Article by Jimmy Chong, Accountant at Cactus Consulting.

Many businesses sign multi-year commercial leases. Some of these businesses suffer financial hardship along the way and struggle to meet their lease obligations. The directors of a company which trades a business with an unmanageable lease debt may liquidate the company but there are often risks involved with the liquidation process. We have previously written about some of the risks to directors of liquidation here.

When we are approached by clients who are unable to meet their lease obligations, the first advice we usually give is to negotiate a settlement with the lessor to avoid liquidation. We recently acted for a client whose business was unable to meet its commercial lease obligations and this is how we helped them. So, if you find yourself in these types of circumstances, give us a call on 1300 906 966 to discuss how we can help.

Background – Default Under Lease Agreement and Lease Debt

When we initially met with the client, they advised us of the following:

  • Their company was involved in legal proceedings in relation to a multi-year commercial lease agreement;
  • Default judgment had been entered against our client’s company for approximately $188,000;
  • Settlement negotiations had already been held between the lawyers of all parties, without success;
  • The lessor was not agreeable to a settlement sum of anything below $130,000;
  • The business had no significant assets and had debts of approximately $2,000,000; and
  • The lessor was disputing the genuineness of creditors listed in the company’s balance sheet as certain of the debts were owed to related parties.

Options Available to Our Client

When we met with our client, we discussed the following options which were available:

  • Voluntarily place the company in liquidation;
  • Allow the lessor to wind-up the company by an application to Court;
  • Appoint an Administrator and put a proposal to creditors, including the lessor, for a Deed of Company Arrangement; or
  • Seek to negotiate a settlement with the lessor to avoid liquidation.

Our client wanted us to negotiate a settlement of the lease debt and this is what we proceeded to do.

Successful Outcome – Settlement of Lease Debt

We presented the company’s financial situation to the lessor and advised the lessor that they would get very little, if anything if the company is placed in liquidation. We also made an offer of settlement and after some negotiations; the lessor accepted a settlement offer of $35,000. The settlement was in satisfaction of all of the company’s lease obligations.

The settlement not only represented a reduction of over 80% in the lease debt owed it also meant that our client would avoid liquidation.

Contact us for Assistance

If your company is struggling to keep up with its lease obligations, don’t delay things any further and get in touch with us. Call us on 1300 906 966 or send us an email to mail@cactusconsulting.com.au to arrange a free confidential no obligation initial discussion.

Posted on 04-08-20 in Business insolvency, Business Solutions, Corporate liquidation.