How_To_Solve_Your_Company's_Debt_Problems

The Federal Government’s latest announcement on changes to the JobKeeper scheme will leave many businesses in a quandary. Not only does the revised scheme provide for a reduced subsidy from October 2020, it will also require businesses to prove a sustained drop in their turnover to be eligible for the wage subsidy. Numerous businesses have unmanageable debt but they do not pass the new eligibility test and they will therefore have to make difficult decisions.

We at Cactus Consulting can advise you on the available options if your business is in financial difficulty and is finding it hard to keep up with costs and expenses. In this article, we look at some of the options available to you.

Injecting Funds Into Your Business

If your business is facing cashflow issues, you can always inject more capital or funds into the company. The funds can be provided by you or obtained from a financial institution. It is important however, that you only advance funds to your business if you have a plan for its ongoing viability. As, if you advance funds to your business and it ultimately fails then you will lose these funds or if they are a loan from a bank, you will be liable for any shortfall. As such, you should:

  • Obtain professional advice prior to injecting funds into your business to ensure the business itself is worth saving;
  • Ensure that if you are lending funds to your business, your loan is documented, security is taken and your security is registered on the Personal Property Securities Register at the time the loan is provided.

Negotiate Debt Settlements or Payment Arrangements

Often, our advice to our clients is to negotiate a settlement or payment arrangement with their creditors. Not only does this avoid liquidation, it also avoids the risks to directors that come along with formal insolvency appointments. With the option to pay less than you owe to creditors or your company’s debts by instalments, this will free up cashflow and hopefully allow you to continue trading.

However, for these types of negotiations to be successful, it requires most, if not all of your largest creditors to agree to the settlement proposals or payment arrangements. The negotiations will not be successful if too many large creditors do not agree to the proposal(s).  As such, these types of negotiations sometimes are only appropriate if you have a small number of larger creditors.

If your business has a tax debt, there is virtually no chance that the ATO will reduce the core debt owed to it. However, it will consider reducing interest and penalties owed and a payment arrangement over time.

Voluntary Administration

One of the ways to avoid the effects of liquidation, including the risks to directors, is to enter into voluntary administration.

The process of voluntary administration allows you to settle your company’s creditors’ claims and reduce its overall debt level. When we are appointed as voluntary administrator, we will investigate your company’s affairs and report to creditors on our findings. You, as a director, may make an offer to settle creditors’ claims which we will then put forward to the creditors. The offer is made by way of a formal proposal called a Deed of Company Arrangement (DOCA).

We will then hold a creditors’ meeting where they vote to either:

  • End the voluntary administration and allow you and the other director(s), if any, to resume control of the business; or
  • Enter into the DOCA which was proposed by you; or
  • Place the company in liquidation.

If the DOCA is agreed to your company can continue trading and avoid liquidation.

Liquidation

Many businesses will do whatever they can to avoid liquidation. Liquidation however, may not be the worst thing for your circumstances. Liquidation is appropriate when your business can no longer continue trading in its current form and there are many benefits to you as a director, including avoiding certain personal liabilities.

The purpose of liquidation is to wind up the affairs of your company. It begins with the appointment of a liquidator who will realise any available assets of your company, investigate and pursue any viable recovery actions and report to your company’s creditors. Once these tasks have been completed, any surplus funds will be distributed to your company’s creditors.

Contact Us For Assistance

If you believe that your company is or will have difficulties paying its debts, get in touch with us on 1300 906 966 or send us an email at mail@cactusconsulting.com.au to arrange a free confidential initial discussion.

Posted on 30-03-21 in Business, Business insolvency, Business Solutions, Liquidation, Turnaround and Restructuring, Voluntary Administration and Deed of Company Arrangement.