This is no April Fool's ...

Today is 1 April 2021. For some it’s a day of japes for April Fool’s but for many small businesses in Australia today will be anything but fun. 

JobKeeper has finished, as have many other government-backed concessions that have prevented debt collectors, landlords, the ATO and other creditors from chasing their debts.

Letters of Demand and Director Penalty Notices are ready and waiting to go.

These are not nice missives to receive and your first reaction is likely to be an emotional one. And that’s OK. Running a business is tough enough in the good times, let alone during a global pandemic. 

So take a deep breath and let’s deal with the first things first. Read the letter carefully. Then read it again. What is it claiming you owe? Why do you owe it? What is it demanding that you do? By when? Do you understand? 

Now consider whether you can deal with it yourself, or do you need some help. 

Do not ignore it.

If you want to dispute the contents of the letter, speak to a solicitor to help you write a reply. To keep the costs down, you might be able to write the letter yourself but have the solicitor review it for you. 

If you know the demands to be true, find out if you have the right to mediation or another form of alternative dispute resolution, and/or put together a "good faith" offer for your creditor's consideration.

• You probably need the help of your accountant or a specialist small business advisor (who understands pre-insolvency) to prepare an indicative "fire sale" valuation plus some financial forecasts. You need to understand your financial position now and in the foreseeable future and show the creditor that your offer is in their financial best interests, rather than trying to get a Court order for winding-up.
• Can you enter into a payment arrangement (i.e. an instalment plan) or pay a reduced amount? What can you afford to offer? Over how long?  
• Ask your solicitor about how to make any offer so that your rights are protected.
• Can you borrow from a third party lender? Do you need to talk to a finance broker or non-bank lender? And what are the pros/cons of that over the longer-term?

If your business is viable but you need help to manage multiple creditors, you may like to engage a Small Business Restructuring Practitioner to prepare a restructuring plan that will allow you to stay in control of your business and trade on. 

If you are not eligible for the Small Business Restructuring regime, then you may need to talk to an Insolvency Practitioner about a Voluntary Administration, although this now starts to cost more money and sets in train a legal mechanism that you do not control. Your business could end up in Liquidation. 

If you want to wind everything up, then talk to an Insolvency Practitioner about Liquidation. 

Or you may choose to wait and see what the creditor does next. 

You have options.

Part of the decision-making process will be to understand the consequences for other parts of your personal and business life. For example, have you given personal guarantees? Is your company the trustee of your SMSF? Have you bought assets for personal use with business funds? What will happen to your credit rating? 

And what do you really want to do? As the song says, you gotta know when to hold, and when to fold. 

Maintain professional and polite relationships with everyone at all times and keep the communication channels open. Focus on doing the right thing for your reputation because you will have to live with the consequences of these decisions forever. 

Don’t be afraid of reaching out for help. There are many experienced professionals who will give you a limited amount of their time for free, no strings attached. You can speak to more than one professional. Don’t be afraid to ask questions!

If you do end up appointing an Insolvency Practitioner, you are going to be in for quite the ride, so it is advisable to choose carefully because the Insolvency Practitioner is now the captain of your ship.

At Reputation Edge, we can help you to make a good decision and to manage the reputational impact of that decision. We can also refer you to the right professionals to help you. We have an extensive network of contacts in accounting, law and insolvency. 

Note: This article is intended to provide practical help of a general nature. It is not a substitute for formal advice from a qualified professional who is fully aware of your individual circumstances.