Informal Arrangements with Creditors

What are informal arrangements?

There are limited options for viably and effectively restructuring a small to medium-sized business. Company directors who find themselves unable to meet all financial requirements often struggle to deal with their situation, potentially resulting in closure and liquidation of their business. When people need a more flexible restructuring of their trade creditors and other debts to avoid liquidation, informal arrangements can provide the ideal solution.

If a business is struggling to meet its ATO and superannuation payment obligations, as well maintain payments to creditors, negotiating informal arrangements with creditors may ease tight cashflow. Informal arrangement proposals generally involve:

  • paying outstanding debts by instalments over time, and/or
  • an offer in full and final settlement of a debt in circumstances where there are insufficient funds to pay it in full.

Why propose informal arrangements to creditors?

Suppliers and other creditors – generally everyone in business – expect full payment of their debts on time. However, business is unpredictable – customers pay late, unexpected expenses arise, BAS and tax bills creep up – putting stress on cashflow. If cashflow issues arent’ addressed, they can cause a business to become insolvent.

While creditors won’t be happy for their payment to be delayed, they generally understand these challenges and likely experience them in their own businesses. So they’re generally willing to work with you to arrange a payment plan to pay their debt off over time, just like you may do with an ATO payment arrangement.

In circumstances where your business can’t pay all of its debts, negotiations may include a proposal to settle their debts for less than the full amount.

Because these arrangements are done directly with creditors, they do not require a formal insolvency appointment and there is no public record of the arrangement.

 

How do informal arrangements work?

Informal arrangements are flexible in what you can propose in terms of amounts and timing of payments to creditors. However:

  • the business must be able to afford to make the payments as proposed, and
  • creditors need to understand that the offer is the best available option to them in the circumstances.

Informal arrangements can be proposed quickly and efficiently, however they require acceptance of your proposed settlement offer by each of your creditors to be successful. Once creditors have accepted your proposed arrangements, it’s up to you to make the agreed payments and comply with any other obligations.

If one or more creditors reject your proposed offer your informal arrangement may not proceed. Consequently, proposing such an arrangement is more difficult as the number of creditors increases.

 

What’s the process for implementing informal arrangements for a business?

The steps involved in proposing informal arrangements to creditors generally includes:

  1. If legal or enforcement action is underway, contacting creditors for a stay of action, until a proposal can be made,
  2. Assessing the financial and cashflow position, status of liabilities and key challenges,
  3. Determining the amount available to commit to settlement offers,
  4. Providing to creditors background information, an overview of available options and details of the proposal for an informal arrangement,
  5. Potentially negotiating and providing further information until satisfactory agreements are reached with creditors.

If successful, informal arrangements can help you avoid administration or liquidation, and potentially even more drastic turnaround and restructuring measures.

 

How we help

We assist businesses and people to negotiate informal arrangements with their creditors. We are able to assist with the assessment of what payments a business can afford, formulating a payment or settlement proposal and explaining a business’s circumstances to creditors. These arrangements can involve discrete advice to help manage the process, with no one knowing of our involvement. Or if preferable we can liaise with creditors on behalf of the business.

If you think an informal arrangement may be right for you, or you would like information about other options available to deal with your debts, get in touch with us for a conversation about regaining control of your cashflow.