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Manage bankruptcy in business without losing your home!

by | Jan 29, 2016 | General, Small Business, Tax Planning

Our client operated a long standing family business supplying and manufacturing fiberglass swimming pools.  The business ran into cash flow difficulties due to complications on a large project at low margin.  Over an 8 month period trade creditors blew out to half a million dollars.  Our client was unable to manage the increasing demands for payment and met with his accountant who immediately got in touch with de Jonge Read.

Our client was passionate about saving the business and felt the current predicament was due to a one off issue.  Rather than battle on in an untenable situation de Jonge Read recommended a corporate restructure to preserve the family business and personal bankruptcy to bring finality to the aftermath of personal guarantee creditor claims.

Our client had been issued with three creditors statutory demands (CSD) which were due to expire in a fortnight.  A creditor can issue a wind up notice on expiry of a CSD.  Our client would not be able to appoint a liquidator voluntarily should this occur.  It was of strategic significance to complete the restructure and appoint a liquidator prior to the issuance of a wind up notice.

de Jonge Read immediately arranged for plant & equipment and goodwill valuations to be completed.  Once fair market value for the business and its assets were ascertained a solicitor was engaged to prepare the sale contract.  The business was sold to a new entity controlled by our client’s wife.  As part of the consideration outstanding staff entitlements were offset against the purchase price.   The balance of the purchase price was settled over three monthly instalments.  This represented a commercial transaction and obtained a better result for stakeholders than liquidation.

Further items that required our attention were the assignment of the business premises lease and negotiations with equipment financiers.  We also assisted in arranging the transfer of utilities to allow for seamless transition to the purchaser.

Preparations were then made to appoint a liquidator to the old entity.  This included compiling the books and records, working with the accountant to ensure the financial records accurately reflected the company’s current position.  A vital role of de Jonge Read was to identify any concerns or risk areas that may need to be addressed or managed during the liquidation.

Due to personal guarantees our client (husband) entered into personal bankruptcy in a controlled and organised manner to bring finality to all personal unsecured creditors.   Our client owned the family home jointly with his wife.  de Jonge Read was able to negotiate a settlement with the trustee that allowed the current and future equity in the property to remain with our client’s wife.  Of vital importance de Jonge Read also obtained the consent of the first mortgage holder to leave the home loan facility in place.

As part of the comprehensive strategy that was set from the outset, our client intends to offer a section 73 annulment at some stage during the three year period of the bankruptcy.  Should this offer be accepted by creditor’s special resolution the bankruptcy will be annulled, our client will come out of bankruptcy prior to the expiry of the three year period and have record of the bankruptcy removed from the Veda Credit Report.

The family home was retained, the family business was saved and our client continues to work in the business as a salaried employee.  The strategy implemented by de Jonge Read brought finality to half a million dollars in unmanageable debts.

Should you have clients or associates that you know are struggling with financial issues, our team of Strategists would be pleased to discuss options that are available. Call us now on 1300 765 080.

Courtesy – Case Study – Matt Flower de Jonge Read

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