It is a common scenario that when a company goes into liquidation the directors will have debts they are liable for because of personal guarantees. In some circumstances the directors will have also given the bank a mortgage over their home.

We were engaged some time ago by a couple (let’s call them Jess and Frank) who had been directors of a company which traded a restaurant in a popular shopping centre in Queensland. Due to tough trading conditions the business ultimately failed and the company was placed into liquidation. As a result, a major bank and the former landlord pursued the directors personally through personal guarantees that they held. There were other smaller debts but these were the main ones.

We were engaged after the bank had issued various demands and the landlord had commenced legal proceedings.

Raising Capital

Jess and Frank owned a family home together with about $80,000 equity in it. As they would lose this property in bankruptcy we advised them to sell the property to raise a lump sum of money which they could offer to creditors to settle their debts and avoid bankruptcy.

Around this point we made contact with Jess and Frank’s creditors to advise of our engagement and that they were considering their options given they couldn’t pay their debts in full. Creditors were also advised they would likely be getting a settlement proposal down the track.

Debt Settlement Negotiations

The settlement offer put forward to creditors was all the funds Jess and Frank had from the sale of their property. We compared this against what we believed creditors would receive if Jess and Frank were made bankrupt. In bankruptcy we considered creditors would receive 5.8c in the dollar, while our informal offer provided for 19c in the dollar to be paid to creditors. After some further negotiations with one creditor, all creditors accepted the informal offer and entered into settlement agreements allowing Jess and Frank to get on with their lives without the negative impacts of bankruptcy.

Collectively we were able to settle Jess and Frank’s debts of $382,000 for $73,000.

If you are struggling with debts and concerned about bankruptcy get in touch on 1300 4 CACTUS or send us an email at mail@cactusconsulting.com.au to have a confidential discussion today.

Posted on 30-05-18 in Debt management, Informal Arrangement, Personal Debts.