When a company cannot pay its debts, often people believe there are only two broad options, borrow or liquidate.
However, this is not true. There could be some options in the middle.
In this video, Brent Norling discusses ways to compromise with your creditors if you are no longer in a position to pay. For example, did you know if you get the majority of creditors in agreement, you can bind all creditors to a payment proposal?
Do not let creditors get frustrated and chase you. The key to success in dealing with your creditors and getting their agreement to an alternative proposal is:
The journey of entrepreneurship is fraught with challenges, not the least of which is financial instability. When faced with the daunting prospect of debt, many business owners see only two paths: fully paying off debts through borrowing or succumbing to liquidation. However, there could be available some debt resolution strategies that lie between these extremes, offering hope and flexibility.
One of the most straightforward yet effective strategies is to engage in direct communication with creditors. Transparently discussing the financial predicament and proposing a realistic payment plan can lead to compromises beneficial for both parties. This approach may include negotiating reduced payments or structuring a payment arrangement that aligns with the business’s current financial capacity.
For those seeking a more structured solution, Part 14 of the Companies Act 1993 – Creditor Compromise Regime presents a formal avenue for proposing a compromise to creditors. If a majority agrees, this can significantly reduce the debt burden, allowing payments of, for instance, 40 cents on the dollar. Convincing creditors that this compromise is more favourable than the alternative—receiving minimal returns in the event of liquidation—is crucial.
To successfully navigate through financial challenges, two key principles must be adhered to:
1. Communication: Open lines of communication with creditors not only foster trust but also open doors to flexible solutions that may not have been considered otherwise.
2. Proactivity: Actively seeking out and implementing debt resolution strategies demonstrates a commitment to sustainability and growth, significantly enhancing the odds of recovery and future success.
The path to financial stability for business owners is not limited to the extremes of debt repayment through borrowing or liquidation. By embracing direct communication and considering formal compromises entrepreneurs can steer their businesses back into calm waters. The essence of overcoming financial difficulties lies in the proactive and communicative approach.
If you need help navigating your options, we offer a FREE 30-minute legal consult. Get in touch.
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.
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