Clients in financial distress - warning signs to be aware of

15 November 2019

Charles Haines , Associate Director, Advisory |

The question for directors and their advisers is whether a business’ cash flow concerns are a temporary shortage or an indicator of a more significant issue in the business.

Where there are signs of financial distress, early intervention provides more options for advisers to support a director and engage in a turnaround and restructuring strategy. Early intervention allows an adviser time to pursue informal options, which may include negotiated repayment terms, stakeholder engagement and refinance of company assets and/or assets outside the business.

If a more formal restructure is required, advisers should be aware that both the ATO and ASIC have special purpose ‘illegal phoenix’ taskforces targeting, and prosecuting, both directors and advisers to ensure corporate restructures are undertaken in accordance with appropriate legislation.

In our experience, if a solution is too good to be true – it usually is.

Early warning signs of financial distress

Is your client’s company insolvent? This is a very important question, however, the answer is far from black and white. How would you know? What are the warning signs?

BDO has developed the below checklist that either individually, or in combination, may indicate the existence of insolvency problems.


How can you assist your client?

In a time of financial stress, your clients will seek your counsel as to how to proceed. You should ensure your restructuring adviser is appropriately experienced, qualified and well regarded within the business community, as credibility is essential for a successful restructure.

Advisers need to act swiftly (time is of the essence) yet methodically to ensure their advice is compliant with legislation. Advisers can do this by knowing their client, seeking help and asking the following questions:   

  • Have there been any recent business changes?
  • Has the business environment changed?
  • Is this a once-off issue or business-as-usual?
  • Do they have a cash management tool
  • Do they have three-way cashflow forecasting
  • Does budgeting show the client needs to plan for seasonal quiet periods?
  • Are budgeted margins being met?

Seek assistance from the BDO Business Restructuring team

How BDO can help your client:

BDO's Advisory services can strategically complement the work you continue to do with your distressed clients. These services include:

  • Strategic business review
  • Development of cashflow forecasting
  • Stakeholder engagement
  • Creditor negotiations
  • Debt finance
  • Financier negotiations.

For more information on how BDO can assist, please contact Darren Stacey or a member of the Advisory team.