When a company is experiencing cash flow difficulties, directors will often loan money to the company to enable it
When a person is made bankrupt by way of a Sequestration Order, Section 54(1) of the Bankruptcy Act 1966
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In circumstances where a company has something to offer its creditors, but 100 cents in the dollar, then an informal arrangement may be the best way forward. Typically those companies that have limited creditors in number stand the best chance of getting an informal settlement across the line.
How does an informal arrangement work?
The process is relatively simple, though not always easy to achieve.
It involves contacting all of your creditors to make an offer to settle their claims at an amount less than what they are owed.
The process can operate as follows:
- Contact all of your creditors and ask them to delay taking action whilst you consider what the proposal might look like
- Meet with your accountant, or us, to review your situation – assets, liabilities, future income and general circumstances
- Formulate your proposal, which is essentially what you can afford to pay, and by when
- Contact your creditors again to let them know about the proposal and anticipated outcomes, so they can decide whether to accept the offer or not
This requires open and transparent communication and sharing of information with your creditors.
Positives about informal arrangements
- There is no formal appointment made, so less of an impact on personal credit ratings
- For directors, no record of being a director of a company in external administration
- The process can happen quite quickly if the proposal is straightforward and creditors reply in a timely manner
Challenges for informal arrangements
- It only takes one creditor to bring the whole proposal down, so the less creditors you have in number, the better
- Large creditors and statutory bodies (i.e. the Australian Taxation Office) have rigorous processes to follow, therefore an informal proposal may not fit within their operational criteria and payment by instalments over time may be insisted upon
We have assisted several companies and individuals achieve an informal settlement with creditors, both in an advisory role and by physically arranging and chairing a meeting of creditors to discuss the ins and outs of a settlement proposal.
To speak with us further regarding whether a Informal Administration may be appropriate in your situation, please contact us on 08 9215 7900 for a cost and obligation free consultation.