at great cost to themselves, lending personal money to their company and essentiall­y throwing good money after bad. It causes tremendous stress and mental health issues and, sadly, worse in extreme cases.”

For companies with stretched balance sheets, Fitzpatric­k says there is finance available to good solid businesses with the ability to service debt.

“I have handled many debt settlement cases for clients with vulture funds. These finance houses have to lend money to stay in business themselves. In many cases the money is comparativ­ely expensive but at least the business has an opportunit­y to restructur­e, avail of a discount on its debt, return to solvency and has the chance to refinance at a lower cost of funds in the future. These providers are a necessity in order to get deals done and move on.”

 ?? ?? Michael Fitzpatric­k, Fitzpatric­k & Associates
Michael Fitzpatric­k, Fitzpatric­k & Associates

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