Small Business Restructuring gets a lot of attention, but it is not always the right process for every distressed business.

SBR can be useful and cost-effective where debts are under $1 million, lodgements and employee entitlements are up to date, the business is viable and there is a realistic proposal creditors can support.

But in some situations, you cannot make a square peg fit a round hole. That is where voluntary administration may need to be considered.

Voluntary administration is more formal than SBR. One key difference is that control of the company passes to the voluntary administrator. That does not occur in an SBR.

VA may be more appropriate where debts exceed the SBR threshold, employee entitlements cannot be brought up to date, a longer restructuring period is required, there are serious stakeholder disputes, broader operational changes are required, or a sale of the business or assets needs to be completed.

Sometimes SBR will be the right tool. Sometimes it will be VA. Sometimes liquidation is the only realistic option. The earlier that discussion happens, the more options usually remain.

Original LinkedIn post

The post Small Business restructuring vs Voluntary Administration appeared first on Paul Nogueira.

The ATO is clearly focused on collecting current debt. One of its weapons of choice is a Director Penalty Notice.

A Director Penalty Notice, or DPN, is a notice issued by the ATO that can make directors personally liable for certain company tax debts, including PAYG, GST and superannuation.

If a DPN is received, it should not be ignored. In some cases, a director may be able to avoid personal liability by ensuring the company takes certain steps within the required time, such as paying the debt, appointing a voluntary administrator, appointing a small business restructuring practitioner, or placing the company into liquidation.

Sometimes directors are tempted to enter into a repayment arrangement with the ATO to buy time and let the DPN expire. That may solve the immediate pressure, but if the fundamentals of the business have not been addressed, the company may later default on the arrangement.

By that stage, the DPN may have expired and the opportunity to take steps to have the penalty remitted may have been lost.

A payment arrangement can be useful, but if the business is not viable or needs restructuring, it may simply delay the problem and make the director’s personal position worse.

Original LinkedIn post

The post DPNs and Payment Plans: Buying Time Can Lock in Risk appeared first on Paul Nogueira.

People should never assume others know what they do. Even after many years in insolvency, people still ask what types of matters I deal with.

Corporate insolvency and restructuring

• Liquidations
• Members’ voluntary liquidations
• Voluntary administrations and Deeds of Company Arrangement
• Small business restructuring
• Simplified liquidations
• Director risk assessments
• ATO debt and Director Penalty Notice advice

Personal insolvency

• Bankruptcy
• Part X Personal Insolvency Agreements
• Section 73 proposals
• Personal insolvency options for directors and business owners
• ATO debt negotiations

Dispute resolution and specialist appointments

• Statutory trustee appointments for sale
• Alternative trustee appointments in deceased estates
• Receivership appointments, including private and family law matters
• Asset realisation appointments where independence is needed

Different processes. Different problems. But the same practical focus: understand the position, identify the options, and work out the most sensible path forward.

Original LinkedIn post

The post What Types of Matters do I deal with – Insolvency Services appeared first on Paul Nogueira.

I am often asked what priority employee entitlements receive in a company liquidation or bankruptcy.

Liquidation

In a company liquidation, the starting point is section 556 of the Corporations Act. Employee claims generally rank ahead of ordinary unsecured creditors, but after certain liquidation costs, expenses and other priority claims.

Employee priority claims commonly include wages and superannuation, injury compensation, leave entitlements and retrenchment payments. Excluded employees are subject to statutory limits.

Section 561 can give certain employee claims priority over circulating assets, but it does not give employees priority over all secured assets. The distinction between circulating and non-circulating assets can therefore be important.

Bankruptcy

Employee entitlements can also arise where the bankrupt was an employer, such as a sole trader or partner. The starting point is section 109 of the Bankruptcy Act.

FEG

If there are insufficient assets to pay employee entitlements, eligible employees may be able to claim through the Fair Entitlements Guarantee. FEG is subject to eligibility requirements, time limits and caps. FEG does not cover unpaid superannuation.

Original LinkedIn post

The post Employee Entitlements and Liquidation appeared first on Paul Nogueira.

ATO repayment arrangements can be useful, but for businesses already carrying significant tax debt, a payment plan may not be enough.

More flexible payment arrangements may create an opportunity for some businesses, but there are usually eligibility requirements and strict obligations to maintain lodgements and ongoing payments.

For some businesses, a payment arrangement may be all that is needed. For others, the debt is already too large and some form of compromise or formal restructuring may be required.

An ATO payment arrangement does not always solve the underlying problem. Interest may continue to accrue, defaulting on the arrangement can quickly put the business back under pressure, and Director Penalty Notice risks can remain if lodgements fall behind or the arrangement defaults.

By comparison, a successful Small Business Restructure or Voluntary Administration can freeze interest, compromise debt, stop recovery action and provide a more sustainable long-term outcome.

If the business is no longer viable, it may also be the right time to discuss an orderly closure or liquidation before the position becomes worse.

Original LinkedIn post

The post ATO Repayment Arrangements and Longer-Term Options appeared first on Paul Nogueira.

One of the biggest mistakes directors make when cash flow gets tight is deciding not to lodge BAS, IAS and superannuation because they cannot afford to pay them.

The thinking is usually that if the company does not lodge, it might stay off the ATO’s radar for longer. That approach rarely ends well.

Not lodging might buy some time, but it often turns a company problem into a personal one.

If BAS and IAS are not lodged within the required timeframe, and superannuation is not reported within the required timeframe, the ATO can issue a lockdown DPN.

A lockdown DPN can make a director personally liable for company debt regardless of whether the company later enters small business restructuring, liquidation or voluntary administration.

Lodging on time, even if you cannot pay the debt, can help avoid personal liability and preserve options. If the debt is not manageable long-term, it is time to discuss other options.

Original LinkedIn post

The post Lodge the BAS: Why Not Lodging Can Create Personal Risk appeared first on Paul Nogueira.

Another common misconception is that resigning as director before liquidation is an escape hatch to avoid liability.

Resigning does not remove liability for past issues, including existing DPNs, future DPNs, personal guarantees, insolvent trading claims or unpaid director loans.

I regularly see someone resign shortly before liquidation under the misconception that it will protect them and leave the remaining director, or a new director, to take the fall.

In some cases, resigning can make things worse. You lose control of the company and the ability to resolve its affairs. This is particularly important if the ATO issues a DPN after you have resigned and the company needs to be placed into liquidation within time.

New incoming directors also need to be careful. A new director can become personally liable for certain existing unpaid PAYG, GST and superannuation liabilities if the company does not take required steps within 30 days of their appointment.

Where insolvency is questionable or a concern, get advice before you resign or accept an appointment.

Original LinkedIn post

The post Resigning as Director Is Not an Escape Hatch appeared first on Paul Nogueira.

A common misconception is that ATO debt is not written off in bankruptcy. That is not correct in all cases.

Under section 153 of the Bankruptcy Act, discharge from bankruptcy releases a bankrupt from most provable debts.

That can include ATO debt, including some DPN liabilities for GST, PAYG and superannuation, as well as credit cards, personal loans, trade debts, personal guarantees, unpaid rent and shortfalls on secured debts.

However, some liabilities are not released, including debts incurred by fraud, child support and maintenance liabilities, court fines and penalties, and some obligations owed to a trustee in bankruptcy, such as income contributions. HECS/HELP debt is also not released in bankruptcy under separate legislation.

People often delay dealing with debt because they assume bankruptcy will not help them. In reality, bankruptcy can sometimes provide a clean outcome and a line in the sand.

The key is understanding which debts will be released, what assets may be at risk and whether there are better alternatives.

Original LinkedIn post

The post ATO Debt and Bankruptcy: What Gets Released? appeared first on Paul Nogueira.

Director loan accounts or overdrawn beneficiary accounts can become death by a thousand cuts.

A lot of directors treat company bank accounts like their own money. Private expenses, mortgage repayments, school fees, holidays, drawings and personal tax can be paid from the company, with the thought that it will be sorted out at year end.

Sometimes that happens. Often it does not. The loan account keeps growing because no one wants to deal with the tax consequences.

If the company goes into liquidation, that loan account suddenly becomes a problem. The loan account is an asset of the company and the liquidator can call it up and seek repayment.

Arguments often change to “that was really wages”, “that was a bonus”, “that was reimbursed” or “the balance is wrong”. The difficulty is that directors may have signed off on the same loan account balance in years of financial statements and tax returns.

Director loan accounts are easy to ignore while the business is trading, but much harder to ignore once a liquidator starts asking questions.

Original LinkedIn post

The post Director Loan Accounts in Liquidation: Death by a Thousand Cuts appeared first on Paul Nogueira.

An argument I still see from time to time in liquidations is: my spouse is owed money by the company, so that should offset what I owe the company.

Usually, it does not work.

Section 553C of the Corporations Act requires mutuality before there can be a set-off. That means the debt must be between the same parties, acting in the same capacity, with the same beneficial interest.

If the company owes money to one spouse, but the other spouse owes money to the company, there is no mutuality. Marriage does not create mutuality.

I often see this argument where one spouse has a loan account with the company, the other spouse has an overdrawn loan account, one spouse is owed wages, or the other spouse owes money back to the company.

When a company goes into liquidation, the legal position matters more than the family relationship.

Original LinkedIn post

The post Marriage Does Not Create Mutuality appeared first on Paul Nogueira.