We were recently referred a client by an accounting firm we know. Our client (a company) formerly traded a restaurant in a large shopping centre, but the restaurant had closed. The restaurant had failed because of a significant decline in turnover as a result of Covid-19.
Our client’s only unrelated debt was a claim by its landlord for over $230,000. The debt related to Covid-19 rental deferrals provided, which were not paid and future rent payable. Our client (the company) had moved out of its premises, ceased trading and it had no assets.
Our client had received a letter of demand from the landlord’s solicitors threatening recovery action if the debt was not paid.
Importantly the directors of our client had not signed personal guarantees but had a bank guarantee in place which had already been called upon by the landlord.
The only options available to our client were to either go into liquidation or to make a small offer of settlement to the landlord.
The directors of our client wished to attempt to settle the landlord’s claim, failing which they were prepared for the company to go into liquidation.
Offer of settlement
We talked to the company’s directors and they were only prepared to pay $10,000 to settle the claim. We also reviewed the company’s financial statements and other information and determined there was little or not prospect that any funds would be recovered in liquidation.
We therefore made an offer of settlement of $10,000. We also informed the landlord that in our view there was little or no prospect of any recoveries in a liquidation and that if the offer was not accepted the company would either be placed in liquidation or it would be left with the landlord then having to incur the costs to obtain a Court Order for liquidation.
After some negotiation and provision of further information, the landlord accepted the offer of settlement and we prepared a Deed of Settlement which was signed.
Our total costs associated with this matter were less than $4,000 plus GST.
Importance of directors not having personal guarantees
In this case the company’s directors did not have personal guarantees. If they did they would have been liable to the landlord for the company’s debt and there would have been virtually no chance an offer of $10,000 would have been accepted.
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If you or your company owes a lease, or other type of debt you cannot pay and you would like to consider all options available, please contact us for a free no obligation consultation.