insolvency

Question 1

in the event of insolvency, what usually happens?

Answer 1

• typically must cease training
• can form arrangements based on the aims of the company, the extent of its financial difficulties and the intentions of the creditors

Question 2

what are some potential arrangements to do with loans that could be made in the event of insolvency?

Answer 2

• renegotiating the terms of loans; the company could try renegotiate to give the company more time to pay its creditors

Question 3

what are some potential arrangements to do with additional finance that could be made in the event of insolvency?

Answer 3

• raising additional finance; company should avoid taking on any extra debt, and so they could issue more shares if the demand still exists, as this would provide a more viable source of finance (may be unlikely)

Question 4

what are some potential arrangements to do with profitability and cash flow that could be made in the event of insolvency?

Answer 4

• monitoring profitability and improving cash flow
• every effort should be made to improve profitability including cost cutting, and undertaking regular thorough reviews of the company’s plan/ objectives/ accounts.
• directors should try and improve cash flow, perhaps by trying to extend credit periods with existing suppliers (company would have longer to pay for its supplies) or find cheaper alternatives
• customer debt collection should be more effective and dividend payments could be temporarily suspended

Question 5

what are some potential arrangements to do with turnaround specialists that could be made in the event of insolvency?

Answer 5

• directors should consider consulting with a turnaround specialist, who are responsible for helping companies to recover from financial difficulties