Bank manager slow to return your phone calls? Customers tardy in paying their bills? Worried about sales forecasts or what key staff are up to?

Welcome to the new world order that has seen cash replace credit and insolvency experts replace merchant bankers as the corporate sector’s top earners.

Weaker sales and gloomy forecasts, coupled with the ageing of debtors’ ledgers and tighter credit from lenders, has already sent many businesses reeling. White collar fraud is also expected to rise as the downturn continues.

More than ever, you are going to need clear and practical advice on how to survive a recession. Understanding the legal issues facing your business is critical, especially when your own home or personal assets could be at risk.

Lawyers are reporting an increase in the number of clients seeking help with writs for possession, facility guarantee claims, personal guarantees and other complex litigious problems involving negotiations with the major banks. Often where a bank security has included residential property, the asset has not sold in the timeframe necessary. When it has, the price has often been relatively low, fetching nothing like the prices in recent years. This has led to significant shortfalls which are being picked up under personal guarantees by directors and related entities.

As a business owner, if you want some form of enforcement on your debtors’ ledger or you are keen to issue statutory demands or resolve disputes which may have been on the back burner, now is the time to talk to your lawyer – before you go bankrupt.

Recovery and insolvency experts point to good planning as the way to “recession proof” a business. This should include strategies to protect your personal as well as business assets.

Preparing solid financial documents such as cashflow statements and budgets will also go a long way towards ensuring you survive any downturn.

And keeping a close eye on business assets such as stock and inventory can be the difference between a company that survives an economic downturn and one that fails.

Reviewing costs will highlight any inefficiencies and should include an examination of existing contracts, leases and financial agreements. A lawyer can help you with this.

Redundancies also need to be handled carefully to avoid claims of unfair dismissal and the resulting damage to your reputation.

Fraud is another issue to be aware of. According to a recent survey of executives by Deloitte, most expect accounting fraud to increase during the next two years as pressure to meet earnings targets intensifies.

Sectors most at risk include computer, retail, telecommunications and health care, the Deloitte report claims.

False invoicing, plant and inventory theft, stealing of cash, diverting of sales to an employee’s own business, identity and credit card theft, kickbacks and manipulation of data can occur when there are poor internal controls.

“A slowing economy may increase pressure on companies to meet – and often exceed – short-term performance goals (sometimes at the detriment to the organisation in the long-term) or to demonstrate that shareholder value has improved due to management’s leadership. In some instances, organisations may expect results that can be achieved only in a thriving economy. It is this mindset in slower economic times that can contribute to increased fraudulent activity,” the Deloitte report states.

If you are a non-executive director of a company – big or small – remember you can be personally liable for the misconduct of your fellow directors.

Seek legal advice if you are concerned about fraud risk in the changed financial environment as the number of prosecutions and class actions are expected to rise when the accounts of insolvent companies are opened to forensic scrutiny.

More information

From the LIV Bookshop: Wall Street: America’s dream palace, by S Fraser, 2008, $35