State and Federal government business support packages, including Job Keeper, have had the effect of minimising the impact on businesses during the peak of the pandemic.

Moratoriums on insolvent trading, increasing the time period in which a company has to comply with a statutory demand, tenant protection from eviction by landlords coupled with statutory rights for rent relief has aided many Australian businesses being in a “better position” than they were pre-pandemic.

The side effect of government stimuli is that it may well have delayed the inevitable for some companies, by allowing those companies hardest hit to continue to tread water throughout the pandemic.

With almost all government initiatives having come to come to an end, is the writing on the wall for these companies over the next year?’

Will struggling businesses, particularly those in the CBD or in the hospitality, arts, recreation and tourism, be able to turn a new leaf and return to a state of profitability?

Staff shortages, including by part in the deficit of foreign workers, impacts business efficiency, productivity and output. It follows with an increase in costs borne by businesses through the consequential increase in wages to retain staff from leaving for greener pastures. Costs have been blown out by shortage of supply and transport.

Globally, the pandemic has caused bottlenecks in shipping networks and disrupted the flow of goods along international supply chains.

Domestically, the pandemic has undercut retailers’ efforts to manage inventories amid volatile swings in consumer demand. Social distancing requirements, particularly positive result and close contact isolation requirements, has and continues to stifle consistent business operations.

ASIC records more than a 50% increase in the registration of new companies from January 2021 to January 2022 when compared to the same period in the year prior. The significant spike in new companies being registered raises concerns about potential insolvency and company phoenixing.

When the dust has settled in a post stimulus environment, we will be sure to see the winners and losers in the Australian business landscape.

In the large majority of debt related matters that our client’s encounter, we consider that better preparation would have alleviated the issue altogether or provided certainty in the recovery process.

With the prospect that many businesses may not have sufficient cash flow to support themselves in the post stimulus environment, now is the time to review your systems and processes to ensure that you are placed in the best possible position to recover debts.
We recommend that you undertake a review of your supply agreements to incorporate the following features:

1. Include personal guarantees

Often contracts are ‘company to company’. if the client/customer company becomes insolvent and is placed into liquidation, our experience is that the prospects of recovery are negligible. A personal guarantee will provide you with the option to recover the debt against the director who signs the agreement.

This is extremely favorable as individuals are likely to hold assets in their personal name which may not be at the reach of other their other creditors. In our experience it provides far greater leverage and prospect for recovery in the event you are not able to recover from the company itself.

2. PPSR registration 

The Personal Properties Security Register follows from the enactment of thePersonal Properties Securities Act in 2009.

It allows parties with an appropriately worded written and signed agreement to register a ‘security interest’ over goods supplied to a customer or over the company as a whole, or both.

In plain speak, it is essentially an ability to register a ‘caveat’ over a company (or specific goods) and provides for priority of payment in the event the company is liquidated.

Should liquidation occur and you hold a registered security interest, any money derived from a liquidation will first be paid at 100 cents in the dollar to secured creditors in date order before any money is distributed to any unsecured creditors.

It can also prevent the disposal of assets or the sale of a business owned by a company until the debt associated with your security interest is paid.

3. Caveat

In many instances, you are permitted to include a ‘charging clause’ in your terms and conditions.

This will enable you to register a caveat over any real estate owned by the company (or individual guarantors). This clause must be in a written agreement and signed by the parties.

There is a common misconception that any debt or court order will give rise to the ability to register a caveat over real estate. This is not the case without a written and signed agreement.

In our view, this is one of the most effective tools you can deploy in any recovery action. 

4. Terms and Conditions 

Ensure that your trading terms are clearly defined and are favorable, for instance:

1. Procedure and intervals for billing and date for payment after issuing an invoice;

2. Your rights if an invoice is not paid (i.e. to stop supply or cease work, to charge interest on overdue amounts and in the case of work ‘on site’ the ability to charge a site re-establishment fee to offset the cost of packing up and setting up on the re-commencement of work).

3. Ability for you to extend the date by which you must complete your supply should an unforeseen delay event occur (i.e. supply shortages, weather issues, late payment by customer/client)

4. Indemnity – this will allow you to seek 100% any out of pocket expenses you incur in taking any action to recover a debt. Whilst a court will typically award legal costs to a successful party, the amount of costs ordered to be paid by a court to a party without an indemnity is usually only 50 to 70% of the actual legal costs that you will incur.

Should you require any assistance or advice in relation to any of your debt matters or an assessment of your terms and conditions of trade, please do not hesitate to contact any member of our team.