This is often the first question we are asked when we are introduced to a director of a company that is faced with debt difficulties.
The answer is relatively straight forward; it is the devil in the detail and impact on the relevant stakeholders (the company, director, shareholders, creditors, employees, family members, etc) that requires some expert assistance and advice, as each situation has different issues.
The options available to a company (and its officers) when faced with debt are:
1. Pay all of the debts owed in full
This could be facilitated by:
- A lump sum payment (borrow money, from company assets, sale of a business)
- Payments over time
2. Compromise / settle the debts with creditors
- A private settlement negotiated with creditors directly
- A formal arrangement pursuant to the Corporations Act. This can be achieved via a:
- Small Business Restructure (this option has certain restrictions)
- A Voluntary Administration, proposing a Deed of Company Arrangement
3. Do nothing or don’t resolve debts owed
If the debts are not settled or paid, this may lead to:
- Creditors taking action to garnishee income or assets
- Secured creditors taking steps to recover and sell secured assets (e.g. banks, private secured lenders, motor vehicle financiers, debt financiers, trade creditors)
- Secured creditors appointing a receiver over the company
- Suppliers recovering goods (retention of title / security claims)
- Landlords evicting tenants
- A creditor liquidating the company through the Courts
- ASIC deregistering the company
4. Voluntarily liquidate the company
This can be done for companies that are solvent (that can pay the debts owed) or insolvent (that can’t repay the debts owed).
Liquidation is the process to bring the affairs of the company to finality and involves recovering and selling the company’s assets, investigating its financial affairs and, if sufficient funds are recovered, paying funds back to creditors (and possibly shareholders).
With more volatile economic conditions ahead, and the ATO likely to become more aggressive to collect outstanding debt, it is important that you and your clients obtain expert advice, to assist in understanding the options available and the relevant implications.
If you have a client facing debt difficulties, please contact your local SV Partners’ expert for assistance.
Call us today on 1800 246 801 or submit an enquiry here.
Article written by Jason Cronan (Director) – Sunshine Coast