We were recently referred a client by his accountant. The client had two companies which had been involved in property development. The two companies owed significant amounts to creditors that they could not pay.
Consideration of Options Available
We met with the client and reviewed his companies’ financial position with him. Based on the companies’ financial position the only options were:
- Liquidation, which would result in the company’s assets being realised, but likely no return to creditors, or
- Make offers to creditors to settle debts in order to avoid liquidation.
Our client did not want to place the companies in liquidation, as he believed it would have affected licences and banking facilities held by other entities. So, he decided to engage us to negotiate settlement arrangements with creditors to avoid the companies being placed in liquidation.
Course of Action and Offers to Creditors
After we were engaged by our client we wrote to creditors and provided:
- Background information regarding the companies including the reasons for their failure.
- Brief particulars of their financial position including details of assets owned and debts owed to other creditors.
- Information regarding what we considered the return to creditors in a liquidation might be. This was that it was unlikely that creditors would receive any material return and it was likely there would be no return to creditors at all.
- Details of funds which our client intended to advance to the companies so as to improve the return to creditors under an offer to be made.
- Details of the offer made by our client to settle debts owed, which would result in a much better return to creditors than liquidation.
The companies’ creditors accepted the offers made. Each creditor received approximately 26 cents per dollar for debts they were owed. And while this did not result in debts being paid in full it was actually a better return than liquidation, where creditors would have probably been paid nothing.
This was also a good outcome for our client as it meant that his two companies avoided liquidation and risks associated with licence and banking facilities held by other related entities.
How We Can Help
Pearce & Heers is here to help with advice, assistance and solutions to overcome financial difficulties to help you overcome the financial effects of coronavirus. So, please get in contact with us for a free no obligation initial consultation.