Key Takeaways

For both creditors and debtors, a new year can often bring new challenges and a particular focus on specific issues.

For example, some businesses will close for a period of time which means no revenue. However, expenses will still continue, rent will still need to be paid, employee entitlements will still accrue, taxation lodgements are still required and suppliers will want to be paid.

Similarly, some businesses will review their accounts receivable ledger to see what debts owed to them should be collected to assist with cash flow during this difficult period, and identify debts they owe to their creditors that can be deferred.

In this TurkAlert, we highlight some key matters that debtors and creditors may wish to focus on and consider in the New Year.

For Debtors

• Review your pipeline of work to ensure that future cash flow is available (but avoid the trap of relying on the next job to pay for the last one!)
• Review your trading terms and conditions with creditors. Sometimes, these terms may include security interests over company property or even personal guarantees
• Review your accounts payable and key creditors
• Review your taxation obligations, payments and lodgements. This is especially so for directors of companies, as personal liability can arise
• Have early conversations with key creditors where payments cannot be made
• If at all in doubt, seek early advice from your accountant or lawyer, or even an insolvency practitioner. If you seek early advice, you may be able to take advantage of particular options such as a small business restructuring that might result in a better outcome, but there are restrictions that apply.

For Creditors

• Review your current aged receivables and identify debtors that can be approached for payment
• Review the terms of any supply agreements with those particular debtors to identify potential recovery and enforcement options, such as personal guarantees and security interests
• Take steps to perfect or register those security interests, either by registration on the PPSR over personal property, or by way of mortgage or caveat over real property (depending on the terms of your contracts)
• Take steps to collect any aged debts, or enforce available securities as the case may be, including having difficult or hard conversations with those that owe you money
• Seeking advice in relation to specific clients, but also in relation to your standard terms and conditions and how they can be improved to increase your position should other debtors become insolvent.

Implications

In any event, the lessons are always the same – seek early advice and act quickly. If you are under financial pressure, seeking advice early may mean a more favourable outcome with more options available to you. If you think that one of your debtors is suffering financial difficulty, acting early can assist you in recovering funds owed, but also ensuring that the position does not deteriorate.