Due diligence to stem the risks of corporate insolvencies
With corporate insolvencies on the rise, there are a number of due diligence processes that Australian business owners can take to mitigate the risk of being left with unpaid debts, according to an insolvency law expert.
Recent figures from the Australian Securities and Investments Commission (ASIC) revealed that the number of companies entering external administration in 2011 was up 9.2 per cent to 10,481 compared to the preceding 12 months.
Last year's figures also trumped the number of insolvencies registered at the height of the global financial crisis in 2008 (9,113).
Turkslegal Lawyers head of corporate and commercial Pieter Oomens said that while these statistics are ominous signs of turbulent times ahead for the economy and business community, there are steps that businesses can take to take the edge off.
Oomens said having adequate risk management processes need not be a complex process and can include adopting simple due diligence measures, broadening a customer base and gathering information from sales staff in order to assess the risk profile of a client.
Similarly, business owners can detect high-risk customers by undertaking searches on the public record, including the ASIC company database.
Board or executive reshuffling, as well as the registration of new charges against the company could be warning signs for potential financial instability, he said.
Australian business owners should also review their terms of trade and incorporate retention of title clauses which ensure that they are fully paid before ownership in property they sell is passed on to customers, Oomens said.
In addition, personal guarantees with charging clauses will allow the owner to claim an interest in a director's personal real estate.
Business owners will need to register these interests with ASIC's personal property securities register to certify that the securities are legally enforceable, he said.
"All forecasts indicate that we're heading into increasingly difficult times, so businesses need to get back to basics and focus on reducing their risk of being left out of pocket if their customers go under," Oomens said.
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