It’s natural to feel like giving up when your Company is swamped with debt. But there may be options if you know where to look.

When your business has significant debt, it can feel overwhelming. You may even feel like giving up or you may be told there’s no hope. In this case study, we look at a Company that owed the ATO (and others) a lot of money. But that doesn’t mean the Director and his family had to lose everything.

We were introduced to Brett, the Director of a Sydney-based cleaning company, by the Company’s new accountant. The Company hadn’t lodged its BAS in over 2 years and they hadn’t lodged any tax returns for even longer. In addition, there was a lot of money owing to a number of creditors. It wasn’t a good position to be in.

Brett and his wife Hanna were so distressed. The advice from their accountant was to talk to the team at LemonAide or give up now. They had poured so much time, energy and attention into their cleaning company. They couldn’t imagine what more they could do. But they followed their accountant’s advice and got in touch with us.

We discussed the situation with Brett and Hanna and discovered their debt was worse than they realised. The Company employed 9 staff and their super contributions hadn’t been paid for 18 months. In all, the Company owed:

• $391,000 to creditors
• $58,000 in outstanding employee super contributions
• $179,000 to the ATO for outstanding PAYG

The most significant thing for Brett is that as a Director, he was personally liable for both the outstanding superannuation contributions and the PAYG. In addition, from 1 April 2020, he was also personally liable for any outstanding GST.

To complicate matters, the Company’s cashflow was tight. That meant the loss of even a small client or any adverse event, would prevent the business from being viable. In addition, Brett had accumulated over $99,000 worth of debt on his personal credit cards caused by trying to support his family and keep the Company afloat.

In all, Brett was personally liable for debts totally $237,000 + interest and ATO penalties. With a large family to support and a modest wage of $55,000 per year, we estimate it would take Brett at least 10 years to repay his debts.

Now for the good news!

When Directors come to LemonAide for advice, we look at their situation holistically – which includes their personal and business circumstances. Then we make recommendations that are ethical and legal.

We advised Brett and Hanna to restructure the business and set up a new Company with Hanna as the Director.

We also provided advice on ways to improve the Company’s operations such as:

• Employing staff on a permanent basis using legally binding employment contracts
• Entering into formal contracts with commercial clients
• Ensuring clients were always invoiced at the end of each month
• Expanding their current portfolio of clients to increase their annual revenue by $120,000 to ensure the new business remains profitable in the long term

Next, we undertook a valuation of the original Company and found it had a reasonable amount of equity in its plant and equipment. That allowed us to sell the original business to the new Company using market values. As a result, the new Company could take over the finances of the original business. After that, we arranged refinancing with a new provider on a 4 year deal.

By selling the original Company, Brett received sufficient funds to pay the employee super contributions. Once that was done, the Company was placed into liquidation and the team at LemonAide supported Brett through the whole process.

Over the years, Brett and Hanna had built up a number of personal assets (like their family home). They didn’t want to lose the things they worked so hard to acquire. So we undertook a valuation of Brett’s personal assets and reviewed the equity position of each against the required finance payout.

The most important assets were sold to Hanna at market value. Once those transactions were completed, Brett declared bankruptcy. Again, the team at LemonAide were there to guide him through the process as well as answer every question from the Bankruptcy Trustee. Importantly, the Trustee was satisfied Brett’s personal assets were sold for fair market value.

Was there a happy ending?

We are proud to announce the new Company has been trading successfully since it began and is making healthy profits due to the improvements we recommended. By employing staff on a permanent basis, the new Company is saving over $50,000 per year in wages. Best of all, Brett is about to exit Bankruptcy within the 3 year period, free from all debt and without losing the assets that were so important to the couple and their family.

Can you identify with elements of this case study? If so, book an appointment with us. For a small investment of $220 incl GST we will thoroughly investigate your situation to examine your options and show you how to retain your important personal assets if your Company hits financial problems.

If you engage LemonAide to implement your unique strategy, this initial investment will be credited back to you as we guide you through the entire process. We’ll also assist by finding unique solutions to help your business survive and thrive in the future.

If your Company is struggling with debt, give us a call today. You may be surprised by the options that are available to you.