Solvency Checklist

Solvency Checklist

A solvent person is defined in Section 95A of the Corporations Act and Section 5(2) of the Bankruptcy Act as being one that is able to pay all the person’s debts as and when they become due and payable. These definitions support the proposition that solvency is determined by reference to cash flow. In addition, there are key operational and financial practices that may put a company at risk of becoming insolvent.

Setout below is the O’Brien Palmer Solvency Checklist. If you have answered “Yes” to one or more of the following questions, then it may be time to review the financial position and performance of your business, a task which we are happy to assist you in undertaking. If you have answered “Yes” to more than 4 of the following questions we strongly suggest that you contact us urgently to seek our expert advice.

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1. Are creditors being paid outside their normal terms of trade (eg 30 days)?

2. Has the entity conducting the business received final demands for payment from creditors?

3. Has the entity received:
- Letters from collection agencies/solicitors for payment of debts;
- Statutory Demands for payment;
- Judgements and/or Warrants issued against the business;
- Winding up/Bankruptcy notices?

4. Has the entity been placed on COD terms with essential suppliers?

5. Does the entity pay one supplier in priority to another to receive goods/services?

6. Have any of the BAS/IAS of the entity been lodged significantly later than the due date and/or are there any outstanding BAS/IAS?

7. Are there any outstanding statutory liabilities of the entity, including:
- PAYG/GST;
- Compulsory superannuation;
- Workers Compensation;
- Payroll Tax?

8. Has the entity entered into an instalment payment plan with any of its creditors and/or the ATO?

9. Has the entity made any payments to creditors for rounded lump sum amounts, which are not reconcilable to specific invoices?

10. Has the entity withheld cheques until monies become available and/or issued post dated cheques to creditors?

11. Have any cheques and/or payments of the entity been dishonoured?

12. Is the overdraft (if applicable) of the entity steadily increasing or at its maximum limit?

13. Is the entity unable to raise further finance and/or sell surplus assets?

14. Are you unable to inject additional capital into the entity?

15. Are the current liabilities of the entity in excess of its current assets?

16. Are total liabilities of the entity in excess of its total assets?

17. Does the entity have accumulated trading losses?

18. Has the entity failed to prepare timely financial information to allow management to review its trading performance and financial position?

19. Has the entity or its accountant failed to prepare a set of annual financial statements and a tax return in the past 12 months?

20. Has the entity failed to prepare budgets and corporate plans?


If you have answered “Yes” to one or more of the following questions, then it may be time to review the financial position and performance of your business, a task which we are happy to assist you in undertaking. If you have answered “Yes” to more than 4 of the following questions we strongly suggest that you contact us urgently to seek our expert advice.

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O’Brien Palmer