What are the indicators of insolvency?

The case of ASIC v Plymin, Elliott & Harrison [2003] VSC 123 sets out a list of indicators of insolvency as follows:

  • Continuing losses
  • Overdue Commonwealth and State taxes
  • Liquidity ratios below 1
  • Poor relationship with present Bank, including inability to borrow further funds
  • No access to alternative finance
  • Inability to raise further equity capital
  • Suppliers placing the company on COD terms (cash on delivery), or otherwise demanding special payments before resuming supply
  • Creditors unpaid outside trading terms
  • Issuing of post-dated cheques
  • Dishonoured cheques
  • Special arrangements with selected creditors.
  • Solicitors’ letters, summons[es], judgments or warrants issued against the company
  • Payments to creditors of rounded sums which are not reconcilable to specific invoices
  • Inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and make reliable forecasts