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Company Debt

You may have made the error of getting into debt you thought you could pay through sales in your business, only for sales to have fallen through. Alternatively, the debtor you were banking on hasn’t paid on time – or, in an absolute worst-case scenario, it has gone into liquidation or bankruptcy (meaning you won’t reclaim that money or time again).

Don’t despair, though, as LemonAide can help solve this issue! 

Let us guide you through a few potential ways we can support you – and how we have helped previous clients in similar situations.

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A significant debt position doesn’t always mean closing the business

Has someone – such as an accountant, bookkeeper, business coach, or another ‘trusted advisor’ – told you to close your business because it has too many debts?

It’s important to find out what your business looks like without the significant debt, especially the ones that aren’t directly linked to your business. Of course, some debts are necessary to run your business, such as finance around motor vehicles if you’re a tradesperson.

But what if we threw the other debt in the bin… would your business be viable? If so, it might still have the potential to thrive!

One of our clients, Graham, was (and still is) a café owner in Melbourne. As a result of COVID-19, he couldn’t keep paying the lease on his property. Graham’s accountant advised him to close the business, but then he met a business coach – one who saw the potential in his business and directed him our way.

The landlord gave Graham’s business a dispensation on the rent, alongside offering other building tenants vouchers to spend at the café post-COVID. While this helped improve the situation, Graham was still worried about the debt he owed the Australian Taxation Office (ATO). This debt had built up over many years, emerging that Graham also owed suppliers and family members.

After reviewing Graham’s business without all the debts, LemonAide found that the business could be extremely profitable. We helped restructure his business, legally and ethically, without any personal consequence to him (given his personal asset position). The business retained only the debts needed to operate – that being suppliers and the landlord, who negotiated a new deal. The remaining debts were dealt with by liquidating the old company.

We also introduced Graham to some people who could help him stay on track with his business. It worked wonders for him, with Graham’s business now making a consistent profit of over $4,000 per week. However, this isn’t always necessary. Sometimes minor tweaks in the business or the director’s mindset are all that’s needed!

If you’re interested in finding out whether your business could be viable long-term, despite its accumulating debt, let’s have a conversation. Fill in the form below, and we will be in touch to arrange an in-depth chat about your company finances.

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Why a liquidator should never be your first stop

Liquidators have a fiduciary responsibility to and represent company creditors, not the director(s) of the company itself. It means they can’t offer any specific advice about how a liquidation might affect you as a director, alongside how it may impact your personal asset position.

Discovering how a liquidation will affect the company director personally depends on what actions they do or don’t take, with every position being unique.

Take George, a past client, who decided to put his company into liquidation before obtaining any advice. When George called us in a panic, he explained that he would be sleeping on the couch for the foreseeable future. The liquidator had demanded the company cars be auctioned off, one of which George’s wife drove.

When LemonAide got involved, we called the liquidator to advise that George was being assisted with his company’s liquidation. We then proceeded to ask for a calculation of the motor vehicles’ equity, alongside requesting 21 days to review the calculation before making any decisions. Both were granted.

While reviewing all the documents, we noted that one of the cars did not possess any equity. If the liquidator sold that particular motor vehicle, he would have to pay for the auctioneering costs. A disclaimer letter for this motor vehicle was requested and approved, meaning the car of George’s wife was safe.

For George’s car, it wasn’t as straightforward. Upon reviewing his motor vehicle, we calculated the equity after all costs totalled $5,869. A deal with the liquidator would need to be made for George to purchase the equity in his motor vehicle. The deal went ahead, and both motor vehicles were refinanced into another one of George’s companies.

All the above issues could have been avoided if George had approached LemonAide before appointing a liquidator. The equity of his motor vehicles would have been completed in advance, and any funds would have been received into the company’s bank account.

The refinance of the motor vehicles into George’s other company would still have happened, but there wouldn’t have been any hassle as the transaction would have been properly documented and completely legal…

…and finally, George would have saved himself $5,869. These funds would have been part of the upfront payment to the liquidator, instead of George paying the liquidator his fee followed by buying the equity of the motor vehicle!

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