Transcript – Your Directors Advocate
Episode 11 – What the Lawyer Said 2
James Flaherty
Welcome back to Your Director’s Advocate. This week again, Cheryl Stainsby continues a conversation with Bruce Pasetti, a lawyer in Brisbane. We often talk sometimes, Cheryl, about the road to hell is paved with good intentions. So if you’ve got two business partners, sometimes it’s nice to have a chairman if you need to have a dispute resolution process and all that sort of stuff. Some of that stuff might be helpful to chat to Bruce about, wouldn’t it?
Cheryl Stainsby
Exactly, and I speak to people all the time as well because I’m pretty passionate about if you’re setting up a business, making sure you go in with all the right tools, the shareholders agreement, the company. But once again, we’re talking about a little bit of a group effort too because your accountant, first of all, needs to set up the correct entities, but you need the legal advice about those entities, the agreements. Sometimes it’s a job that I project manage. Maybe their accountant’s not really comfortable with setting up that structure. Sometimes they are, sometimes they’re not. So it’s really important. And once again, Bruce, you would see this all the time, people that start businesses with partners and family and friends, and there’s no shareholder agreement whatsoever. And it’s like a marriage. When it ends, it’s just as equally bitter and nasty quite often as the end of a marriage and not having that documentation. Still nasty if you’ve got the documentation, but at least there’s a little bit of a pathway as to how to resolve the disputes and move forward.
Bruce Pasetti
That’s right, Cheryl. I think that if people have started off by doing the basics of like, for example, getting a shareholders agreement in place, it sets the tone for the entire business. Everybody wants to set up a business and have it run properly and grow and be a good business. Nobody starts off wanting to have a bad, shambolic business. So if you want it to be a good business, start it like a good business, have a shareholders agreement. If things run smoothly, it’ll gather dust in the bottom drawer and you may never look at it again, but it’s the intent of setting yourself up and doing things properly that matters. So you go through the process of a shareholders agreement, slow everything down for that minute to get that in place, and away you go from there. Then that sets the tone for later on for everything from setting up domain names, because again, when the divorce happens, who’s got control of the website? Oh, that’s Fred’s cousin’s nephew. He’d set that up. Oh, and where’s he? Oh, I don’t know.
Cheryl Stainsby
Yes. Maybe it’s a little bit like a prenup. When you actually sit down and have these conversations before you actually tie the knot, things sometimes come up that people hadn’t even thought about that they can have those robust discussions about beforehand.
Bruce Pasetti
That’s right. As soon as you start talking about, well, how would it work on exit? You give somebody the example that in five years’ time, you want to leave the business, but partner here wants to stay on. How would that work? It might reveal a lot about who people really are when somebody starts, rather than they’ve already got in their head some very complicated me, me, me situation, and not thinking about the other party. For example, I see that all the time, where it’s like, oh, well, when I leave, I’ll be immediately paid out everything that I’m owed, plus half the value of the business within seven days, and I’ll get something in perpetuity, because I was really the brains behind it all.
Cheryl Stainsby
Or the other situation is where one person’s put the money and the other person’s put in the expertise, and the person who put in the money believes that they should be entitled somehow to more on the exit.
Bruce Pasetti
Yes, that’s right. Notwithstanding that the other person was doing all the work. That happens quite regularly. Yes, shareholder disputes are invariably bitter. They’re invariably expensive. They’re invariably situations where nobody’s happy at the outcome, and a lot of them end up getting resolved at a mediation, but not before there’s been some litigation and some legal rocks thrown. I would say that if you were able to go back and look at the legal advice that was given at the beginning of each of these disputes, that there’ll be many examples where the solicitor has written a letter to the client saying, try and resolve this. Do something to get rid of it because it’s going to be bitter and twisted.
Cheryl Stainsby
Bruce, we’re not talking about major corporations here, are we? We’re talking about often very small mum and dad businesses where the turnover might only be $500,000 a year, and they’re just as nasty and bitter.
Bruce Pasetti
Yes, that’s right. Between them, we’ll tear up $100,000 having a fight about it without any problems whatsoever. They’re difficult situations. Taking the time to get set up, the beginning with things like shareholders agreements, very important because as I said, I think it sets the tone for things going forward.
James Flaherty
It was that old expression, I hope for the best and plan for the worst, but certainly you’ve both got massive insights. This is part of what we try and do with this series, isn’t it, shareholders? Just to prepare people for what could go wrong.
Cheryl Stainsby
We would all get the asset lists every day, and I actually find it quite sad when I look through the asset lists and you see the list of companies that have been deregistered in the last month, and I look at the names of the companies and I think these were people’s hopes and dreams. People started off with so much hope that they were going to create a better life for their children or their family or whatever, and it’s crumbled, and I wonder how much of it crumbles sometimes just because people don’t get the good advice when they start.
Bruce Pasetti
Yes. Nobody sets out in business to go bust, and it’s difficult. Business is difficult, and one should think three times before coming into any enterprise, but preparation is worthwhile, and spending some money upfront on structuring and the advice repays itself many times over.
James Flaherty
I hark back to what the barbecue conversation, and I’ve used this example, I think, with both of you before in different conversations about a person who ran a restaurant, and his mate told him that getting a company would be too expensive, and the other same mate said, get your wife involved as a partner so it’ll reduce your tax. So they both went bankrupt. They’re just not having the right advice at the right time. So I suppose to circle back, I mean, surely we’d never say that a professional gives necessarily bad advice, but they perhaps don’t give the right advice at the right time.
Cheryl Stainsby
I know. I often just think that, once again, as we talked about, there are specialists in law exactly the same as there are specialists in medicine, and you really need to make sure that you’re seeing the right lawyer with the right field of expertise. You might feel very comfortable with your convincing lawyer or your family lawyer, but you’ve really got to ask yourself, am I going to get the correct advice with that professional? Do I need to see a specialist in the field?
James Flaherty
If I’m a professional, do I sometimes feel a sense of obligation to my client to try and help them, even though it’s the very edge of what it is that I’m capable of? I mean, how often do we see people veering into aspects of law or accounting that they’re really not strong enough?
Bruce Pasetti
Yeah, it’s human nature to want to help and to try and assist somebody. So you can’t criticise somebody for wanting to assist, but at the same time, from the professional side of things, you’ve got to put it back in perspective and go, am I the right person for this job? Have I got the expertise? Have I got the time? Am I too close to the people? If it’s a couple of mates who are going into business together, and I’m friends with both of them, they golf with them all on Saturday, should I be involved at all? Should I stay clear of the situation?
James Flaherty
So that might be a case where the professional accountant lawyer could be sorted to blame a little bit if they do get a little bit too close.
Cheryl Stainsby
Yeah, look, I think people are always trying to save money too. I’m going to talk about a classic example of where maybe somebody’s borrowing money, signing a mortgage, and on the bottom of those mortgage forms, it gives you the option to seek legal advice or not. And the number of clients I see who find themselves way above their head with hideous loans, who were then sort of saying, oh, well, I didn’t really get legal advice. I had dinner with a friend who was a lawyer and over a few glasses of wine, I got the advice. And you’ve got to sort of say, well, I think the client’s got to take some responsibility for that. It’s not always about trying to save money. It’s about getting advice that’s going to make sure you understand exactly what it is you’re doing.
James Flaherty
I hear what you’re saying though, the both of you. Hang on, I’m in hot water already. I’m scratching around for money as it is. They’re like, now I’m going to have to pay specialist fees. That’s the bit that I can see the director would sit there and go, how am I going to find money for Bruce if I’ve already got a lawyer? But if I’m hearing what you’re saying, it’s because if I don’t, it’s likely to cost me a lot more.
Cheryl Stainsby
And I think what we all say, what we all come back to is seek advice early. Don’t wait until you’re down to your last $10,000 in the bank. Everybody knows. They know if something’s out there. They know if there’s problems. There’s lots of warning signs. And so often people leave it till the last minute thinking that they’re going to win gold lotto, a miracle’s going to come from nowhere, a thunderbolt’s going to come out of the sky. Seek help early. Speak to somebody early. And I think that’s the best advice you can give, because you can afford to pay the right lawyer. You can afford to pay the right accountant if you get advice early. But if you leave it until you’ve got people knocking on your door, trying to shut you down, then yes, it becomes very difficult to afford that help.
Bruce Pasetti
I think it comes back to, again, if you go to somebody who’s got expertise in the area, and then they do it all the time, it becomes a commodity product, bread and butter for them, the advice may not be costing anywhere near as much as you might think it would. Exactly. Yeah. So I think it’s a matter of reaching out to your contacts. And if you’re dealing with Cheryl, you say, well, who do I speak to with this? Because what you’re getting, as much as anything, is industry knowledge of who’s there in the industry. I mean, you talk about insolvencies, and there’s this perception that, for example, that if I’ve got a company to refer to a liquidator, I’ll refer it to the same liquidator every time. That’s not the case. One, ASIC discourages that practise. And two, it’s horses for courses. Yes, we all like to deal with people that we know and like, but there are plenty of instances where you go, oh, X is really the right person to take this job for whatever the particular reason is. And that’s an industry knowledge thing. You might go, X has just been dealing with three or four companies just like this, or there’s a secured creditor lurking around, and we know that X is a favoured person with that bank, and that bank won’t interfere with them because they like that liquidator, for example.
Cheryl Stainsby
And not only that too, I think it’s about personalities. I have a panel of professionals that I use, and I often think, you know what, that guy’s a really good lawyer, but I just don’t think he’d get on with this particular client. And sometimes that’s got a lot to do with who you refer to as well. It’s about personalities.
Bruce Pasetti
That’s so true. I was dealing last year with a fellow who’s an ex-footballer, had played sort of semi-professionally, and he was stereotypical ex-second rower. Nice fellow, but he needed a certain type of liquidator who would talk to him like that with a coach. And that worked. If we would have referred that person to another one, it would have just been a terrible situation. Yeah.
Cheryl Stainsby
And I think, you know, like I say, particularly in Brisbane, it’s a small community. We all know each other. We all work together. So we all can sort of say, I can say to a client, well, look, maybe speak to these three people. I think these people would work well with you. See if you’ve got a rapport with them. Sometimes they’ll only ring one. That’s fine. That’s okay.
James Flaherty
To round off perhaps where we’re at too, I mean, we are sitting today in Brisbane, but all three of us deal with clients around the country. So I suppose in the age of Zoom or Teams, we do deal with people nationally. And the reason why people would go to the two of you is because you’ve both got reputations for being the right people to see in the right time. I think we always say people go to you too late. But if I went and saw both of you at the beginning, when I was setting up and I had my dream, or if I at least said, hey, Cheryl, I’m thinking of starting up a business, which lawyer in town might give me a bit of a watch out, especially if I’m dealing with somebody I don’t know so well, who could I talk to about setting up? Maybe I should speak to somebody like Bruce in the beginning, because at least he can prep me for what could go wrong.
Cheryl Stainsby
Can I just jump in here? Because we had this conversation with our accountant in one of our podcasts just recently, didn’t we? Sadly, when people are setting up in business, and you try and give them advice about structures and agreements, sadly, people have the dream, and sometimes they just don’t want to hear the advice. And I think the take out from this is that you’ve really got to put your foot on the brake pedal, contain the excitement, and get the advice before you jump into a business. Listen to the accountant, listen to the lawyers, listen to what people are saying about whether it’s a potentially good business or not, whether your structure’s good. Maybe your brother’s not the best person to go into business with. Listen to what people are saying to you. Don’t get caught up in the emotion. Try and look at everything practically and commercially.
James Flaherty
Barbecue advice is probably worth what you pay for it, too, I think. Hey, I really appreciate you coming in, Bruce, to share with us your thoughts this morning. That’s been a bumper episode this morning. Yeah, it’s been good. Thanks again, Cheryl Stainsby, your Director’s Advocate. And thanks, Bruce Pasetti, Principal of Stratos Legal. Thank you.
Bruce Pasetti
Thank you.
Cheryl Stainsby
This is a general reminder from your Director’s Advocate that these podcasts are general in nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal, or counselling advice, or contact your Director’s Advocate on 07 3340 5102. Thank you.
Transcript – Your Directors Advocate
Episode 10 – What the Lawyer said 1, with Bruce Pasetti
James Flaherty
Welcome back to the Your Director’s Advocate podcast. I’m James Flaherty. I’m here with Your Director’s Advocate, Cheryl Stainsby. How are you, Cheryl?
Cheryl Stainsby
Good, thanks, James. How are you this morning?
James Flaherty
Yeah, really well, really well. So this morning, we’re joined by Bruce Pasetti from Stratos Legal, Principal of Stratos Legal in Brisbane. How are you, Bruce?
Bruce Pasetti
I’m well, thank you, James. Thanks for having me, Cheryl.
James Flaherty
So the lead into this series, Bruce, is that we’ve been talking about the accountant never told me, or the bookkeeper never told me. We called this a little mini-series, The Blame Game. And the idea behind this was the watch-outs for directors, making sure you’ve got the right advice, but also the people who might be working with businesses in trouble, what are the things they’ve got to keep in mind. So one of the questions I had for you, Cheryl, was how often when people come and see you, have they phoned a friend, or spoken to the person over the back fence, or gone to their cousin who’s given them, and I’m doing those voice marks, they’ve got legal advice from a friend, or a relative, or somebody who’s helping them out. How often do you see that?
Cheryl Stainsby
We see it a lot. And unfortunately, in the insolvency space, it’s really important that you get advice from the correct people. And I suppose a few examples that we often see would be where a client owes somebody some money, maybe they’ve received some legal notices, creditors stacked demand is probably one of the classic ones we see. They’ve spoken to their cousin or somebody who has a bit of legal knowledge who said, oh, don’t worry about that. If you’re disputing it and you don’t owe the money, you don’t need to worry about that. And then often by the time they actually show us the document, sometimes it’s actually too late to really do anything about it. Maybe the company’s already been wound up because somebody said to them, oh, don’t worry, if you don’t owe the money, a liquidator can’t shut you down. So that sort of advice isn’t helpful. And our perspective is that if you get a legal document, then really you should be getting advice from somebody who’s a specialist in that field. And that’s why I wanted to bring Bruce along today, because Bruce is an insolvency specialist. And realistically, he can give advice as to how to manage these documents. It’s his area of expertise, and it’s going to be good advice. It’s going to be advice that’s going to help you stay out of trouble. Or if there is no immediate resolution, then perhaps he can refer a client to somebody who can assist with an exit strategy, who can assist with the next step after that document. Not only those legal documents, we often see clients who have come to us perhaps with a sale document or a loan document that’s been drawn up by somebody who it’s not their area of expertise. And then maybe further down the track when that document’s called into play in a bankruptcy or a liquidation, the document doesn’t stand up to scrutiny. And of course, the client is upset then because they’ve paid somebody to have this document drawn up, and it doesn’t actually have the desired result.
James Flaherty
To jump in, so Bruce, why would someone come to your firm in sort of the context of what Cheryl’s been saying there? Because, I mean, if I’ve got a lawyer that I’ve been using and he’s done business sales for me, so when do you tend to get involved? Maybe that’s the best lead into that.
Bruce Pasetti
Yes. Thanks, James. I mean, I was just listening to Cheryl. We always call it barbecue advice. People getting the advice at the barbecue from their uncle who was a solicitor 50 years ago, or my favourite is always, I know somebody who knows a KC and the KC said this. And yet, I can’t get a KC to do anything for me without putting a lot of money in their bank account. It really comes down to the modern world where there are experts in so many things, and the days of a generalist are behind us. It’s just like medicine. You go to your GP who almost immediately, other than for the most common ailments that you could almost diagnose yourself, will send you off for a battery of tests and then refer you to an expert, just to be sure. So it’s been the same in the law for quite a while. And so expertise means you’re dealing with somebody who predominantly practises in that area of the law, insolvency, as we’re talking about here, which means that they should be pretty much up to date with what’s going on in the legal scene, what’s the latest case. They should also be quite prompt in their advice. A good expert probably off the cuff will get it right 90% of the time and then go back and just double check on that 10%. It’s always important to do the 10% work. One misconception is that it will cost more coming to the CBD to see my firm, for example. Yes, parking is more expensive in the city, but we don’t see too many clients face-to-face in this day and age. It’s telephones and Teams meetings. But the costs are usually very competitive because we see the job as being a routine job, whereas somebody who doesn’t practise in insolvency sees it as a novel, complicated job. And so they’re going to charge a lot more to get. So it’s your bread and butter.
James Flaherty
Yes. Yeah. And I mean, that’s your day job. And we talk about this a bit, don’t we, Cheryl, about kind of your day job dealing with people in this situation, as opposed to somebody who’s kind of helping out a business mate. So they’re going to watch out for a lawyer, an accountant, we’ve talked about before. If you’re sailing close to the edge of what you know, then are you really helping them? Can I be that aggressive?
Bruce Pasetti
I think you can. I saw an example just recently, in fact, I know that Cheryl was involved, where there was a strange situation where a company was inadvertently deregistered before something else had been done. And the client, before speaking to Cheryl, went to their accountant, who said, well, we’ll register a new company, call it the same as the deregistered one, and that should work. Okay. And that didn’t work. What could possibly go wrong? Yeah. So they spent money on a company that they did not need. These people are retired. They then went to their suburban lawyer, who gave them a solution, but it was a very expensive solution, or one that wasn’t going to work in the timeframe that they needed it to work. And they spent money there. They then thought to ask Cheryl, who referred them to somebody in our office, who said, maybe we could just try the really simple solution. We can do this. Can’t be 100% certain that that will work, but if it does, solves your problem. If it doesn’t, well, you’ll have to revisit. Well, it worked. Took a couple of hours and it was all done. And the lady actually rang me after it had happened, saying, gee, I wish I’d called Cheryl before. I’ve spent all my money. And she actually asked if she could get the money back. But there was a lesson that she learned there.
James Flaherty
Yeah. There must be a bunch of people you both see who’ve spent a bit of money before they come to you. So it’s a quite interesting example, actually. It is.
Cheryl Stainsby
But the other thing I think that you need to factor in here as well, and I’ll go back to the sale contract, for example. Your suburban guy who’s doing a sale contract is doing a normal sale contract. And a sale contract for a stressed business is often very different to a sale contract just for a normal business. So the cost then to the client going forward, if one of the companies ends up in liquidation, can be high because a liquidator may then say, well, it’s not a valid contract. You haven’t paid enough money. You haven’t done this. You haven’t done that. We want more money. And the cost then can be quite high to the client. Whereas if they’d maybe paid a little bit more, seen a specialist and got a sale contract that was suitable for the purpose drawn up, then there wouldn’t have been that extra cost to go down the track.
James Flaherty
I’m singing from your hem sheet here a bit, but if I’ve got an account and I’ve got a lawyer, I’ve got a business that’s in trouble, hang on, you’re telling me I’ve got to use somebody else. You do need to go to somebody like you, Cheryl, because what’s the difference between a business contract that’s ordinary and a contract when I’m in trouble? That’s a lot for a person who’s trying to deal with keeping the lights on.
Cheryl Stainsby
It is, and it’s not what they do. And I think we’ve said that sometimes the advantage of having someone like myself, like a director’s advocate, is that while I’m not a specialist and I can’t do sale contracts, I can’t lodge the financials, I don’t do the liquidation, I know what needs to be done and I will project manage. I’ll make sure that the client is referred to the correct professional for the job, the correct lawyer, the correct accountant, the liquidator, the finance person. So it’s about making sure that they go and see the right professionals.
James Flaherty
But then again, one of the things we do often wonder about, if I go into a business and I’ve got a bit of trouble, I’m always worried that the audit partner might, if I refer, I’m an accountant, I refer it into an accountant in town, does the audit partner of that particular firm and the tax department, am I going to get my client back ever again if they do survive this scenario? So if you refer them to Bruce, I suppose I’m saying, Bruce, you don’t want to do the bread and butter stuff for some suburban lawyer, do you?
Bruce Pasetti
Well, that’s right, James. Our experience is that it’s a little bit like going to see the oncologist, probably the best doctor that you’ve seen, but you’re not going back to the oncologist if you ever have to because that was a bad experience, it’s been resolved, you’re grateful for the service, but you really don’t want to go back and revisit it. So we find that a lot of the time, deal with the problem that the client has, be involved in whatever that needs to be done, they move on because we’re associated with resolving bad times and bad situations and they don’t always want to stay around and have us do other things. But sometimes they do and sometimes we will do those things.
James Flaherty
But we have talked about where sometimes the relationships are over, the accountant’s relationship is over or the legal relationship, the relationship with that particular client and professional has run its course. That’s fine, there’s a difference.
Cheryl Stainsby
But I think too that one of the tightropes that we walk as directors advocate is that we’ve got to make sure that, for example, if an accountant does refer a client to us, that if we have to refer them to other professionals for something, that we’re not stealing their client and we go to great lengths to make sure that what we’re trying to create is a good client to go back to the original referrer. And you’re right, a lot of the clients that we refer to you, Bruce, they come to you for a specialist agreement out of the scope that their suburban lawyer who does their conveyancing does. And so then they go back to their suburban lawyer for the wills and all of the other bits that they do.
Bruce Pasetti
That’s right, Cheryl. I think that clients often see it as part of the project management thing. It’s a bit like you go to a builder who’s got the whole team of trades together. And yes, the job gets done well because the builder’s got all of their trades and can coordinate them and the trades themselves over time start to know each other. And so if I’m going to be late, I don’t necessarily even have to call Cheryl. I’ll call you, James, to say, hey, my paint hasn’t arrived today, so it’ll be there tomorrow, et cetera. The same situation happens is if people just see you as part of the project. You’ve done your piece of the project and then they go back and move on with their lives. And look, we’re attuned to what Cheryl’s saying about not wanting to steal a client either because it ends up being bad karma and we end up losing our referral sources if we’re trying to do that.
James Flaherty
You’ve been listening to a discussion between Cheryl Stainsby and Bruce Pasetti on Your Director’s Advocate. Tune in and I’ll continue the conversation next time.
Cheryl Stainsby
This is a general reminder from Your Director’s Advocate that these podcasts are generally nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice or contact Your Director’s Advocate on 07 3340 5102. Thank you.
Your Directors Advocate – Transcript
Episode 9 – The Loan Trap with Tammy Haug
Transcript
James Flaherty
Welcome back to Your Director’s Advocate. I’m James Flaherty. I’m here with Cheryl Stainsby. Hi Cheryl.
Cheryl Stainsby
Hi James. How are you today?
James Flaherty
Really well, really well. We’ve been talking about the bookkeeper didn’t tell me, or the accountant didn’t tell me, or I don’t know, that’s something in the bookkeeper. And then we’ve had Damien Davis come in and tell us kind of what happens when it all blows up and goes into liquidation. But this time we’ve got Tammy Haug coming in. Hi Tammy, how are you?
Tammy Haug
Hi, good thanks. How are you?
James Flaherty
So Tammy, you’re the general manager of eCars Finance. Yes. So this is a different perspective, isn’t it? Where do you see this one, Cheryl, insights we can get from Tammy? Is it sort of, you talked about things like loan stacking and… So maybe tell me where you’re going with that.
Cheryl Stainsby
So where I’m going with this is that I’ve been working with Tammy’s company now for a number of years and Tammy assists us when we’ve got clients. Maybe you need to purchase cars, a little bit of a pickle, they need some asset finance, the cash flow to get them out of trouble. And they have an amazing team. I’d say there’s very few clients that they can’t help. They come to us soon enough. We refer them to Tammy, Ace, Jason, the guys in the team, and they get it done for us. But something that we’re seeing a lot more recently, and Tammy and I have discussed this because it’s a major concern, is that I would say that almost every company that comes across my desk lately has what I would call high risk loans with very onerous conditions that can cause a lot of problems for the director of a company. And it puzzles me as to why potentially when we could get what I would call good debt, why our directors are suddenly opting for these other loans? So Tammy and I had a discussion about it, and we felt that it was worth a podcast because we not only see one or two of these loans, sometimes we see three, four, five, six of these loans, and these can cause major, major problems for a business.
James Flaherty
In terms of these loans, you’re talking about things that might be advertised on television or things you can go via email. Facebook. Sort of the last chance hotel type.
Cheryl Stainsby
Yeah.
James Flaherty
Okay, right.
Cheryl Stainsby
And the discussion that we had, and Tammy will expand a little bit further, is that these loans are relatively easy for directors to get. They may be a little bit embarrassed because they didn’t take the advice of their accountant or the bookkeeper or the lawyer. They’ll go off on their own, try and source the money themselves to get themselves out of a bit of a pickle.
James Flaherty
So start from, okay, cool, I get you. So start from the beginning then. So maybe Tammy.
Cheryl Stainsby
Yeah, Tammy, come in and you tell us about the typical journey.
James Flaherty
Yeah, so they’ve gone to Cheryl because they’ve gone down that path too. So I think, what you’re saying, Cheryl, is the beginning of the journey starts when?
Tammy Haug
So a lot of the time, if I obtain a customer who has a number of these stacked loans, when we get stacked loans means they’ve just got more than one. They’ve had one loan, they’ve maxed that limit out with that particular lender, then they go to the next one that’s a bit higher in interest rate, that gets maxed out. And like Cheryl said, we can see up to six. Generally speaking, once we’ve sat down that customer and really unravelled that thread of, how did we get here? It really starts with this. They just thought that they could fix this themselves. Potentially, they were a bit embarrassed. Maybe they were embarrassed that a really strong company had hit some headwinds and they didn’t want to reach out for help, or they might’ve known that they hadn’t listened to the experts around them. And they thought, well, I can go and fix this. And unfortunately, the marketing is targeted to those clients in those situations. So the prompts in the Google Drive.
James Flaherty
So they’re really designed to talk to my, is that people are themselves in their company are one thing in their mind. Like they’d see that pretty much their persona would be the success of their company and that sort of stuff.
Tammy Haug
Absolutely. With my team, we always say, remember that a person’s company is like their child. It’s their creation and they’re very proud of it. And so they should be. And so when something goes wrong with that child, that company, it can obviously cause a lot of stress, a lot of anxiety and a lot of feelings related to ego and pride, which can sometimes get in the way of making some really good decisions.
James Flaherty
Is it sort of almost payroll, same day loanings for companies that we’re talking about here?
Tammy Haug
Yeah, it’s very similar. It’s the short term, painful payday type loans, but for businesses, the bar is very low. So if you’re a director at night, you’ve just thinking about how are you going to make payroll that week? You might’ve left it to the last minute. You’re Googling, how can I get some quick cash for my business? And up pops a link. Can you follow the yellow brick road? And all of a sudden you’re instantly approved for 50,000. Well, that’s the instant sugar rush you need right now. And that’s going to prolong your problems. And you can think about them another day and maybe go to sleep that night. So I understand where you get there. Problem with that is that 50,000 oftentimes turns into a hundred thousand and you haven’t fixed the structural problems with your business, i.e. cashflow, profitability, or whatever else is going on. And now you’ve just added expenses to that same business with that structure to be paid back under some very onerous conditions.
James Flaherty
That’s the story. I said, yeah, if you haven’t fixed the problem, you’ve got an instant sugar rush, put yourself down, you’ve signed something that you may or may not understand, you’ve added to the problem.
Tammy Haug
Well, in fact, that’s a really big thing that Cheryl and I were just discussing, which is a lot of times, because there’s just so much terms and conditions, without having an expert to explain that to you, oftentimes the directors don’t understand what they’ve signed until it’s far too late.
James Flaherty
So when you get an upgrade on your phone or something like that, it isn’t almost like people are getting terms and conditions like that. They’re so used to just click.
Tammy Haug
Scroll and click. DocuSign, scroll and click. I mean, how many times do you read the Apple conditions? Scroll and click. I’m getting 50,000. Everything’s going to be okay. I’m instantly going to be able to improve my gross profitability. I’ve done this at 10 o’clock at night. I’ve got the money in my account by the next day. How good is this? How wonderful is this lender?
Cheryl Stainsby
And one of the things that we need to talk about here are the terms and conditions. I spoke to a client a couple of days ago who has three, four of these sorts of loans. And the guarantees that he’s given without realising it, basically, he has a group of companies. Every single company now has a security on it to secure this one small loan. All of his personal assets also have security placed on them to secure this loan. And so when he gets into trouble, he’s not only got one of these loans, he’s got four of these loans. How do we even get him out of that? Because nobody’s going to even look at him to try and refinance. Even if he had equity in his house, maybe, the mainstream lenders, what we call the good debt, the good money, they’re not going to look at him.
James Flaherty
Well, because they’ll see like a PPSR or something like that on someone’s house.
Tammy Haug
Yeah, yes. The caveats or… Caveats. Caveats are a big one. PPSR. Yeah, caveats. Just the enquiry. The enquiry on the credit file will make most lenders say, that’s an instant knockout. We’ve seen an enquiry with a particular type of lender in the last six months. You must be having issues. We’re not going to help.
James Flaherty
Yeah. If you need to go to them, then you’ve got a problem. Exactly. So therefore, why would we touch it? Exactly. And they don’t touch it. So then the only place that person can go is to another, one of these kind of… One of these ones.
Tammy Haug
…same day. Which increases those type of interest rates and fees and charges in the short term that you have to pay them over, and the frequency with which you have to pay them. You don’t have even the allowance for… With some of these lenders, you have to pay them back daily, miss a day, and all hell breaks loose, and that lovely lender’s not so lovely anymore, and you start really getting some stress. Plus, you’ve got that pressure on your bottom line because those extra fees and interest, well, they have to be paid out of your profit. Again, if we go back to, if you haven’t listened to those original people, and we haven’t gone back and understood how to fix the structure or the root causes of the stress, if you haven’t got an exit plan, that’s when the stress starts piling on. Look, there’s always a place for these lenders, but you have to have an exit strategy. You have to have been able to sit down and go, well, I know exactly what I’m heading into. Here is my plan. Here’s my foolproof plan to get out of it. For example, they’re great if you’re going to sell a property and you’re waiting for the property to settle, and you know that the funds in the property are going to wipe that out and you can start fresh. That’s a great exit strategy, knowing that you’ve got some form of increase in your cashflow that’s organic within that timeframe. That’s a good exit strategy, but if you’re just trading day-to-day and you’re struggling, there are better ways and reaching out to an expert who can look at the whole picture of your business and put you in the best funding is going to be a lot better.
Cheryl Stainsby
I just want to make a comment here. Your business is in trouble and maybe if you’d reached out to someone like myself, we might have been able to do some sort of a restructure to help you with tax debt, voluntary administration, help you with your cashflow, so that you can come out of that with actual business restructuring. But now you’ve got two or three of these loans, we run the risk that if we appointed an insolvency practitioner in any way, shape or form, these guys are just going to call in everything, including your personal property, and you’re probably going to go bankrupt. You’re probably going to lose everything. One of the things that I find really hard is that, for example, you might refer somebody to us that’s got half a dozen of these loans, I get them all the time. The only exit strategy is you’re going to have to go bankrupt and you’re going to lose your assets. But once again, they’re hanging on, they’re hanging on to dreams, they’re hanging on to I’m going to win gold lotto and I’m going to pay all of this out until it all collapses in a big heap and then it really is a bloodbath, isn’t it? Absolutely, and then that follows you.
Tammy Haug
I’ve got clients on my book who maybe 10, 15, 20 years ago had to call bankruptcy and while there are fantastic lending solutions for them, a lot of times a lot of doors are shut to them for life because of those decisions. Again, come to someone earlier. If you’ve had one before you go for the second one, reach out to an expert that’s got your best interest at heart.
James Flaherty
Tammy, I’m thinking it’s 10 o’clock at night, I’m struggling to pay payroll and I’ve got an easy solution. I can do this and I’ll get the 50 grand. Do I have another slightly sleepless night? Because what I’ve done is I’ve actually texted or emailed your enquiry line and yours, Cheryl, and said, we’ve got to talk. Because if I’m hearing what you’re saying, Tammy’s given work to you, Cheryl, because Tammy’s been unable to help them because of all of these limpet-like loans that have metastasised over the entire enterprise and the personal assets of the So what you have clicked through in the middle of the night is something that could mean you lose your home. Absolutely. So why are these allowed?
Tammy Haug
Why is this okay? That’s a fantastic question. In Australia, if you’re not a private person for private lending, you’re not covered by a Consumer Credit Protection Act like you are covered under our legislation if you’re purchasing something for private use. And what that means is there is no best interest duty available to you. What that means is you don’t have someone saying, is this really in your best interest? Could we do better? There’s no requirement for that. If they’re marketing to that particular director directly, they’ve got a product to sell. And in our legislative framework, if you own a business and it’s for business use, it’s buyer beware. So you really do need to beware. Wow.
James Flaherty
But what about going to the Australian, what’s the, AFCA, the Australian Financial Compliance Authority, surely some of these business people would be part of that or not?
Tammy Haug
So if you go to a finance brokerage that has a consumer lending division and has to be a member of AFCA and you’re a small sole trader, you may have an avenue if a broker in one of those firms has placed you into that loan and hasn’t really worked in your best interest. But 99% of the time, if you’ve gone direct to a lender, you have no recourse. If you’ve gone to a commercial owner broker as well, you have no recourse.
James Flaherty
Right. So it literally is at 10 o’clock in the night on your mobile phone, a direct relationship from you as the director to that lender without any legal advice, any accounting advice, unless you’ve had the presence of mind to take that prior.
Tammy Haug
Unless you’ve had the presence of mind to take it prior. And most of these contracts written into fine printers, you must seek legal advice by signing this. You waive your right to a waiting period for legal advice. It’s not something that’s up there in bright bold letters. So you really do need to read what you’re signing.
James Flaherty
How bad do you see this problem, Tammy?
Tammy Haug
It’s endemic, especially in the current economic climate. I was just talking to Cheryl. I had to explain to a client today how these onerous conditions work and how they prevented him from selling assets that he thought he owned to raise some capital to get himself out of these loans because he ended up with three, what we call GSAs against his businesses.
James Flaherty
General Security Agreement.
Tammy Haug
Yep. And three were competing with each other and there was only X amount of equity to release one of them and not any one of those would release without the others. And so he’s in a impasse situation where he can’t sell the assets to raise security.
James Flaherty
And all while interest and fees will be accumulated.
Tammy Huag
All the while he’s got to payments on one of the loans, daily payments, on one of the loans weekly payments. It’s killing his cashflow.
James Flaherty
And so ultimately it would be hard for that business to survive.
Tammy Haug
Without releasing all three of those and being able to sell these assets to that other buyer who wants to fund them would actually solve a huge amount of these problems. But because each lender wants their own security paid out first, we are just in a catch-22 and he is stuck.
James Flaherty
Right. And you’re starting to see this?
Cheryl Stainsby
We’ve been seeing it for a few years now. We start to see a huge rise in the number of loans with onerous conditions. And the sad part for me is that a lot of people don’t even realise that all of their other companies and their personal assets got security on them until I come along and I do some searches and I say, oh, did you realise that there are charges on here and securities on there? And they have absolutely no idea because once they’ve signed that document, there’s no notification to say we’re putting a charge on your company. They do get notified if there’s a payday put on their personal property. But a lot of the time they don’t even realise that everything’s cross-collateralised.
Tammy Haug
And it kind of undoes all of the great work that the accountant has done to asset protections. So the accountant creates these structures to protect that client, the client signs finance paperwork without including their accountant. And then that undoes that because someone like Cheryl can’t come in and actually protect those assets should the worst happen. Yeah. Because these conditions have just basically pulled every company in that group into the same situation.
Cheryl Stainsby
One of the problems that we have too is if there’s a group of companies, say there’s three or four companies and we’re pointing a liquidator to one company, generally these lenders will then appoint a receiver over every company that they have a security over. So the liquidator can’t even really do their job for a period of time while the receivers are sitting there. Sitting there to secure the asset.
James Flaherty
So if you’re listening 10 o’clock at night. 10 o’clock at night. And you’re contemplating it. Write this name down. Write that. Tammy Hay from eCars. How do I spell eCars, Tammy? E-C-A-R-Z. Okay. And obviously Cheryl Stainsby. So if you are contemplating it, call one of these people first. Thanks for that. That’s been very long. I think we better get Tammy back. I think we have to get Tammy back. Yeah. Thanks Tammy. Thanks Cheryl and thanks Tammy once again. That has been very enlightening.
Cheryl Stainsby
This is a general reminder from your Director’s Advocate that these podcasts are general in nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice or contact your Director’s Advocate on 07 3340 5102.
Thank you.
Transcript – Your Directors Advocate
Episode 8 – When the Buck Stops with Damien
Transcript
James Flaherty
Welcome back to Your Director’s Advocate. I’m James Flaherty. I’m here today with Cheryl Stainsby. How are you, Cheryl?
Cheryl Stainsby
I’m very well, thanks, James. How are you?
James Flaherty
The Your Director’s Advocate, and it’s always good to have what’s on the label as being what’s in the can. It’s a great to have you here, Cheryl. And today we’re joined by Damien Davis of Robson Cotter Insolvency Group.
Damien Davis
Good morning, James. Good morning, Cheryl.
James Flaherty
Great to have you here, Damien. So we’ve been running this series, Damien, on the excuses, you know, the accountant didn’t tell me that, or the bookkeeper put that there, I don’t know what it means. There’s stories you hear. So I think, Cheryl, so when it gets to Damien, typically things have come to a point, haven’t they? Because Damien is an insolvency practitioner.
Cheryl Stainsby
And sometimes they might come by me, or sometimes they go directly to Damien. And Robson Cotter is a firm that we do a bit of work with. So I felt that we’ve got some war stories where it’s clients that we’ve worked with together, or there are clients who have come to you themselves. And I guess we want to sort of continue a little bit with the theme of, well, it’s the accountant’s fault, it’s the bookkeeper’s fault, it’s everybody’s fault, but my own. And really, you must hear that just as much as we do.
Damien Davis
Yeah. It’s obviously a very common refrain that we hear from directors. I guess push comes to shove, and they’re at the pointy end of the stick, so to speak. And so, yeah, it’s common, I guess, for lots of people, directors included, to blame other people. Yeah.
James Flaherty
So how can we think of this analogy, Cheryl, of the drowning man? You know, someone swims out to rescue the person, and rather than the person embracing the warm arms of the helper, they kind of will push down the person. I mean, it’s pretty easy to cast about.
Damien Davis
100%, James. It’s 100%. Yeah. Look, very often that is something that happens, yeah. Sometimes, yeah, it does involve the director’s fault, and sometimes it doesn’t.
James Flaherty
So we’ve had accountants talk about it a number of times, haven’t they, Cheryl, of the accountants asked for information, or given advice, and even said, yeah, he’s running a business, winning, there’s you, and it falls on deaf ears. And then we’ve had Kirsten came in and talked to us about the advice that a bookkeeper could give, or at least just give you some up-to-date numbers on your business, and then how hard is it to photograph a receipt and stick it into our accounting? It’s not that hard, but the amount of stuff that business owners will just assume happens in the background.
Damien Davis
How often is that? Oh, it’s very common in terms of people coming in and seeing us, and people sort of, when you’re asked questions about that, and they don’t have books and records, or they don’t have up-to-date books and records, which is obviously quite common, yeah, absolutely, straight back to the accountant, straight back to the bookkeeper, straight back to the person who didn’t record that entry, et cetera. I guess the ultimate comment in respect of that is corporations say it’s pretty specific, and it says, you as director have a responsibility to keep the company’s financial records up-to-date. So blaming an accountant, or blaming a bookkeeper, the secondary question becomes, well, if the accountant or bookkeeper was so bad, why didn’t he go somewhere else? Exactly, yeah. That’s right. And very often, 100% defending my colleagues in the accounting profession. Of course, yeah. Of course, very often we find that the director may have misremembered, or perhaps given us a different story, but yeah, the accountant and the bookkeeper hasn’t been supplied with the records, hasn’t been provided with updated figures, hasn’t been provided with any of the basic information that they would otherwise require to be able to complete those.
James Flaherty
And in some cases, or in many cases, might in fact be a participating creditor.
Damien Davis
Yeah, 100%. Yeah, absolutely. Look, one of the immediate things we do is we get in contact with a company or a director’s solicitor, an accountant, as part of our day one steps, once a liquidation does come in, and we’ll get out there and contact them. So a director turning around and saying, well, it’s all my accountant’s fault. I’m going to go and contact that accountant at some point in time and say, hey, how’s it going? Have you got the company records? Have you got access to the MYOB? Have you got access to the Xero? And I’ll hear back from those accountants immediately, like, hey, great. Oh, he’s done that, has he? Oh, well, that’s very good. I’ve been asking him to do that for a while, or I haven’t spoken to that person for six months, or any of those particular sort of responses.
James Flaherty
I think there’s some really key points here, hasn’t he, Cheryl? The director, he or she, it’s their job. It’s their responsibility. And you typically, with what we’ve been saying with Kirsten and with Duncan who’ve been on with us, there is ready and able support from a good professional if the business owner actually is prepared to engage with them.
Damien Davis
A hundred percent. And it’s striking in the current environment where you’ve got the tax office in particular instilling personal penalties upon directors for not doing lodgements such as super and GST and all these things where they shouldn’t be in contact with their bookkeeper and their accountant on a very regular basis, a quarterly, a monthly basis, and you get to them and they haven’t done any of those sorts of things. And it makes it extremely difficult. It makes it difficult.
Cheryl Stainsby
Now, I want to just say something here, and I think this is a topic for another podcast, but I want to talk about once someone gets into financial stress, they shut down. Because I feel like this is a huge factor in once someone gets their tax debt, gets to $100,000, $200,000, $300,000, suddenly they can’t function anymore. And that’s often when they shut down and they stop communicating.
Damien Davis
I’m a massive advocate of what we do and what you do, Cheryl. It’s a mental health solution for people. People, yeah, problems become overwhelming and they shut down and they sort of try not to deal with it, et cetera. The sooner that they can go and see a professional like yourself, the more their mental health will improve, easier off things will be, locking yourself away and shutting yourself off. As with anything in life, if you do that, it only makes the problem worse and worse and worse. But actually getting out and seeing somebody who can open a bright new day, yeah, it’s not enjoyable. You have to go through the process. It is what it is. But at the end of the process, you no longer have creditors calling you day in and day out. You understand what it is that you’re dealing with and what your problems are. And I’d love to talk to you about that at some huge event.
James Flaherty
Let’s hold that thought. That’s important.
Cheryl Stainsby
Yes. And I think there’s a podcast in it. Because I want to sort of keep working down the liquidation path. So you’ve been appointed now as a liquidator, whether it’s with us holding the hand or whether it’s they’ve come to you themselves by their accountant. So then you’ve started sending out the letters, the day one letters. And one of the things that we always hear is, well, oh my God, who do these guys work for? I’ve paid them a fee to do this. And they’re sending me these letters and these letters are nasty. They’re going to lock me in prison. I thought they were working for us.
Damien Davis
Yes. Very frequently hear that. Not only expressed to yourself, but expressed to me. Who do you think you are for asking that particular question is one of the responses I get from directors. Look, it comes down to this. Under the Corporations Act, my responsibilities are to your creditors, to the creditors of the company, to the creditors of bank up to state persons, individual creditors. They are my responsibility under the Corporations Act and the Bankruptcy Act. I am to investigate the affairs of the company and they include the actions of the directors for the benefit of obtaining a return to those directors.
James Flaherty
So that’s the thing. So I might appoint you and say, Damien, you’re a great guy. I feel like you’d listen to me, even if what I’ve told you is obviously based on fact. But you are not my friend. Your job is to do the job that you’re statutorily required to do. And who are the stakeholders you’re working for?
Damien Davis
All the stakeholders in respect of me are, A, the creditors of the company, tax office, unsecured creditors, employees, all those sorts of people who are entitled to get money back. They are the government in terms of if you have employees, the Entitlements Guarantee Scheme is making a big effort in terms of trying to recover some of that money. So I need to report to them. And then one of my other major stakeholders is the Australian Securities and Investments Commission. They licence a liquidator to operate and they provide an oversight not only of the liquidator’s actions, but also a company director’s actions. And I ultimately have to report to them on any offences or any other things that I might happen to find during the course of my liquidation. I will say, it doesn’t mean that we can’t communicate properly. It’s not necessarily an adversarial relationship, but be under no pretence that I’m here to sweep underneath the carpet whatever it has that you’ve been doing or failing to do during the course of your directorship.
James Flaherty
I suppose in a sense, Dave, being fulsome and open with you, someone who comes to you with kind of open hands and says, this is the story, that’s better than them forcing you to investigate because they’re not telling you.
Damien Davis
As Cheryl will know, I generally try to sit down with directors at the start and say, well, you may as well tell me because I’m going to find it anyway.
Cheryl Stainsby
That’s right.
Damien Davis
And it’s going to be worse if I find it out and have to go through digging through stuff because, you know…
Cheryl Stainsby
Don’t make me look for it. But you know, I think, and you would come across this all the time, data matching now, it’s out there and I don’t think a lot of directors really understand just how good data matching is.
Damien Davis
Absolutely. You know, look, the tax officer relies on it ultimately, you know, and they can tell when you haven’t lodged at your superannuation details, you haven’t lodged your BAS, you haven’t lodged your PAYG, you haven’t lodged your tax returns, and they will come and see us, so the very first correspondence we get from the tax office is, here’s all the outstanding things that they’ve got to do, get them done. Or our claim is this much, notwithstanding that we have all these amounts outstanding.
Cheryl Stainsby
And Damien, I’m probably talking a little bit more about, I transferred that car out to my father, and a lot of directors just don’t seem to understand that there’s trails that are fairly easy. If they’re going to transfer the car to the father, then let’s sell it for market value. Let’s make sure we’ve got a valuation and money changes hands. And we declare that to the liquidator.
Damien Davis
A hundred percent. It’s totally understandable that you as a director, you’ve run this business for X number of years, you know, whatever years that you’ve been involved in it, it’s part of your day-to-day life. And that there are certain activities that you may undertake without any thought as to, hey, look, this is what it’s going to look like further on down the road, should X, Y, Z circumstance happen. A, I’m going to find out about it. B, it’s something that can be dealt with. So long as people are honest and upfront about it, then we can sort of come through. And every liquidator is capable of reaching a commercial settlement in relation to certain things. Those things are detailed in the act and we are not unreasonable people. So we will look at those sorts of things. And yeah, one of the big issues, I guess, of the liquidation is we’re looking at things in retrospective and people are obviously acting in the moment. So yeah, transfers of vehicles and dealing with things like that. And one of the big things we see is like leased cars, for instance. It’s always a topic that comes up. I’ve got a company, I’ve got a leased car and my wife has a leased car in the company and we come along and say, well, that’s a company asset. Or in the alternative, you owe the company some money for the fact that that person who’s not working within the company is leasing a car and operating through the company. Perfectly reasonable. And we will happily discuss it with the parties. But yeah, that’s a very common thing that we get. Directors just don’t think about that in the moment. That’s perfectly fine. Yeah.
Cheryl Stainsby
And I think that is part of the problem. A lot of directors panic and start transferring and moving things around.
James Flaherty
The classic sort of just before the, give it to my mate for 10 bucks. Yeah. So I suppose that’s one of the things I was thinking about what you’re saying in terms of if someone’s coming to you, Damien, if they’ve had good advice, they come to you with open hands and they’ve got a person to work with them like Cheryl, as opposed to someone who’s ignored the accountant, they’ve ignored the bookkeeper. They might have either listened to some stuff that they heard at a barbecue about what they should do or they find some of these untrustworthy advisors that you find.
Damien Davis
It’s a massive difference. And it’s, I guess, one of the benefits of working with somebody like Cheryl is that they come and they talk to you and hopefully that they’re open to yourself and provide you with all the information and you’re able to look at it and say, well, okay, the liquidator is going to have an issue with that, but we can go and talk to them about that. Whereas if they’ve come to me directly or they haven’t looked at their accountant, they haven’t spoken to their lawyer or they haven’t done any of those sorts of things. Sometimes me coming along going, well, that particular issue is going to be a problem for us, that then just becomes a massive, they didn’t realise that coming out of my mouth that they, hang on mate, we’ve got a problem here. That’s right.
Cheryl Stainsby
And I think too, one of the other things that a lot of directors don’t quite understand is that you can’t give them any personal advice.
Damien Davis
Yeah, no, a hundred percent. As I mentioned previously, our responsibility to the and to greater or lesser extent ASIC and the other stakeholders, we’re a hundred percent independent. And again, that’s even something to tell creditors. It’s difficult sometimes to have creditors. They come along and they say, oh, well, the director appointed you via a meeting, so therefore you’re conflicted. And you’re like, well, apart from a court appointment, that’s the only way in which this works underneath the act. No, I’m not conflicted because it is what it is. That’s right.
James Flaherty
Yeah. I think we like that accusation. Forget that you’ve been in this business for how long now, Damian?
Damien Davis
I personally have been in it for 20 years, I guess.
James Flaherty
So why would you risk your personal reputation?
Damien Davis
A hundred percent.
Cheryl Stainsby
Why? I think in fairness though, I think, and I speak to directors about this all the time, and sometimes it’s the smaller creditors, the mechanic that you didn’t pay, who are the most hostile. The multinational companies, they’re upset, but they take it with a grain of salt. But you don’t pay your mechanic $5,000. They’re going to be the ones that are the most…
Damien Davis
It’s perfectly understandable if the credit that’s outstanding to XYZ creditor is obviously going to put them under financial pressure as well. You know, multinational is unlikely to be put under pressure by most liquidations. They’ll probably get one or two liquidations Australia-wide each week or each fortnight or each month. It’s just another entity and they’ll deal with it and they might have things like insurance and all those sorts of things to cover it. The local mechanic, as you totally pointed out, Cheryl, he’s unlikely to have the ability to, and may not be able to recover from it. But I guess the major issue from us is, again, what you said, James, I’m covered by ASIC. I have a licence. ASIC review my files, they review a whole heap of different things. As a liquidator with a licence, my Roland and whoever else, they have a responsibility to ASIC and if that licence is taken away, we have rules underneath the act that ban us from acting within the industry at all if we do the wrong thing.
James Flaherty
Thanks for that, Damien. That’s been a really good summary. Hey, can we get you back, Damien, one more?
Damien Davis
Oh, I would love to.
James Flaherty
Yeah, I guess, because I think it’s hit on some really interesting points. So in this case, Damien’s not like an accountant or paid by the director to help the business. But at the time when they come to Damien, they’ve still got a person who’s a reasonable person and will listen. And if you take advantage of the fact that he’s got an open mind, his job is to understand exactly what’s going on, and you’ve got good advice, then Damien can do a better job for everybody. But if we go back to the beginning, none are so blind as those who will not see. Anyway, thanks for that. Thanks, Damien. We appreciate you coming in anytime again.
Damien Davis
Appreciate it.
Cheryl Stainsby
Thanks, James.
James Flaherty
Thanks, Cheryl.
Damien Davis
Thank you, Cheryl.
Cheryl Stainsby
This is a general reminder from your director’s advocate that these podcasts are general in nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice or contact your director’s advocate on 07 3340 5102. Thank you.
Transcript – Your Directors Advocate
Episode 7 – Loan Stacking
James Flaherty
I’m James Flaherty. I’m back here with Cheryl Stainsby. How are you, Cheryl?
Cheryl Stainsby
I’m good, thanks, James.
James Flaherty
So, Cheryl, you’re the director of Your Director’s Advocate. So, you’re kind of the go-to person for the directors of companies who find themselves in often a bit of financial strife.
So, we’ve begun over these episodes, we’re sort of talking about particular issues that you encounter. Focussing on a particular issue, what are you seeing at the moment that’s kind of really making you cock an eyebrow at the moment with businesses?
Cheryl Stainsby
One of the things that we’re seeing a lot at the moment, and probably more so than we’ve ever seen before, is a thing called loan stacking. Right.
James Flaherty
What’s a loan stack? What does that mean?
Cheryl Stainsby
So, directors, there’d be a lot of people out there that would recognise the emergence of a lot of these non-conforming lenders. Like FinTech, Prosper, Lendy, BizCap, MoneyTech. I could go on and on and on and on and on. And the typical scenario is your business needs a bit of cash flow, Christmas is coming up, you might have a bit of a debt, a lot of people have been scammed, a lot of people lose money from scams. But not from these particular people?
James Flaherty
Not from these particular people. So, it’s people providing a service that, say, banks aren’t. Yeah. All of these like FinTechs and sort of.
Cheryl Stainsby
Yeah.
James Flaherty
A way you can get quick business money.
Cheryl Stainsby
Quick business money. Because often the client’s gone to the bank and said, you know, I’ve got a tax debt, I need cash flow, whatever their issue is, and the bank said, well, you’re not compliant with the tax department, we’re not lending you any money, your financials don’t look that great, we’re not lending you any money. But the reality is that as a business owner, you’re not going to give up that easily, you’re going to do whatever it takes to get you through the next two or three months. Keep on playing away, yep. That’s right. So, TV is bombarded with all of these, you know, short-term loans that you can get. Facebook is bombarded with them as well. And some of the Facebook ads actually look like they’re legitimate government-backed loans, particularly during COVID. Some of the advertising on Facebook was very grey.
James Flaherty
So, we’re not so much talking about the larger names in this FinTech spot, but there’s a whole bunch of these what you call non-conforming lenders who are, they’re not a bank.
Cheryl Stainsby
No, they’re not a bank. They’re very high-interest loans. There’s nothing wrong with these loans in the short term, but if you take these loans, you need to understand that most of these companies will take security over your house if you don’t pay, they’ll take security over your company. Their interest can be very high, up to 30% and 40% interest. Wow, okay. Some of them will require payment five days a week. So, for example, I’ve seen people who are having to make payments of $400 or $500 a day, five days a week, repaying some of these loans. Some of these loans might be interest-free for three months. We spoke to a gentleman who’d borrowed $90,000 to pay a tax debt on the understanding that once he’d paid the tax debt, he’d be in a position to refinance this short-term loan and get a mainstream loan with the bank, but that didn’t happen. The bank wouldn’t then refinance him. And after the interest-free period, he was then required to make repayments of $10,000 a week. And when they added the interest onto this loan, his loan went from $90,000 to $180,000. Wow. So we’re seeing a lot of this. And then what we see is somebody might borrow $10,000 or $15,000 from one lender to get them through a tight spot, but then something else crops up so they go to another lender. And it’s not unusual. We actually spoke to one client who actually had a million dollars’ worth of these short-term loans, and that’s what we call loan stacking. Now, what I’d like to do in another episode is I’d like to get in some of the people I work with in the finance space to talk about the difficulties that they have. When a client comes to them with $300,000 or $400,000 of these short-term loans with three or four different lenders, they can’t refinance them quite often. They have a lot of difficulty actually getting them out of these loans. Sometimes it’s dire, it’s drastic. Sometimes the client actually has to sell their house or sell assets to actually pay down these loans because quite often the lenders that I work with just simply cannot refinance these loans.
James Flaherty
So this is a different area from, you know, counsellors and people who are specialists in the area where, say, someone’s bought four or five different credit cards and they’ve maxed them all up. And so they might have gone for an interest-free period and transferred one balance, but you don’t actually close the card. You end up with two cards. So you end up with quite a pile of debt. And there is groups like AFCA, the Australian Financial Complaints Authority, where people can, you know, with the help of a counsellor, can go and certainly make complaints or at least get some… Yeah. But if I think about how companies work and credit, last I looked there was a thing in the legislation where company loans were excluded from all that kind of consumer protection stuff. And so if you get a loan from one of these people to a company, all those kind of consumer protections, there are some, but it’s not consumer, there are some protection, but there’s not as many. No. And it goes back to what we talked about in a bunch of episodes. As the director, you’re on the hook, especially these days if you’re on the hook and it’s your house that’s on the hook, then if you’ve got a bunch of these kind of little sugar fix, 50 grand here, 20 grand there, and the stacking piece then, if I understand this well, it’s sort of, I’ve got a business loan and then I’ve hocked my house a bit more for a bit more money.
Cheryl Stainsby
Yeah, we’ve got a line of credit and we’ve got an overdraft. Now, don’t get me wrong, James, I think that these lenders, they do serve a good purpose because if you’re in a bit of a short-term situation and you’ve got a good exit strategy, maybe your house is on the market, maybe you have got a car that you’re selling and you’re going to pay out this loan, maybe you need some finance to get stocked because you’ve got a good contract and you just need some upfront money to get the stock to perform the contract to get the money in. I think what I often see is that people go into these loans thinking they’ve got an exit strategy and then something happens. The contract falls over, the car doesn’t sell, the house doesn’t sell. It sells for less than they thought it was going to. And what I do find is that people often don’t read the terms and conditions of these loans and it’s very easy for some of these lenders to appoint a receiver over all of your assets. Yeah, that’s right, yeah. And clients will come to me and say, oh, they didn’t tell me, I didn’t get notified. If you actually read the fine print on some of these contracts, they are very, very wide-ranging. They’re very powerful. And I would advise anybody that’s looking at taking out these loans to get some legal advice before they sign for these and really understand.
James Flaherty
It’s got a fancy app and it’s online and you fill out the paperwork. It looks really easy. Yes. And in some ways it’s quite easy to get into. But you’re saying, hang on, hang on, if it’s 50 grand or 20 grand, carve out 1,000 bucks of that before you even get it to go to a lawyer and say, what am I actually signing up here for? Yeah. I bet you’ll find a bunch of directors, if they even did that, wouldn’t want to hear what the lawyer said because the lawyer’s going to say, don’t. Don’t. That’s right. Or if you do, how good is your exit strategy? And this is not designed to insult the listener. No, it’s not. But if you keep on doing something the same way and expect a different outcome, people often say that’s the definition of being stupid, really.
Cheryl Stainsby
That’s right, yeah.
James Flaherty
So if you’re just kind of tipping in these loans in the hope of a better tomorrow, all this is is like a little sugar fix to keep it kind of going a little bit longer. So maybe the lesson of today is, well, don’t do it. But is there anything that you can, and I think we’re going to have to bring in some vendors because listening right now, if I’m listening to this, hang on, I’ve got this loan and I’ve got that loan. In my accounting software, I can get another loan from you if I want to. And it’s all pretty easy and I’ve got a couple of them and they’re starting to chew. The interest rates are kind of high. What do I do? Like, that’s the problem. You’ll find a bunch of people will be like this. That’s right, yeah. If I was listening to this right now, the question is, well, what do I do? So the first point is, dear listener, we will get some people to talk about that. We can’t provide financial advice.
Cheryl Stainsby
No, we can’t.
James Flaherty
But if you see a person with a bunch of those…
Cheryl Stainsby
Yeah. What are the options? And look, I think a lot of people think, oh, well, I’ll liquidate my company, I’ll do a small business restructure, I’ll do a voluntary administration. But what a lot of people don’t understand, because they haven’t read the fine print, is that they are personally guaranteed these loans. And you can do all the business restructures, you can liquidate your companies, you can do what you want, but at the end of the day, you as the director are personally liable for these debts. So you need to understand, and like I said, these loans, they do have a place, they absolutely do have a place in some circumstances. But just be careful, make sure you read the fine print and you know what you’re getting into, because getting out of them is not always that easy.
James Flaherty
Okay, so you often deal with people who aren’t at the first part of the process, but are usually far down the path.
Cheryl Stainsby
Yeah.
James Flaherty
Anyway, of course, I’d say this, because this is called your director’s advocate. Yeah. If you run a business and you’re in this situation, then the first thing I would think it sounds to me is speak to someone like you, Cheryl, and say, here is where I’m at, what are my options? Because obviously you have lawyers who are specialists in this area who will say, well, here’s the security, here’s the ones that we could attack, here’s the ones that got locked down super tight. One of the things about collections and when people start getting filthy letters is just because someone writes you a filthy letter, a nasty letter, doesn’t mean you have to instantly react to it. So you’ve got to know your rights as well. That’s right, yeah. And you’ve got to have a strategy. So that’s where if you’ve got a stack of these loans and they’re chewing the company to bits and you to bits, then just getting another loan like that isn’t going to solve the problem. Am I right in thinking, let’s get professionals in, but if I’ve got a bunch of those, that’s not a great look, I would think. So if a lender says, hang on, you want me to take all of these rats and mice loans, why have you got them? Well, I’ve got them because the bank wouldn’t give them to me. OK, that’s a good story. So it’s not a great sell. It’s not. You can’t go to another lender and say, I’ve got all these small rats and mice. I did them for this. There’s always a million good reasons why I want to get 30 grand for a short loan.
Cheryl Stainsby
And look, we do have colleagues that can help negotiate payment holidays and reductions on these loans. And we also have people who can refinance these loans if you’ve got enough equity in your property to be able to do that. So if you’ve got a house with equity in it, sometimes these loans can be refinanced, but it’s not going to be with a mainstream bank. It’s going to be with another second-tier lender for maybe two or three years until you get your credit rating back up there and then get out of it. So once again, we’re not giving financial advice, but I guess what we’re saying is be wary of these short-term, high-interest loans. You’ve got a place, but you’ve got a really solid reason why. Yeah, and make sure you’ve got an exit strategy.
James Flaherty
Yeah. And I think it’s a bit like I’ve encountered a bunch of people recently who’ve got one last roll of the dice, one last draw against the mortgage, one last one of these loans. And the bit I say is this is the kind of pot, this is the last pot you’ve got of money. So how you use this has to be completely the most strategic play you can make because after you do this, there is none left. And when you think about it like that, I think, that seems to be to people kind of a penny seems to drop. I think, well, hang on, I can’t just keep on going to the bank and getting money out of it. So if you’re contemplating the last pile of dollars that are available in the business or your house or whatever, maybe that’s the question people ask. If I’m at that point, I should be talking to a Cheryl Stainsby because clearly I need to have some guidance about how to navigate out of this. And I think the story goes that even at that stage, am I right in thinking you might not like all of the answers that you’re going to give them?
Cheryl Stainsby
You probably won’t like the answers that you’re going to be given. There’ll be some hard choices. There’ll be some very hard choices, yeah.
James Flaherty
Wow. Okay. So sobering. So loan staking really means you’ve got a bunch of these little rats and mice ones that might be on top of some other larger ones. A lot of these companies are providing a good service.
Cheryl Stainsby
They are providing a good service. You just need to make sure that you’ve got an exit strategy when you take on these loans. And if you’re taking out two or three of these loans, then maybe you need to be looking at another strategy.
James Flaherty
Or talking to you. Yeah. Okay, Cheryl. Well, that was pretty heavy, but it’s certainly clearly something that’s alarming you. So I think it’s right to raise it. And I think it’s pretty important for you and I then to people who are listening to us and thank you. Cheryl, let’s bring in some of the specialists. And I think we want to know how it happens, circumstances they see and what a director needs to give them to help them get out.
Cheryl Stainsby
Yep.
James Flaherty
Okay, great. Thanks, Cheryl.
Cheryl Stainsby
Thanks, James.
James Flaherty
Thanks.
Cheryl Stainsby
This is a general reminder from your director’s advocate that these podcasts are general in nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice or contact your director’s advocate on 07 3340 5102.
Thank you.
Transcript
Transcript – Your Directors Advocate
Episode 5 – Blame Game with Kirsten
James Flaherty
Welcome back to your Director’s Advocate podcast. I’m James Flaherty. I’m here with your directors’ advocate Cheryl Stainsby. How are you, Cheryl?
Cheryl Stainsby
I’m very well. Thanks, James. How are you?
James Flaherty
Doing really well. Hey, it was really interesting. We started on this kind of little story with the number of times you’re told in your job. The accountant never told me that, like the business owner comes to you. The accountant never told me that. And of course, if it’s not the accountant, of course it’s the bookkeeper. So what you’ve done is let’s actually bring in a bookkeeper and get the bookkeepers perspective. So we’re really lucky to know. Have a Kirsten Carter from Mello Bookkeeping. Great you could join us today.
Kirsten Carter
Yeah. Hi, James. Hi Cheryl, thanks for having me along.
James Flaherty
Yeah. So the second most blamed or maybe most equally blamed profession that comes into the door.
Cheryl Stainsby
No. Equally with the accountants.
Kirsten Carter
I know we get blamed sometimes I even say blame us. I only with my permission.
Cheryl Stainsby
And Kirsten and I have a couple of mutual clients. So you know, we both feel each others pain? Yeah. And I just wanna tell a little story here before we start. This is a classic example of what we come across, I’ve got a client who wants to do a small business restructure and in order to do a small business restructure, the compliance is absolutely critical. You know, everything’s gotta be lodged up-to-date. The BAS, the tax returns, cash flows, bank reconciliations, everything. And I met with the client. And he said, Yep, everything’s up to date. Everything’s done. We’re ready to go. So, being my usual doubting self, I said first of all, let’s schedule a meeting with the bookkeeper and the accountant to make sure that’s the case. Now the client couldn’t attend the meeting and the bookkeeper said to me. Ohh, no. She said we’re months behind and he hasn’t paid me. He owes me quite a large invoice. You know, we’ve got at least one BAS outstanding that needs to be launched. Assets have been sold. I haven’t got any details of them. So I can reconcile. And I went back to him and I repeated this to him and he said. Well, I don’t really understand that. You know, she’s a friend. As if she doesn’t need to be paid? I said well. She’s got staff that she pays. She’s got a family. It’s a business for her too, you know. You can’t expect her to be doing the work if you’re not paying her for it and he was quite upset at the fact that she perhaps wasn’t as keen to drop everything and do this work when she was owed a considerable amount of money. So you know, I query that if I walk into a shop to buy a cup of coffee and I said to the person behind the coffee shop Ohh I’m gonna come back and pay that in three months time. You wouldn’t dream of doing that. And yet, people seem to think that professional services they expect the bookkeeper or the accountant or whoever to just keep working. Without being paid.
James Flaherty
Do you do reckon there’s a type of business person who will do that sort of thing, is there a type of business person that will sort of neglect to pay the people who don’t push them hard enough?
Cheryl Stainsby
I think it’s a common complaint among people in professional services, but I think it goes a long way to why maybe the BAS wasn’t lodged, or maybe why something wasn’t done necessarily to the extent that that maybe the client expected it to be done. But let’s hand over to Kirsten, because there’s a lot of reasons why things sometimes don’t get done to the standard, that maybe it needs to be done. But I think payment is certainly a big one. But there are other reasons too. So maybe you know, Kirsten can sort of fill us in on some of the reasons she sees that things can get a bit murky.
Kirsten Carter
Yeah, sure. Thanks, Cheryl. Look, I think to add to your point, what I would maybe call a common frustration is inconsistent communication. So in the example that you just spoke about, we’ve got poor or infrequent communications between the business owner and the bookkeeper, so that can only go so far before the continuity of work needs to stop. That will also potentially stop with there’s no payment coming through. So we have to work as a team. The bookkeeper and the business owner. And if there’s a break in that chain with the communication, then it’s gonna have an impact on the efficiency and the work that can be done from a bookkeeping perspective. So I can’t move forward unless I’m getting communication from the business owner. You know, it is a two way street and we need the business owner to be communicative so that we can keep continuity of services. So if your business owner that’s getting a reminder e-mail several times on the same topic, then that would be a trigger for you to respond to the bookkeeper on that. And I think this might lead into another common frustration for bookkeepers, in my experience, is we get delayed or missing documentation. So it’s best practise for the business to have all of their source documentations in the system, it’s there for us. We can do the accurate processing. It’s there for the accountants. And so we can continually communicate to the business owner to get this information.
James Flaherty
Yeah, I mean it is not that hard. I mean Google Docs or whatever programmes you know, I mean or.
Kirsten Carter
Yeah, I think.
James Flaherty
You should sure it’s no, that’s not an excuse.
Kirsten Carter
It’s not an excuse these days. You do see that there are some business owners that have a resistance to technology and automation. But that technology and automation and all your third party apps are out there to make the bookkeeping process as efficient as possible. So what might take a business owner to do all that half an hour? It could take your bookkeeper 10 minutes. So that’s also where you see the value in the services of a bookkeeper. You know the tools of the trade to use in order to deliver an efficient and fast and accurate processing service to the business owner.
Cheryl Stainsby
Look, I had a conversation with a client the other day, and the reason he couldn’t see the point of bookkeeper and didn’t wanna run a creditors ledger was because he was getting 30 invoices a month from one particular supplier. And you know, by the time you put all of those in and it’s so much hard work. Now, if he was your client, what would you be saying to him? What would you say to him that could perhaps make it easier for him to get you those invoices to facilitate you being able to enter them so then he can look at his creditors ledger and see at any time exactly who he owes money to cause at the moment he can’t. What would be your solution there.
Kirsten Carter
Yeah. So it’s a really good point that you raised because it comes back to this technology. So you know there are systems out there and one tool of the trade that I use in my practise is called Dex. So these data extraction tools exist out there to basically take all that hard work away. If you’re a business owner and you’re sitting there and you’re inputting in, you know, all these points on the invoice, then you’re really probably living back in the 80s because this technology facilitates that and turns that process into. You know, a couple of minutes. It’s also a way for the bookkeepers to check, you know, that the accurate processing is coming through. So I think that. This sort of leads to, I guess, a frustration that we have, you know, as bookkeepers in that we can provide the tools of the trade and the process to a business owner. You know, if you’ve engaged a bookkeeper, listen to them, let them improve the processes to make things more efficient because that efficient process. Improves your financial health of the business and also it just makes things a lot faster so that you can get real time information in your books to make informed business decisions.
James Flaherty
So as we go back to the theme that we’re going on here. Cheryl. I mean clearly as a bookkeeper. That, you’ll have clients. I’m sure, Kirsten, where you’ve told them and told them and told them the example you gave when we started was when the person assumed it was done. You’ve got a situation where you’re really confident bookkeeper with excellent resources. Yeah. I mean, you pretty quickly pick up where the fault lies. So, when it comes to you with the busted business, wouldn’t you. I mean in that situation.
Cheryl Stainsby
But the problem is once again and we spoke about this with Duncan. The clients often won’t see themselves as really having any part to blame in this and I guess the other thing that’s frustrating for us too and you would see this too, you probably get these clients after we’ve really hounded them and made them engage a bookkeeper. Well my wife can do it. How hard can it be just to enter a few invoices? But as you know there’s tax law, there’s GST laws. You know what you have to pay GST and what you don’t. There’s fuel taxes.
Kirsten Carter
All of this a valid tax invoice, for example.
Cheryl Stainsby
Exactly and how often do you see somebody they’ve got an invoice to the wrong entity or it’s not even to the correct, you know it’s to them personally or they don’t have a receipt. Well, you can just make it up. No, you can’t. You can’t just make it up and that’s frustrating for us trying to explain to the clients. I can’t imagine how frustrating it must be for you guys to have to work with this.
Kirsten Carter
Yeah, I think it’s very frustrating when you know a client has engaged a bookkeeper and you want to improve their processes and make these things more efficient, but they ignore your advice. Yeah, so they don’t listen or they still think that the way that they were doing things is better than what you’re saying. So if they ignore your advice and then they go back to their old practices. It’s going to lead to financial inefficiencies and then they’re going to be in the same situation that they were in before they came to you. So that is a really common frustration.
James Flaherty
Except they are paying for a bookkeeper and they’re wasting your time. And they’re probably compounding the only benefit from their perspective is that we’ve got someone that they can try and blame.
Cheryl Stainsby
Well no, because then the thing is well, I’ve paid her. What she done.
James Flaherty
Well, yeah, not be able to perform a miracle.
Cheryl Stainsby
Help me send a dozen emails trying to get the information to the job.
Kirsten Carter
I think absolutely. You know the key thing is that business owners need to see the value in bookkeeping services because if they undervalue the importance of bookkeeping services, if they see it as a low priority task, then I feel like they need to change their mindset around that. And we can all try and help change that mindset because. You can take a horse to water, but you can’t make it drink, so we can be there to support them through getting their business on track, making sure all their deadlines are submitted to the Ato, making sure that you don’t have late super payments and we can improve processes so that it can reduce time and make efficiencies. Which in effect has a lower cost impact to the business because lower bookkeeping fees with efficiencies. But you need the business owner to be willing and you need them to see the value in those services and you need them to take action and respond quickly to the queries that we send through. So all of those things that we’ve just been talking about, you know the communication listening process improvements, if they can take all that on board, they will see the real value in bookkeeping aervices to get their business to a better place.
Cheryl Stainsby
And look, you know the tax department. Now, what are they charging interest at 11% and superannuation. You could be looking at unpaid superannuation. You could really get up to 200% penalties on that.
Kirsten Carter
Yeah, that’s correct. Cheryl, if you don’t lodge your SGC, your super guarantee charge statement, which is what you’re required to do, if you have not paid super on time, if you don’t lodge that within 30 days of the original due date. So for example, June quarter is due on the 28th of July and you pay late if you don’t lodge your SGC statement within 30 days, you’re then hit with 200%. So that’s another benefit for having a bookkeeper. Is that your bookkeeper is going to schedule all of your compliance for your BAS and your super. Make sure that you don’t miss any deadlines.
James Flaherty
It’s a really interesting case. Yeah, the age of technology. They say that you can do your books in front of the television and that sort of stuff. And that’s probably works for a relatively unsophisticated business. Thinking the point you make them share of you starting to employ some staff and tracking super and especially of staff on awards and things like that. Well, that big companies get this wrong, so imagine trying to do it in front of the telly on a Sunday night, watching the movies like, you know, or the football or something like there is complexity to things. And as your business growing, yeah.
Cheryl Stainsby
In the construction industry and you know, I think any good bookkeeper that’s working in the construction industry would usually advise their clients to make sure they’ve engaged an HR person to make sure that the awards are correct and that everything set up properly. Because nobody knows this stuff. Nobody knows everything, do they?
Kirsten Carter
Yeah, that’s right. I mean, payroll is definitely a complex area, bookkeepers and even accountants are not HR experts. We can take you to a point, but then we can also, you know, say to business owners well, this is at the point where you might need to go and see a HR expert. And be engaged with them. I think it’s really important for business owners to be aware of their own financial health in relation to payroll in relation to their profit and loss. A lot of business owners tend to with payroll and other aspects of their business. They’d leave it to the accountant or the bookkeeper because they just wanna be busy in their business making money. And I agree that they should do that. But I think the business owners that actually take time out of their day by day to understand their financials, the payroll, their obligations, how do I read a profit and loss? What does a balance sheet mean? If you can be educated by your bookkeeper and your accountant as a team. To be more educated on these things and learn, I do believe that those business owners are a step ahead of the others because they can make informed business decisions.
James Flaherty
And they’re using you as a resource, not cost.
Kirsten Carter
That’s correct.
James Flaherty
If you think about a smart business person says yeah, time that they’ve got their head trying to solve a problem that a bookkeeper could have just done like that his time could be spent on growing the business. Having a conversation with a client or having some time out so that they can be stronger for the day.
Cheryl Stainsby
I think time with the family, that’s one of the examples I often give a lot of my clients. I used to do my own bookkeeping in the beginning, but then I realised I was spending all weekend doing the bookkeeping for a relatively modest amount of money, I employ a bookkeeper who looks after all the bookkeeping for me, who sends me a list of this is what you need to pay. This is what you need to do. And I do it so that frees up the time on the weekend for me to spend with the family and the bookkeeper does it much quicker than I could ever do it. Even though I do roughly know what I’m doing, but still I feel like it’s just such a great value add to my business so I really take a board what you say.
James Flaherty
So what we’ve learned today is again the value of having a good bookkeeper, and we’ve also learnt a little bit about. Yeah, where you can’t perform a miracle because the client won’t act. We might stop here and just continue on in another episode, perhaps just to build on some of those lessons about how you work together and and when you sort of see things going wrong. What do you do? So thanks very much for coming in. Kirsten, we won’t get you to come back though, if that’s OK. And we’ll do another episode just to follow up on those kind of issues you’ve raised today, thanks very much for coming. Hey, thanks, Cheryl.
Cheryl Stainsby
Thanks James. This is a general reminder from your directors advocate that these podcasts are general in nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice. Or contact your directors advocate on 0733405102. Thank you.
Transcript
Transcript Your Director’s Advocate
Episode 3 – None So Blind
James Flaherty
Welcome back to Your Director’s Advocate. I’m James. I’m here with Cheryl Stainsby, Your Director’s Advocate. How are you, Cheryl?
Cheryl Stainsby
I’m very well, thanks, James. How are you?
James Flaherty
Yeah, great, great, Cheryl. So last time we talked about the accountant did it or the bookkeeper did it, all the stories that business owners will come to you with saying, you know, yeah, but for the mistakes made by others, I wouldn’t be here today. Yeah. So we promised ourselves we’d bring in an accountant, an accountant who might have the other perspective that we talked about. So welcome, Duncan Perkins from Tax Time. How are you, Duncan?
Duncan Perkins
I’m very good. I’m very good. Thank you for having me on.
James Flaherty
Great to have you here, Duncan. So there’s a quote and it would be something perhaps that a friend of yours and perhaps mine, Duncan, would be, which is a quote. And I thought this episode might be called None So Blind. Cheryl, if you’re okay with that. So according to the Random Dictionary, John Heywood in 1546 said, Who is so deaf or so blind as is he that willfully will neither hear nor see? Other words, there are none so blind as who will not see.
Cheryl Stainsby
And look, I think that’s our client. So I think let’s go to the beginning.
James Flaherty
Yeah, sure.
Cheryl Stainsby
We’re setting up a business and we’ve got this fabulous idea. We’re an entrepreneur. We go to our accountant who says, I can have a look at that for you.
Duncan Perkins
Let’s do this. This sounds great. Let’s bring all the numbers in. Let’s look at everything and we’ll look after you from here on in. What’s your experience in bookkeeping? What’s your experience in accounting? And usually you find that most people in that position are undercapitalized in something. And undercapitalized is not necessarily money. It may be in human resources understanding. It may be in the industry that they’re actually wanting to go into. They may not have enough skills in that area.
James Flaherty
So you’re talking undercapitalised isn’t just money. It’s experience. It’s skills and knowledge. It’s actually that kind of, to be honest, the mental or knowledge wherewithal to be successful. Okay. So you’ve made that diagnosis. You’ve said that they don’t have it. Then what happens?
Duncan Perkins
Well, we pick out the faults. We pick out what areas that they need to work on. Unfortunately, a lot of people will sit there and say, don’t worry about that.
Cheryl Stainsby
It’ll be fine.
James Flaherty
We’ll bluff our way through. Will people pay you for that? People don’t want to hear what they don’t want to hear. Which goes back to what our friend John Haywood said. So you’ve just said that you can see the gaps in a business if it comes to you.
Duncan Perkins
Oh yeah, to a certain point.
James Flaherty
That’s right.
Duncan Perkins
Like any coach, in regards to a good player, they can see the gaps. And if the player wants to listen to the coach, then great. You’re probably going to have a pretty good team, especially if all the other players want to listen to that coach.
James Flaherty
So then Cheryl, sadly, by the time people come and see you, they haven’t listened to the coach.
Cheryl Stainsby
They haven’t listened to the coach. And we’re probably two or three years down the track. And they’re typically saying to me, yes, it’s the accountant’s fault. It’s the bookkeeper’s fault. It’s somebody else’s fault. And as I said in my first podcast that we did last week, my next step then is usually to ring the accountant and say, hey, you know, we’re talking to this client, you know, what’s happening here? Is everything up to date? And then we get the story figure.
Duncan Perkins
Did they tell you that they didn’t do this? Did they tell you that they didn’t work on that? Yeah, we tried, we tried.
James Flaherty
Scenarios like, you know, where you find out it’s your fault.
Duncan Perkins
So the other day, I came home from a one hour walk, and I don’t run anymore, I walk. I came home to a very upset partner in the kitchen with a blood finger, which was apparently my fault. And the reason is, is that when the anger subsided a little bit on the bride, I said, why is it my fault that you’ve cut your finger? It’s because the son was upstairs asleep, on the PlayStation, actually, the daughter was upstairs asleep, she’d just done night shift. And the wife came home from work, long day at work, to see that no one had prepared dinner. So she cut her finger. And the only reason that she cut her finger is because I was out walking. I should have been the one in the kitchen cooking. So therefore, it was my fault. Did she know that you were going out walking? No, she didn’t.
James Flaherty
So that’s an interesting, that’s interesting. So that’s sort of husband wife dynamic side. It’s interesting where, and we’ve talked a bit about this before, Cheryl, about if you are ever, if a person’s ever unhappy with you, you go through all of the things that you hang on, well, I sent them an email, don’t you? You kind of go through, where’s the gap in the process that’s caused this person to be unhappy? So it’s a bit like, you know, I’ve sent them the email, I’ve done all of these sorts of things. So how can they be unhappy with what it is that I’m doing for them?
Cheryl Stainsby
But I think that the analogy is good. Your wife’s cut her finger. She’s upset. She’s probably upset because she’s come home and you’re not there. She doesn’t know where you are. So, yep. So it’s dunk and stock.
Duncan Perkins
I get the blame for the weather’s not right.
Cheryl Stainsby
Wait, hey, we’re all married. You tell me that the weatherman said this. Oh, come on. But I think, you know, the client immediately, client immediately looks for somebody to blame, don’t they? Makes you feel better about yourself. It does. But not only that, I think they had this dream, you know, they had this dream of this amazing business. They’ve let down their family. They’ve let down their staff. There’s a lot of ego involved in it as well, isn’t it? And so then they look around, well, you know, who can I blame? Well, the accountant didn’t lodge my best. But actually, as you know, you send it to them, but they didn’t sign it. How many times do you follow them up?
Duncan Perkins
Well, I think once you take responsibility of your actions and then you and the next thing you say, OK, blame anyone you want to blame. Yeah, that’s fine. But what’s next? And I think that’s a great question to ask yourself or ask your client is, OK, well, it is what it is. It’s what’s happened. Now, what’s next? What’s going to happen?
James Flaherty
So I suppose that’s that’s almost it. In fact, I think that’s a podcast and it’s right that one. So I think to get back to kind of. So that’s the we are where we are conversation now. Yeah. But what you’re constantly dealing with, Cheryl, is the people pushing blame off to something else and something something you talked about, talking about the capital and people going into business they don’t understand. Yeah. So say you look at a franchise, you talk about crayons one day, what was the crayons? So how does a franchise and crayons work in one sentence? Or it’s darker. Fifteen, but keep going.
Duncan Perkins
Well, look, franchises are sold by a franchise. They want you to buy their franchise and they will sell the dream to you. And a lot of the time they say, oh, but how can I afford that? Don’t worry about that. The finance people will sort that out for you. They have whole divisions in banks called the franchise division. So they help you get into debt so that they can sell another franchise for the for their main client, which is the X, Y, Z franchise. So but a client comes in, sits down to you and you say to them, these are some of the problems in this industry. And so what happens is they don’t want to listen to that. And eventually I just get to the point where I feel like saying I don’t have the time nor the crayons to explain this to you. So it’s one of my favorite sayings, but I don’t often say it to the client. I don’t often say it to the client. I usually walk to someone like Cheryl and say, sorry, Cheryl, I just didn’t have the time or the crayons to explain it to them. So they were just such a waste of oxygen in my room. I needed to move on to something else. There’s a certain point where you’ve got to say, if you just accept it, accept it and move on and listen to what I’m saying. There’s a lot of people that I sit down and talk to and they’re very keen to buy an investment property, but they’ve got a business that’s on the verge of doing well or not doing very well at all. And they feel, let’s buy an investment property because I can get the tax deductions and I’ve heard all the great stories out there. Don’t be sold the Kool-Aid was one of the stories that Chris likes to use every now and then. And I think it’s true that people get sold on that concept and it’s very hard to break the attitude. So there’s skills, everyone’s got skills, one plus one equals two. They build their knowledge from the skills that they have. And using that knowledge is a waste of time if their attitude is wrong. And so I wrote a little article the other day on LinkedIn and I said, you can’t break stupid. The point that I made about that was I was trying to explain to this couple their situation. And I said to them, go forward 10 years, this is where you’ll be in 10 years time. And they would not listen to reason. And ultimately I just went to myself, I said, I can’t break stupid, I can’t move on from this. So as soon as a person, I believe, accepts their responsibility, they accept what they’ve done, everyone’s to blame, but no one’s to blame.
James Flaherty
So two quick questions then. So Cheryl, how many that come from any accountants, generally, question being noticed, have still not come to the point of realisation that they might have something to do with the problem that come to you?
Cheryl Stainsby
90%. But Duncan and I have a mutual client that I kind of feel it is a good story. Initially, they didn’t necessarily listen, did they?
Duncan Perkins
Well, let’s say Mary and John.
Cheryl Stainsby
Yeah, Mary and John.
Duncan Perkins
Okay. And so Mary and John both had very good jobs, both around about $110,000, $120,000 a year, and were sold the Kool-Aid in regards to buying into a franchise. And then later on were actually sold the idea of buying into another franchise. One of the things that I said to them on the very first day that they came in, as I said, one of the situations in my own life is that when I left the bank and went into broking, that was the first change of my career as self-employed. When I left, I made sure that my significant other, my wife, my partner, kept her job because I always wanted that constant cash flow to come in. And I said to them, I remember on the day, I said, one of you should work in the business and work on the business, and the other one, keep your job because then you’ve got that constant cash flow coming in. There was a lot of other frustrations around it as well. They kept their property in Mackay, which was an investment property, probably not the greatest of ideas. They should have taken their win on that and sold it and then put that into the business. They were renting at the time. So they always had these constant ongoing personal expenses. And one of the things that they didn’t look at, and I kept on saying to them, look at your personal situation. But as the business, when they bought the business, it was actually going pretty well. But then they were lacking in their capital in HR. I actually had a few staff that worked there that came to me and they said, these guys are rude. They don’t know what they’re talking about. So they lacked the capital in HR. Blindly didn’t want to listen to a lot of that.
James Flaherty
The great thing is- So they wouldn’t hear bad news from you. They wouldn’t hear stuff that they didn’t want to, didn’t fit their- Well, what do I know about that?
Duncan Perkins
I know debits and credits and balance sheets and profit and losses. Why would I need to be listening to Duncan about his life stories and- It’s one thing.
James Flaherty
We always caution small business people to keep in mind is that you, Cheryl, and Duncan, and I all run small business. Yes, absolutely. So we’re not unqualified to have- No. So that’s interesting. These people, when they came to you, they wouldn’t listen.
Duncan Perkins
They wouldn’t listen. They went on with it. And my gosh, they did a great job. The problem that happened for them was, I believe ultimately it was COVID. The whole shopping center that they worked in shut down, but still wanted rent from them. So you’re not allowed to operate from here, but we want your rent. This is coming from the landlord through COVID. It was a terrible time, but we got them extra money through JobSeeker, JobKeeper, all that type of thing. And they pushed through on that, but then the help really didn’t come from their bank, but the bank couldn’t help them because the bank said, you don’t have any security more because they sold that investment property, but really didn’t wipe out enough of their debt. So then they needed cashflow lending. There was no one there to support them. There was no assistance. It all got too hard. They thought, why don’t we just go back to the thing that we used to do, both on $110,000, $120,000 a year. That was the turning point for them. When they were sitting with Cheryl, I would say that they went, hey, you’re right. Let’s let this thing go. Let’s stop fighting against the incoming tide.
James Flaherty
Yeah. Let’s hold that thought because that’s a really interesting podcast. That’s kind of like franchisees podcast too.
Cheryl Stainsby
No, but it was really good because they did take responsibility. So in the beginning, they took responsibility for the fact that they hadn’t listened in the beginning, that they were in the situation due to their own making. There was COVID as well, but- Pretty hard to plan for COVID.
Duncan Perkins
It is, but they still admitted that- Look, I remember through COVID, we were all running around like chooks with our heads cut off trying to help every single client that we had. JobKeeper, JobSeeker, it was just nonstop.
James Flaherty
Did you get thanked for it?
Duncan Perkins
I think a lot of people, yeah. That’s one thing that we do look for. We just do look for a thanks is probably one of the nicest things. If you walk a little old deer across the road and then you get a letter in the mail that she wants to see you because she’s got a bruised wrist, it’s not a good feeling. It’s a bit of an analogy, but what I’m saying is you go out of your way to help someone and then they turn around and they blame you for the person that put them there.
James Flaherty
And that’s, I suppose, the thing maybe to walk away from this podcast when you think about it. So a bunch of people who will continue to franchise. We might do another episode just to follow through with that couple and then some other ones. But so there’s people who won’t listen. There’s people who are kind of blind to any other opinion than what they’ve accepted. So then you’re a pretty easy person to blame. The thing that I find really interesting, Sheldon, is how many of them go through to you still blaming the Duncans of this world and then you get the other side of the story and Duncan says, well, they’ve done this, they’ve done that, they’ve done the other thing.
Duncan Perkins
What’s the answer? Well, I would suggest that the answer from them is go, yeah, you’re right, Cheryl. Let’s move on from this. And because then I think the next thing that you say is, well, what’s next?
Cheryl Stainsby
And then you got that off your chest.
Duncan Perkins
You got that off your chest. Let’s move on.
Cheryl Stainsby
But how do we change going forward? And this is the frustrating part, because if I’m helping someone restructure, I want to make sure that we’re going to put those measures in place so it doesn’t happen again.
James Flaherty
I suppose we’re sort of talking about a type of animal, aren’t we here, really? It’s a director who, you know, you might come to the point of realisation, Cheryl, if you say, you know, maybe you’ve rescued them once, can you sometimes see them again?
Cheryl Stainsby
If we’re helping them restructure and get back on their feet, we want to make sure that they don’t fall back into this position again. So we’ll always talk to the referring accountant, but quite often the relationship’s deteriorated by that stage, and quite often the accountant’s saying, you know what, maybe they’d be better to find a new…
Duncan Perkins
Fresh eyes.
Cheryl Stainsby
Fresh eyes, that’s right. And quite often things go well for a while, but sadly, a lot of these clients fall back into their old ways again after two or three years.
Duncan Perkins
Yeah, well, the leopard doesn’t change its spots was one of the things that we said in the bank, and the apple doesn’t fall far from the tree. So if the father or the mother was a bad borrower, you usually find that the son has learned some traits there. And same with business. Usually we would have a great client from a business perspective as an accountant, and you know that the son or the daughter is going to succeed as well. It’s just that entrepreneurial gene, and you see it all the time. But a lot of the time we’ve been to the point with the client where we’ve said, these are all the things that you need to do. A lot of the time it’s just too much for them. And before we even do those things for you, you owe us X amount of dollars as well. So they go to another accounting practice, zero in the ledger that they have to pay that accountant. They know that they’re going to be up for what we basically quoted them. They have a recommendation list that we’ve already given them, they run all that by the new accountant. A lot of that work is now being done for that new accountant. Good riddance a lot of the time. But when they go to that new accountant, they’ve got a nice plan put together basically from us in the first place, and Cheryl from your firm, and it all works beautifully and nicely from then on in. I see a lot of clients, we bring a lot of new clients on, and they’ve gone into a franchise or they’ve gone into a business. We set up the model for them, we line up the bookkeeping, we get them, we educate them how to do their business and other things like that. And then we lose them after two or three years because they don’t need that hand anymore and they find it maybe cheaper somewhere else down the track. But unfortunately you do hear about the struggles that they had and other things like that. So I’m of the old banker’s skill set in that we would build a client up to a certain point and then it’s like a kid, you’ve got to let them go and work it out for themselves. And you’re going to struggle along the way. I think that you’re not successful in life if you… I think one of the good things you should do is fail often. Fail small, fail often, and learn from that, accept it, move on.
James Flaherty
That’s a brilliant place to round this one off. I think we’ve got a fair bit to go on. We might continue this podcast for a little bit of a follow-on. Are you happy to come back, Duncan, just to keep on talking?
Duncan Perkins
Happy to come back. Great spot. Okay.
James Flaherty
Thanks very much, Duncan Perkins from Tax Time Accountants. And of course, Cheryl Stainsby from Your Director’s Advocate. Very, very interesting. Let’s keep going.
Cheryl Stainsby
This is a general reminder from Your Director’s Advocate that these podcasts are generally nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal, or counselling advice, or contact Your Director’s Advocate on 07 3340 5102. Thank you.
Transcript – Your Directors Advocate
Episode 2 – Blame Game with Tammy Haug
James Flaherty
Welcome back to Your Director’s Advocate. I’m James Flaherty. I’m here with Cheryl Stainsby. Hi Cheryl.
Cheryl Stainsby
Hi James. How are you today?
James Flaherty
Really well, really well. We’ve been talking about the bookkeeper didn’t tell me, or the accountant didn’t tell me, or I don’t know, that’s something in the bookkeeper. And then we’ve had Damien Davis come in and tell us kind of what happens when it all blows up and goes into liquidation. But this time we’ve got Tammy Haug coming in. Hi Tammy, how are you?
Tammy Haug
Hi, good thanks. How are you?
James Flaherty
So Tammy, you’re the general manager of eCars Finance. Yes. So this is a different perspective, isn’t it? Where do you see this one, Cheryl, insights we can get from Tammy? Is it sort of, you talked about things like loan stacking and… So maybe tell me where you’re going with that.
Cheryl Stainsby
So where I’m going with this is that I’ve been working with Tammy’s company now for a number of years and Tammy assists us when we’ve got clients. Maybe you need to purchase cars, a little bit of a pickle, they need some asset finance, the cash flow to get them out of trouble. And they have an amazing team. I’d say there’s very few clients that they can’t help. They come to us soon enough. We refer them to Tammy, Ace, Jason, the guys in the team, and they get it done for us. But something that we’re seeing a lot more recently, and Tammy and I have discussed this because it’s a major concern, is that I would say that almost every company that comes across my desk lately has what I would call high risk loans with very onerous conditions that can cause a lot of problems for the director of a company. And it puzzles me as to why potentially when we could get what I would call good debt, why our directors are suddenly opting for these other loans? So Tammy and I had a discussion about it, and we felt that it was worth a podcast because we not only see one or two of these loans, sometimes we see three, four, five, six of these loans, and these can cause major, major problems for a business.
James Flaherty
In terms of these loans, you’re talking about things that might be advertised on television or things you can go via email. Facebook. Sort of the last chance hotel type.
Cheryl Stainsby
Yeah.
James Flaherty
Okay, right.
Cheryl Stainsby
And the discussion that we had, and Tammy will expand a little bit further, is that these loans are relatively easy for directors to get. They may be a little bit embarrassed because they didn’t take the advice of their accountant or the bookkeeper or the lawyer. They’ll go off on their own, try and source the money themselves to get themselves out of a bit of a pickle.
James Flaherty
So start from, okay, cool, I get you. So start from the beginning then. So maybe Tammy.
Cheryl Stainsby
Yeah, Tammy, come in and you tell us about the typical journey.
James Flaherty
Yeah, so they’ve gone to Cheryl because they’ve gone down that path too. So I think, what you’re saying, Cheryl, is the beginning of the journey starts when?
Tammy Haug
So a lot of the time, if I obtain a customer who has a number of these stacked loans, when we get stacked loans means they’ve just got more than one. They’ve had one loan, they’ve maxed that limit out with that particular lender, then they go to the next one that’s a bit higher in interest rate, that gets maxed out. And like Cheryl said, we can see up to six. Generally speaking, once we’ve sat down that customer and really unravelled that thread of, how did we get here? It really starts with this. They just thought that they could fix this themselves. Potentially, they were a bit embarrassed. Maybe they were embarrassed that a really strong company had hit some headwinds and they didn’t want to reach out for help, or they might’ve known that they hadn’t listened to the experts around them. And they thought, well, I can go and fix this. And unfortunately, the marketing is targeted to those clients in those situations. So the prompts in the Google Drive.
James Flaherty
So they’re really designed to talk to my, is that people are themselves in their company are one thing in their mind. Like they’d see that pretty much their persona would be the success of their company and that sort of stuff.
Tammy Haug
Absolutely. With my team, we always say, remember that a person’s company is like their child. It’s their creation and they’re very proud of it. And so they should be. And so when something goes wrong with that child, that company, it can obviously cause a lot of stress, a lot of anxiety and a lot of feelings related to ego and pride, which can sometimes get in the way of making some really good decisions.
James Flaherty
Is it sort of almost payroll, same day loanings for companies that we’re talking about here?
Tammy Haug
Yeah, it’s very similar. It’s the short term, painful payday type loans, but for businesses, the bar is very low. So if you’re a director at night, you’ve just thinking about how are you going to make payroll that week? You might’ve left it to the last minute. You’re Googling, how can I get some quick cash for my business? And up pops a link. Can you follow the yellow brick road? And all of a sudden you’re instantly approved for 50,000. Well, that’s the instant sugar rush you need right now. And that’s going to prolong your problems. And you can think about them another day and maybe go to sleep that night. So I understand where you get there. Problem with that is that 50,000 oftentimes turns into a hundred thousand and you haven’t fixed the structural problems with your business, i.e. cashflow, profitability, or whatever else is going on. And now you’ve just added expenses to that same business with that structure to be paid back under some very onerous conditions.
James Flaherty
That’s the story. I said, yeah, if you haven’t fixed the problem, you’ve got an instant sugar rush, put yourself down, you’ve signed something that you may or may not understand, you’ve added to the problem.
Tammy Haug
Well, in fact, that’s a really big thing that Cheryl and I were just discussing, which is a lot of times, because there’s just so much terms and conditions, without having an expert to explain that to you, oftentimes the directors don’t understand what they’ve signed until it’s far too late.
James Flaherty
So when you get an upgrade on your phone or something like that, it isn’t almost like people are getting terms and conditions like that. They’re so used to just click.
Tammy Haug
Scroll and click. DocuSign, scroll and click. I mean, how many times do you read the Apple conditions? Scroll and click. I’m getting 50,000. Everything’s going to be okay. I’m instantly going to be able to improve my gross profitability. I’ve done this at 10 o’clock at night. I’ve got the money in my account by the next day. How good is this? How wonderful is this lender?
Cheryl Stainsby
And one of the things that we need to talk about here are the terms and conditions. I spoke to a client a couple of days ago who has three, four of these sorts of loans. And the guarantees that he’s given without realising it, basically, he has a group of companies. Every single company now has a security on it to secure this one small loan. All of his personal assets also have security placed on them to secure this loan. And so when he gets into trouble, he’s not only got one of these loans, he’s got four of these loans. How do we even get him out of that? Because nobody’s going to even look at him to try and refinance. Even if he had equity in his house, maybe, the mainstream lenders, what we call the good debt, the good money, they’re not going to look at him.
James Flaherty
Well, because they’ll see like a PPSR or something like that on someone’s house.
Tammy Haug
Yeah, yes. The caveats or… Caveats. Caveats are a big one. PPSR. Yeah, caveats. Just the enquiry. The enquiry on the credit file will make most lenders say, that’s an instant knockout. We’ve seen an enquiry with a particular type of lender in the last six months. You must be having issues. We’re not going to help.
James Flaherty
Yeah. If you need to go to them, then you’ve got a problem. Exactly. So therefore, why would we touch it? Exactly. And they don’t touch it. So then the only place that person can go is to another, one of these kind of… One of these ones.
Tammy Haug
…same day. Which increases those type of interest rates and fees and charges in the short term that you have to pay them over, and the frequency with which you have to pay them. You don’t have even the allowance for… With some of these lenders, you have to pay them back daily, miss a day, and all hell breaks loose, and that lovely lender’s not so lovely anymore, and you start really getting some stress. Plus, you’ve got that pressure on your bottom line because those extra fees and interest, well, they have to be paid out of your profit. Again, if we go back to, if you haven’t listened to those original people, and we haven’t gone back and understood how to fix the structure or the root causes of the stress, if you haven’t got an exit plan, that’s when the stress starts piling on. Look, there’s always a place for these lenders, but you have to have an exit strategy. You have to have been able to sit down and go, well, I know exactly what I’m heading into. Here is my plan. Here’s my foolproof plan to get out of it. For example, they’re great if you’re going to sell a property and you’re waiting for the property to settle, and you know that the funds in the property are going to wipe that out and you can start fresh. That’s a great exit strategy, knowing that you’ve got some form of increase in your cashflow that’s organic within that timeframe. That’s a good exit strategy, but if you’re just trading day-to-day and you’re struggling, there are better ways and reaching out to an expert who can look at the whole picture of your business and put you in the best funding is going to be a lot better.
Cheryl Stainsby
I just want to make a comment here. Your business is in trouble and maybe if you’d reached out to someone like myself, we might have been able to do some sort of a restructure to help you with tax debt, voluntary administration, help you with your cashflow, so that you can come out of that with actual business restructuring. But now you’ve got two or three of these loans, we run the risk that if we appointed an insolvency practitioner in any way, shape or form, these guys are just going to call in everything, including your personal property, and you’re probably going to go bankrupt. You’re probably going to lose everything. One of the things that I find really hard is that, for example, you might refer somebody to us that’s got half a dozen of these loans, I get them all the time. The only exit strategy is you’re going to have to go bankrupt and you’re going to lose your assets. But once again, they’re hanging on, they’re hanging on to dreams, they’re hanging on to I’m going to win gold lotto and I’m going to pay all of this out until it all collapses in a big heap and then it really is a bloodbath, isn’t it? Absolutely, and then that follows you.
Tammy Haug
I’ve got clients on my book who maybe 10, 15, 20 years ago had to call bankruptcy and while there are fantastic lending solutions for them, a lot of times a lot of doors are shut to them for life because of those decisions. Again, come to someone earlier. If you’ve had one before you go for the second one, reach out to an expert that’s got your best interest at heart.
James Flaherty
Tammy, I’m thinking it’s 10 o’clock at night, I’m struggling to pay payroll and I’ve got an easy solution. I can do this and I’ll get the 50 grand. Do I have another slightly sleepless night? Because what I’ve done is I’ve actually texted or emailed your enquiry line and yours, Cheryl, and said, we’ve got to talk. Because if I’m hearing what you’re saying, Tammy’s given work to you, Cheryl, because Tammy’s been unable to help them because of all of these limpet-like loans that have metastasised over the entire enterprise and the personal assets of the So what you have clicked through in the middle of the night is something that could mean you lose your home. Absolutely. So why are these allowed?
Tammy Haug
Why is this okay? That’s a fantastic question. In Australia, if you’re not a private person for private lending, you’re not covered by a Consumer Credit Protection Act like you are covered under our legislation if you’re purchasing something for private use. And what that means is there is no best interest duty available to you. What that means is you don’t have someone saying, is this really in your best interest? Could we do better? There’s no requirement for that. If they’re marketing to that particular director directly, they’ve got a product to sell. And in our legislative framework, if you own a business and it’s for business use, it’s buyer beware. So you really do need to beware. Wow.
James Flaherty
But what about going to the Australian, what’s the, AFCA, the Australian Financial Compliance Authority, surely some of these business people would be part of that or not?
Tammy Haug
So if you go to a finance brokerage that has a consumer lending division and has to be a member of AFCA and you’re a small sole trader, you may have an avenue if a broker in one of those firms has placed you into that loan and hasn’t really worked in your best interest. But 99% of the time, if you’ve gone direct to a lender, you have no recourse. If you’ve gone to a commercial owner broker as well, you have no recourse.
James Flaherty
Right. So it literally is at 10 o’clock in the night on your mobile phone, a direct relationship from you as the director to that lender without any legal advice, any accounting advice, unless you’ve had the presence of mind to take that prior.
Tammy Haug
Unless you’ve had the presence of mind to take it prior. And most of these contracts written into fine printers, you must seek legal advice by signing this. You waive your right to a waiting period for legal advice. It’s not something that’s up there in bright bold letters. So you really do need to read what you’re signing.
James Flaherty
How bad do you see this problem, Tammy?
Tammy Haug
It’s endemic, especially in the current economic climate. I was just talking to Cheryl. I had to explain to a client today how these onerous conditions work and how they prevented him from selling assets that he thought he owned to raise some capital to get himself out of these loans because he ended up with three, what we call GSAs against his businesses.
James Flaherty
General Security Agreement.
Tammy Haug
Yep. And three were competing with each other and there was only X amount of equity to release one of them and not any one of those would release without the others. And so he’s in a impasse situation where he can’t sell the assets to raise security.
James Flaherty
And all while interest and fees will be accumulated.
Tammy Huag
All the while he’s got to payments on one of the loans, daily payments, on one of the loans weekly payments. It’s killing his cashflow.
James Flaherty
And so ultimately it would be hard for that business to survive.
Tammy Haug
Without releasing all three of those and being able to sell these assets to that other buyer who wants to fund them would actually solve a huge amount of these problems. But because each lender wants their own security paid out first, we are just in a catch-22 and he is stuck.
James Flaherty
Right. And you’re starting to see this?
Cheryl Stainsby
We’ve been seeing it for a few years now. We start to see a huge rise in the number of loans with onerous conditions. And the sad part for me is that a lot of people don’t even realise that all of their other companies and their personal assets got security on them until I come along and I do some searches and I say, oh, did you realise that there are charges on here and securities on there? And they have absolutely no idea because once they’ve signed that document, there’s no notification to say we’re putting a charge on your company. They do get notified if there’s a payday put on their personal property. But a lot of the time they don’t even realise that everything’s cross-collateralised.
Tammy Haug
And it kind of undoes all of the great work that the accountant has done to asset protections. So the accountant creates these structures to protect that client, the client signs finance paperwork without including their accountant. And then that undoes that because someone like Cheryl can’t come in and actually protect those assets should the worst happen. Yeah. Because these conditions have just basically pulled every company in that group into the same situation.
Cheryl Stainsby
One of the problems that we have too is if there’s a group of companies, say there’s three or four companies and we’re pointing a liquidator to one company, generally these lenders will then appoint a receiver over every company that they have a security over. So the liquidator can’t even really do their job for a period of time while the receivers are sitting there. Sitting there to secure the asset.
James Flaherty
So if you’re listening 10 o’clock at night. 10 o’clock at night. And you’re contemplating it. Write this name down. Write that. Tammy Hay from eCars. How do I spell eCars, Tammy? E-C-A-R-Z. Okay. And obviously Cheryl Stainsby. So if you are contemplating it, call one of these people first. Thanks for that. That’s been very long. I think we better get Tammy back. I think we have to get Tammy back. Yeah. Thanks Tammy. Thanks Cheryl and thanks Tammy once again. That has been very enlightening.
Cheryl Stainsby
This is a general reminder from your Director’s Advocate that these podcasts are general in nature and do not constitute advice. They don’t take into account personal circumstances. If you think that some of the issues raised might apply to you, you should seek qualified financial, legal or counselling advice or contact your Director’s Advocate on 07 3340 5102.
Thank you.
Transcript
Any or all of these reasons for business owners with a Pty Ltd company who:
If you have personal assets you want to protect, like a family home or director’s guarantees, this may not be for you, but you should ask us.