Every day in Australia, there are dozens of companies and individuals entering into formal insolvency administration, but not all distressed companies are candidates for voluntary administration or liquidation, and not all struggling individuals need to go bankrupt.
An informal arrangement with creditors is a cost-effective and flexible way to deal with creditors that you cannot pay in full.
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.
If you think that your circumstances make you a candidate for an informal arrangement with your creditors, please make contact with our office to discuss your options further.