Insolvency v’s Negotiations, Strategic v’s Tactical

  • Choices

It’s my view that the Insolvency Industry is very much like the funeral industry, a necessary service that helps all stakeholders transit through the death experience. Recently I have had to pay for a funeral and I realised it costs more to liquidate your business than to die. This should come to no surprise considering the nature and complexity of the Insolvency Industry.

Yet many accountants, thinking strategically, are quick to suggest pushing the self-destruct button of Insolvency to their clients when it isn’t necessary. Instead, what is often needed is the tactical strike approach to prune creditors from the client’s business by negotiating a mutually beneficial outcome.

Businesses seek Negotiation with creditors as opposed to Insolvency for the following reasons:

1. Sensitivity around their credit rating

2. Costs limitations

3. The desire to trade again in the short term

4. The need to retain assets, especially when third parties are involved

A recent case study:

A Sydney fashion store closes due to a combination of slow trade, supplier problems and the director’s health issues. The director is left owing a bank overdraft of $260,000 without any means to pay it, accordingly, she risked the loss of her residential property. Her accountant recommended Credit Mediation Service to negotiate with the bank.

Negotiated outcome:

After 4 weeks of negotiation with the bank, the overdraft of $260,000 was reduced to $35,000 in a settlement agreement. Additional benefits she gained by using Debt Negotiations:

1. She retained her residential property

2. Credit rating remained clean

3. No ongoing compliance obligations so will be free to trade when her health improved

4. Fraction of the costs of Insolvency

Though the Insolvency process plays an important role in formal transitioning businesses end of life, the heavy-handed service can be unnecessary for businesses that require more of a tactical approach. If you would like more information on this please contact Credit Mediation Service on 1300 490 030 or visit us on www.creditmediation.com.au

Laurence Hugo is the director of Credit Mediation Service Pty Ltd, this service specialises in shepherding SME’s and individuals through difficult financial circumstances. For further information please contact Laurence Hugo directly on 02 9899 6100.

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