One positive note to come out of this situation is that it has given businesses and individuals some unexpected “free” time to consider matters that may have remained ‘shelved’ until now – a legal health check if you like.
It presents an opportunity to work on your business rather than in your business.
With payments to businesses either delayed or defaulting, we recommend our business clients to consider their:
- Debt collection procedures;
- Terms and conditions of trade;
- Asset protection;
Or, consider putting some formal procedures in place for the first time, if you don’t already have them
Debt Collection Procedures
Businesses will need to reconsider their current debt recovery procedures as the following laws have temporarily changed:
- Statutory Demands
- – The time for payment has been extended from 21 days to 6 months
- – An increase in the threshold owed before issuing the demand (from $2,000 to $20,000).
- Bankruptcy notices
- – The time for compliance has been extended from 21 days to 6 months
- – An increase in the threshold owed for a creditor to initiate bankruptcy proceedings (from $5,000 to $20,000).
Here is a link to a Government Covid19 Fact Sheet on this topic:
Providing temporary relief for financially distressed businesses
Terms and Conditions of Trade
Businesses must expect delays in payments from their debtors and must consider the following issues when negotiating payment terms with their debtors:
- Draw up a written Loan Agreement with your problem debtors;
- Take security for the debt owed in the Loan Agreement by registering your interest with the PPSR (Personal Property Securities Register) to get the benefit of being a preferential creditor;
- Despite being delayed, specify the dates for payment of a debt in writing as arrangements such as “I will pay you when I get paid” are vague, ambiguous and unenforceable.
Asset Protection
Now more than ever, it’s very important to have plans in place to safeguard the business you’ve built up over many years, covering key issues such as:
- How can a business’ main assets like real property, equipment or intellectual property be protected?
- As a director or business owner, have you safeguarded your personal and family assets from creditors?
- Is my structure the most tax-effective?
See also The 4 Principles of Business Structure & Asset Protection
For more, here are links to two Business Succession Planning articles that we published in 2019:
