Creditor’s Credit Crunch – What Options Do Creditors Have?

The government seems to be helping everyone with handouts and relief. But, what options do creditors have when owed money?

Much is being made of the various state and federal stimulus packages, some aimed at households, such as Monday’s JobKeepr package. Others are  aimed at building a bridge that businesses can cross to survive the severe economic impacts of the COVID-19 pandemic.

The strategy to survival through the pandemic relies on several things. The hibernating of parts of the economy for a period of time and kick starting as many businesses as possible is central to it. But what does this mean for businesses owed money, and businesses who support debt recovery and collection?

The government has been rightly worried about people and businesses who owe money but have no income – but what about the groups they owe money to, the creditors? We spoke with three experts who gave us their insights. 

It is going to be tough

Bill Cotter is a Registerd Liquator and Bankruptcy Trustee as well as joint managing partner of Robson Cotter Insolvency Group and he is a member of the Insolve Panel. Bill shared his insights with us. “The focus of the government so far has been on keeping businesses trading, and this means a lot of changes for businesses who need to recover a debt.”

“We have seen the response period to creditor petitions and bankruptcy notices extended to six months and the minimum debt requirements to pursue liquidation raised to $20,000.”

In discussions with creditors and businesses across Australia, Bill is under no illusions about how tough it will be for companies with large outstanding debts, “Businesses with substantial outstanding debts or those that work to collect debts will have very tough times ahead.”

“Their own cash flow will take a hit as a result of these measures and will need to be allowed for, albeit the overarching intention and justification for the steps is clear, it will not minimise the pain that they will face.”

With courts closed or cases delayed there will also be impacts for creditors reliant on the process of law, “For businesses that do not have statutory demands or actions already in hand, there will be limited recourse for the next six months. In addition, with courts not sitting there will be delays to hearings and decisions on matters already in the justice system.”

Take Charge Of The Situation

Bruce Passetti is a solicitor, principal of Stratos Legal and a member of thesolvers.com.au. Bruce suggested three options:

  1. Get secured, and check your T&CsIf you are still trading on terms with the debtor, you might be able to put on a PPSR charge or otherwise take security on what you have sold on those terms. What’s in your T&C’s (such as obtainingPersonal Guarantees) will determine what  you can do to help secure yourself. Does the fine print allow you to put register an interest over the Director’s house? Check what rights the lawyers might have put in ages ago, and you’d never had to use. By securing what you can, you can become  a ‘secured creditor’ and rank ahead of others who do not have those safeguards in place.

  2. Issue Proceedings and get Judgement ready for when things pick up – Bruce says in most jurisdictions ”You can still pay the legal fees, and seek judgment for your debt but getting beyond that you will have to wait in most cases”. The government has introduced extensions for compliance with a number of  enforcement tools but there are still some avenues available to creditors to get paid or get secured. The trouble is that things are still changing and settling down, so get advice as to your options. Just one example is that the bailiffs or sheriffs in many jurisdictions are suspending their collection activities for several months.

  3. Give time, take security – If you don’t have the great terms and conditions you can fall back on in option 1 to be a secured creditor, think about a ‘Deed of Forbearance’.  Basically say to the debtor, “we won’t chase you for X months, you can then pay the debt off over at an agreed rate but in return you agree to us registering on the PPSR and getting security on assets” and so on.” It is so important to get these arrangements in a proper legal form so that there is  not confusion later. There are specialist insolvency law firms who can provide you with a template Deed you can then fill in yourself. Try for a Director’s guarantee”.

Bruce says he is seeing bank and non-bank finance still available for good businesses facing a cashflow crunch right at the moment. What they want to see are accurate financials and pro-active business owners.

Exposed Industries Should Seek Professional Help and a Safe Harbour

Ginette Muller, Partner of Hall Chadwick and member of the Insolve Panel says that the Government has assisted greatly by giving every director in Australia Safe Harbour for 6 months but that this only protects them against insolvent trading.  “Businesses need to be proactive – get themselves into proper Safe Harbour so they are protected against more than just insolvent trading.”  Now is a very good time to be looking at how to come out the other side.  The Prime Minister is advocating for deals to be done with all creditors, not just banks and landlords.  This could all be done as part of a restructuring arrangement and businesses need to think about how they do this.

“Safe Harbour is a strategy that a business can turn to, but there are conditions. The business owner must have their accounts and records in order, get expert help from a professional, determine if the organisation is viable and then develop and implement a restructuring plan.”

“This strategy provides directors with time to take stock. You can negotiate with suppliers, engage with customers, refinance debts, diversify service offerings, target new markets, reassess fixed costs and plan a way to ride out the storm.”

Who To Turn To For Expert Advice

If your business needs professional advice to get you through the next few months, Thesolvers.com.au has a panel of experts, with decades of experience in helping companies to meet challenges, build robust strategies and go on to future success. Contact us to learn more.

This article first appeared in The CreditorWatch Blog

Share This Post

Share on facebook
Share on linkedin
Share on email

Subscribe To Our Newsletter

Get important news affecting Your Business

TheSolvers.com.au Site Icon

SUCCESS! Your inquiry has been sent

Cheryl Stainsby

Cheryl is a Director’s Advocate specialising in Crisis Management; Business Health Checks, Asset Protection and Exit Strategy  Find out more or Email Cheryl.

Niall Coburn

Niall Coburn

Niall is a Litigator, Prosecutor and Corporate Investigator. Find out more or Email Niall.

Bruce Pasetti portrait photo

Bruce Pasetti

Bruce Pasetti is the ‘go-to’ for actions for Windup (or to defend companies and directors against similar actions). Bruce is a Solicitor with over 20 years legal and specialist Insolvency experience. Find our more or Email Bruce.

Stuart Craig

Stuart is a Business Transformation Specialist and Certified Practicing Accountant, specialising in business turnaround and restructure, business management and business ownership transfer. Find out more or Email Stuart.

James Flaherty

James Flaherty

James is a business consultant and accountant. He specialises in sales and marketing for the business and finance sectors. Find out more or Email James.

Ginette Muller

Ginette Muller

Ginette is a Business Crisis Advisor and Accountant specialising in Safe Harbour, refinancing, litigation funding, restructure and business crisis advice. Find out more or  Email Ginette.