Right Terminology makes difference in creditability
Some of the terms I have heard used incorrectly of late are:
1. Charges (Fixed, Floating or Fixed and Floating). These ended on 30 January 2012 and became known as security interests.
2. Priority Payments – In relation to turning around a business, I have heard someone say, “tell creditors that you are not going to pay them because if you pay them the payment will be a priority payment and clawed back if the business goes into Liquidation.”
So firstly, the term is preference payment not priority payment. A priority payment is a payment to a priority creditor such as employee for wages, superannuation etc. Secondly, to tell a creditor that you are not going to pay them because it may be a preference payment, may in itself be an admission of insolvency as the business is unable to pay its debts as and when they fall due. Accordingly, if a creditor file noted that conversation, it may be grounds to wind up the Company.
3. Safe Harbour and what it means- I have heard someone say just “use Safe Harbour and tell creditors of the business you are buying that you are under Safe Harbour in order to not pay the creditor.”
This is completely incorrect as they person saying this has not qualified what the Safe Harbour is and what the criteria for its use are. They have not said that the Director(s) must have the following criteria:
a) A written plan to action which will give creditors a better outcome than immediately Liquidating the Company;
b) The books and records of the Company must be in order, i.e. accurate and relevant;
c) All employee Entitlements must be up to date;
d) All lodgements with Australian Taxation Office must be up to date; and
e) Employ the services of a fully qualified expert in turnaround or insolvency.
Business is hard and difficult, there are many twists and turns, ups and downs. Business does not need to be made harder by people that purport to be experts in order to simply make sales of their products. At the end of the day, when you are establishing creditability to use the incorrect terminology will lose all creditability established.
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