Over 750,000 businesses have taken advantage of the Federal Government’s JobKeeper scheme. These businesses employ over 3.5 million employees and many would have failed without JobKeeper.

Many owners of these businesses are now wondering what happens when JobKeeper ends in September 2020? And will their business becomes insolvent?

This article looks at what options are available if you are facing such a situation and how we can help. If you think your business will have difficulties paying its debts when JobKeeper ends, give us a call today.

Borrow Funds or Recapitalise a Business

If your business is in financial difficulty, you can always look at lending funds to the business or borrowing funds to prop the business up. However, often this is a band aid solution and will only cover over underlying problems for a short period of time. If you are looking at doing this you should also:

• Obtain professional advice prior to lending money to your company, so that you are not just putting good money into a business which will ultimately fail;
• Ensure you are implementing business turnaround measures, which we can assist with; and
• If you are lending money to your business, make sure you take security over your company at the time the loan is made and register your security on the Personal Property Securities Register.

Negotiate Settlements with Creditors

If you have an ultimately sound business, but it has incurred unmanageable debts due to coronavirus we can help you negotiate payment arrangements or debt settlements with creditors. To do this we commonly provide creditors with a summary of a business’ financial situation, and an estimate of what creditors will receive if the company be placed in liquidation, which is often a negligible return.

When faced with the prospect of receiving little to nothing, generally creditors will  be open to negotiating a settlement of their debt. This is especially the case at the moment as all businesses are aware of the financial impact of coronavirus and the risk of business failure and liquidation.

One possible issue with this process is, it requires all or most larger creditors of a company to agree to the settlement proposal. As if most or all creditors are not on board, the informal arrangement may fail. Thus, there is a higher chance of such proposal being successful for businesses with only a small number of creditors.

More information about how we can help you negotiate settlement arrangements can be found here. 

Business Sale Arrangement via Legal Phoenix Transaction

We have previously written about the legalities of a ‘phoenix transaction’ here.

A phoenix transaction is where the assets of an insolvent company are transferred to another company. These companies often share the same directors or shareholders. This option allows the business to continue without debts that are attached to the old company.

Expert advice needs to be obtained before proceeding to restructure your business via a phoenix transaction to ensure that the steps taken comply with the laws of Australia. As set out here, phoenix transactions, if done incorrectly, will be illegal and the ASIC has been cracking down on illegal phoenix activity. There are potentially serious consequences to directors, including criminal penalties and civil recovery actions, if a transaction is found to be illegal.

At Pearce & Heers, we will review all options available to your business with you and if appropriate, can assist with this type of transaction in a legal manner.

Voluntary Administration to Avoid Liquidation

Depending on your businesses’ circumstances voluntary administration may be used to avoid liquidation. The voluntary administration process is used to formally settle creditors’ claims and reduce a company’s overall debt level. In a voluntary administration, an insolvency practitioner is appointed to investigate the company’s affairs and report to creditors on their findings and an offer which can be made by the directors to settle claims and avoid liquidation.

The voluntary administrator holds a meeting where creditors vote on the following options:

• Ending the voluntary administration and allowing the directors to resume control of the business; or
• Entering into a Deed of Company Arrangement (DOCA) which is the directors’ proposal to settle creditors’ claims; or
• Placing the company in liquidation.

If your company goes into voluntary administration and a proposal for a DOCA is agreed to, your business can continue trading and will avoid liquidation.

Company Liquidation

The purpose of liquidation is to wind up the affairs of a company. We do not recommend liquidation unless there are no other viable options. Some businesses however, are simply not able to continue in their current form and liquidation is the only solution.

Once appointed, a liquidator will realise any available assets of a company, investigate and pursue any viable recovery action and distribute any surplus funds available to the company’s creditors.

More information about liquidation can be found here.

Contact us for Assistance

If believe that your company will have difficulties paying its debts when JobKeeper ends, please get in contact with us by phoning 07 3221 0055 or by contacting our Brisbane or Gold Coast office. Our experienced staff will be able to assist you.