Business Debt

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Business Debt

How you deal with business debt depends largely on the legal structure of your business. You might run your business as a Sole Trader, in Partnership with your spouse or someone else or you may have a Company and maybe even a Trust.

Quite often there will also be personal debt (Credit Cards/Personal Loans) which have been incurred when the business wasn’t able to meet all business and costs.

There are lots of reasons why you might get to a stage where debt levels become unmanageable. Business activity downturn, accident or illness, loss of contracts, unexpected tax or relationship breakdown to name a few.

Whatever the reason there are many ways to deal with this debt.

Sole Trader

For Tradies or Professionals who operate alone the situation is relatively clear. The debts are all in your name so you are solely liable to pay them back.

What is not clear is if your assets (Houses, Cars etc.) are in joint names then your spouse or joint owner may be involved if creditors try to enforce sale of these assets.

Partnership

Most small business partnerships are between husband & wife and therefore the debts are usually incurred jointly.

Assets are more at risk because creditors have no other party to consider when trying to enforce sale of assets.

Company

Company debts are owed by the company not individuals. However in most small businesses the Directors of the Company are required to give Directors Guarantees to main suppliers & landlords, so each Director who signs becomes personally liable as well.

Sole Trader Business difficulties

If you have gone through a rough patch but business is now back on track there are ways to continue on with a proper repayment plan.

This might be a formal plan (eg. A Debt Agreement) or it may be an informal plan (eg. Negotiated repayments with Landlords, Suppliers, ATO and Others.).

A Debt Agreement can deal with both your own personal debts as well as business debt such as suppliers & tax. It freezes interest and recovery/legal action from creditors whilst allowing you to make affordable repayments worked out from a proper budget. You only pay what you can afford not what creditors are demanding.

For more information on Debt Agreements click here

It may be if you just need time to sort things out or you have one particularly aggressive creditor. You should remember however that being an “informal” arrangement any creditor can, at any time, enforce recovery or take legal action and you also need every creditor to be happy with the arrangement. A Debt Agreement is a much better option because you only need 51% of creditors to agree but all are locked in to the one repayment plan.

If you believe that your business is no longer viable you should quickly take steps to close it down.

This may involve:-

  • Selling stock and assets
  • Concluding or renegotiating any contracts
  • Collecting all outstanding debts
  • Paying all of the business creditors
  • Cancelling ABNs and BAS requirements
  • Notifying all interested parties.

You may need our assistance to do this.

It would be wise to talk to us before making any payments to your creditors. Whilst all creditors need to be paid their rateable proportion of the available money, possibly not everyone can be paid in full. Quite often we can negotiate with creditors for them to agree to settle on a lesser amounts thereby eliminating the need for a continued repayment plan or bankruptcy. It’s important to be fair or risk complexities later on.

If there are still debts owed after you have sold up business assets and collected outstanding invoices there are ways to limit an ongoing impact to your life.

Whatever you do, don’t sell your house without talking to us first. It may be the biggest bargaining tool you have.

In certain cases Bankruptcy may be the best option to draw a line in the sand and move on with your life. Your creditors may choose to send you bankrupt or you may choose to file for Bankruptcy yourself. Talk to us before you make any decision as bankruptcy has long term consequences and may not be necessary. You need to know all options & how each can affect you and your future.

Partnerships and Insolvency

If your business is operated through a partnership, there are key considerations that must be taken into account if the business becomes insolvent or if any one of the partners become insolvent.

In a partnership, you and your partners own all of the assets of the partnership jointly and you share liability for all of the partnerships debts.  This liability is shared jointly and severally between the partners so each of the partners is liable for their own share and also is liable for all of the partnership debts.

Under legislation, when a partner becomes bankrupt, the partnership is dissolved, which can create real difficulties for the remaining partners, even when they have the financial resources to satisfy the debt.

If you have concerns about any of your partners’ current financial stability or are aware of the vulnerability of the partnership due to any financial instability you are encouraged to call us to find out more about your rights and obligations.

Being aware of the potential repercussions of the insolvency of any one of the parties can influence the impact on your own assets.  Please call us if you have concerns.

If the partnership itself becomes insolvent and cannot pay its debts as and when they are due the whole operation of the business, including its assets are at risk. Resolution of the situation needs to be the immediate and top priority of all partners.

Steps to be taken are similar to the Sole Trader as above, but apply to the Partnership and each of the Partners.

If you, or any one of the partners, goes Bankrupt all of the bankrupt person’s personal assets including their stake in the business partnership comes under the control of a Bankruptcy Trustee.  This can be sold by the Bankruptcy Trustee to a third party or the remaining solvent partners may need to find the money to pay the equivalent value of the bankrupt’s business share to the Trustee.   Determining the value of the business and the amount of each partner’s share can be difficult and time-consuming and sometimes not possible.

When debts mount up it is very hard to satisfy everyone and very hard to close down a business.  Even if you have your own financial affairs in order, you could find yourself answering to an external controller, the Trustee of a partner’s bankruptcy.

Everyone’s situation is different. Different creditors and debt levels, different assets to protect, different ideas of what the future holds. Please talk to us before making decisions that might have negative consequences later on.

Company Debts

Companies become insolvent for many reasons including business activity downturns, slow payment by debtors, inadequate provisions for taxation or more personal issues including distraction from usual business operations during relationship breakdowns or periods of serious illness.

If your company has reached the stage where it can no longer pay its debts as and when they are due, you as a Director, have a legal obligation to work quickly to address the situation. Recovery can be very difficult, it is imperative that Directors take the steps required to address insolvency when it arises.

The business may need to cease trading, be sold, liquidated or placed into voluntary administration to obtain breathing space to sort out the cash flow difficulties.  Directors need to get advice as to their potential liabilities from personal guarantees and other issues.

Where the company debts and operational difficulties require closure of the company, the Active Debt consultant works with the Directors to ensure they meet their obligations and understand the formal processes involved.

The Administrator or Liquidator when appointed commences working for the creditors (not you) to ensure the best possible return is realised.  The process can become bewildering to Directors and our consultants stand beside the Directors throughout offering guidance and support to ensure the best outcome for all parties.

Over the past eighteen years, our consultants have had experience working to find solutions for people who are Directors of companies that have become insolvent.  We work with selected Insolvency and Accounting firms that provide expert advice in the following insolvency areas:

A Company can be placed into Voluntary Administration when the company is unable to pay its debts as and when they fall due but there is an expectation that the business will be able to continue operating or where it may be possible to give a greater return to creditors than would be available if the company was immediately placed into liquidation.

For a time, all debts are suspended during a review process.   The Directors then work with the appointed Voluntary Administrator to fully review the company operations and to design and implement a proposal, called a Deed of Company Arrangement (DOCA) that details to all creditors how the company will operate, what assets will be sold, the number of staff to be retained, how creditors will be paid, etc.

At a meeting of the creditors, the proposal is explained and creditors vote.  Where supported by creditors, the recovery plan for the company is then put into place.

Liquidation of a company means the closure of all business operations under that company and the financial termination of the company’s existence.  Liquidation can be voluntary process undertaken or can occur when a creditor, or possibly a shareholder, applies to the court for an order that the company be liquidated.

Voluntary liquidation is instigated by the Directors and generally with the approval of shareholders and creditors.  It is basically used to wind up the affairs of dormant solvent companies, or to deal with the financial difficulties of an insolvent company.

Liquidation of a company means the sale of all company assets either as a going concern or sale of individual assets.  The Liquidator deals with all claims of all creditors, eliminating any further recovery action on the part of creditors, except where personal guarantees or other liabilities apply.

Where cash flow is a serious issue but funds will be available from a reliable source or payment, it may be possible to take an informal approach with the support of key creditors.

If a breakdown in communication has occurred, the introduction of a third party to mediate on behalf of the Company can result in a positive negotiation where creditors decide to extend their terms once provided with the additional information to substantiate when payment will be available.

Landlord lockouts can also be successfully turned around and the business allowed to trade following successful negotiation by a third party.

Your enquiry

You can be confident that your enquiry regarding the possible insolvency of your company will be treated with the utmost confidentiality.  Before you lose your business or your house, talk to us to discover the alternatives that are available to you.

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  1. Do you have a house or car that needs protection from debt collectors?
  2. Do you have unsecured debts of more than $10,000?
  3. Is your gross income less than $108,000?
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1800 085 550

Active Debt Specialists is based in WA, successfully providing debt solutions to individuals and businesses since 1998. We help thousands of Western Australians to resolve their debt, keep their family homes, continue operating small businesses and eliminate financial stress.

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For further assistance we recommend you:

  • Speak to your Creditors
  • Call AFSA on 1300 364 795
  • Speak with a Financial Counsellor
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Please contact us for assistance once you have secured a regular income.

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Unfortunately, we are unable to assist you.

You need to have over $7,000 in unsecured debt to apply.
For further assistance we recommend you:

  • Speak to your Creditors
  • Call AFSA on 1300 364 795
  • Speak with a Financial Counsellor
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  1. Credit cards, store cards and personal loans are types of unsecured debts. Mortgages and car loans are not.