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good afternoon everyone I'm Hank t-yong the founder and executive director of Dion raid welcome to the first webinar in our long-running seminar series we normally present our seminar in a business breakfast format in these diabolical times however the social distancing we wouldn't want to risk any of our valued staff or valued referrers so while you may miss out on a breakfast at least stay you don't have to get up early and can hopefully watch with a tea or coffee in comfort thanks everyone for coming along virtually today and I must say must say it's great to be able to reach out to so many people in this manner before we begin please note that this disclaimer applies to today's presentation to start with today we'll hear from Craig west of succession plus it's been great to have succession plus join us for the for a most recent seminar series and to have the DeMars part of our first webinar then fill her menko our compliance manager will review the most common warning signs that a business is in trouble and need specialist advice he will then walk you through well our case study today this case study is from the Dion Reid archives the stories of real clients that we've helped we've shared a copy of today as there are slides on the chat window and we'll email CPD certificates after the webinar we welcome questions at the end of the webinar today - both succession plus and Dion read now over to you Craig thanks very much Hank and it's great to be joining the group today as Hank said in the introduction I'm going to talk a little bit about business succession and exit planning and the opportunity that presents for advisors to talk to their clients about this key area of business business succession and exit planning is really about getting a couple of key things right all at the same time the first thing is to make sure we understand we're combining the business the business needs to be ready the financials need to be ready so from a business point of view from a personal point of view from a family that owned the business point of view and lastly the individuals that are in the business need to be ready to hand over control or to walk away from the business when the time's right getting those three things right at the same time and coordinated is actually quite important I always quote Steve Kobe when I talk at these kind of events begin with the end in mind I think embodies exactly what succession planning is actually about starting with the end goal in mind knowing where you're going and why you're going there and more importantly what you need to do to get there successfully is actually quite important in terms of succession ends of planning lots of decisions you make on the way through should be matched to what your exit strategy or endgame actually is the key thing about this and you'll hear this over and over again today throughout this event is strategy takes time the earlier you start the better rushing through this process will not give you the best outcome how do we go about succession exit planning we've got a 21 step process there's actually a process is some journey succession planning is not an event or a transaction as you can see on the screen there's 21 different steps that need to be undertaken to make sure you get succession and exit planning right I'm gonna walk through those now and just show you some of the key steps and some of the conversations as advisors you could be or should be having with your clients to help them through this pathway the first place to start is what have we actually got the ideal conversation you have with clients is about the goals and outcomes what is it you're looking to do when do you want to leave what's the timing look like how much money do you need to fund your retirement and what are you going to do after you actually exit getting clear on those will actually help determine what we need to do in terms of preparation the next step then is to analyze the financial aspects of the business make sure we know and understand what drives our business and our business performance why is the business over under performing and what does it do in terms of valuation secondly we look at the non-financial aspects the actual management and risk strategies that we've put in place have we got policies and procedures do our people all have job descriptions and KPIs and performance bonuses have we got a business plan is their succession strategy in place etc that scoring is actually just as important as the financial performance of the business particularly from a buyer or investors point of view then we look at purely from an investor's point of view or a bias point of view is the business ready to exit are we well prepared are things in place and are we successfully able to exit this business in the current environment then we get a report we need to analyze the findings of that report to determine our valuation and the important thing is it's not just about our valuation today it's about our valuation potential going forward this business was valued for example at five point two five million dollars but over a period of time there are improvements we make that can drive substantial improvement in that valuation if we undertake the findings from the report and the way that we do this is through an implementation plan red is urgent and important it might cause your problem if it's not done orange is something you really need to do to make the business more attractive and more saleable and green would be nice to have and would certainly add to the valuation over time so it's important as well the next thing we need to do is press the pause button and actually protect the value that we've already built up starting with some financial planning around the exit strategy have we got enough funds do we are we able to retire what about taxation have we got assets owned in the right structures do we need to use a self-managed super fund etc and how are those assets protected obviously a question no one likes to think about unplanned events what happens if we get hit by that proverbial bus have we got some documentation and strategies in place that protect the value of the business if that happens and then lastly looking right throughout the business to see where we can reduce risk higher risk always equals lower valuation that's true of any asset doesn't matter if it's a listed share or a property or anything else it certainly trilled smaller medium-sized enterprise in Australia so it's something we need to consider very carefully as we move through the succession process then we get to put a more exciting or interesting stuff around how do we actually maximize value there are several things we can do in fact there's quite a few steps sitting in this phase around improving the value of the business they start with understanding what our exit options actually are from the bottom left-hand side where they're cheap quick easy but they never maximize value right the way up to the top right-hand side which is an IPO or misti which is always the best way to maximize value but for most of our clients most of the clients we're dealing with that's not appropriate somewhere in the middle of the screen between partial sale private equity employee share plan trade sale they're the ones that most small medium enterprises in Australia can use to combine the maximum possible sale price or value with the complexity and effort that's actually involved in preparing this is an interesting quote it's very very old but it's about getting business owners to understand how do they improve the equity value of the business what do they need to do to grow the value of the business and that's not a conversation that most advisors have with their clients but it's a really important one to do that we need to have a business model that matches that if you've got a client that wants to exit their business for let's say five million dollars in ten years time because that's when they turn 65 and we know what that business needs to look like we know how big it needs to be what it means to turnover how much profit it needs to make what systems and processes and procedures it needs to have in place to actually be able to sell successfully for that amount of money but you have to have a plan to get there accompanying that plan is actually a financial plan as well we know what the business needs to look like turnover and cash flow and profitability this financial planning model will actually get you to that coin rather than getting to the end of the year and missing out and knowing that you know I'm not able to sell that business at that particular time or for that particular price the next couple are really important firstly around systems and procedures have everything in the business documented systems policies and procedures is the image outlines how you do that in small businesses and I often talk about McDonald's probably one of the best systemized and process driven businesses that exist in the world today the next thing to think about is marketing and sales this is becoming a bigger and bigger a bigger issue for buyers they're asking about Google Analytics history social media profiles lead generation examining your CRM to see where your customers come from how many of them return etc it's becoming an important issue to understand and have right then we get into the corporate governance do you have a board structure have you got advisors great role for advisors to play for family-owned businesses is to actually sit on the board for their clients to manage the corporate governance process reporting minutes board structure etc to make sure this is handled well equally importantly is to get the employees on board one of the biggest risks for business owners that are selling their business is that the employees aren't engaged or involved and therefore they either defeat the process and they certainly don't add any value the ownership mindset program that we run clients through helps them align with the business owner and understand what it is they need to do to improve the business and their own performance we often couple those with an employee share plan in our case this is called a peak performance trust it's a structure that allows employees to think and act like business owners and I'm going to talk more about that in a moment then we have to get into the actual running of the business who's gonna run the business if the owners are intending to exiting in the future who's going to take over who's going to run the business who's going to generate the sales who's going to manage it financially we use management succession as a way to profile our existing employees and determine which ones are the best ones to actually take over the business at the time the owner exits then we want to think about the actual transaction how do we get out of the business and what are the key things that need to be in place to make sure we can exit successfully the first one is obviously taxed and I'm not going to go into the details around the tax planning but it's really important as advisors we get on top of this really early we talk to our clients about the CGT small business concessions and how they can access them what the conditions and rules are and also who owns what assets both before and after a transaction we're often seeing business owners now sell the business but keep the building or sell part of the business and keep some of the other assets so it's important to have this conversation early and get the structures right equally important is the documentation two things here the information information memorandum which outlines the business and the competitive advantage it's a sales brochure for the business but the other key thing that people are still getting very wrong is the due diligence documentation do we have a copy of our lease we got five years financials we got all our best sales arroyo employment agreements up to us up to date do our supplier and customer agreements and they all been renewed are they up to date and they legal under the new legislation etc all of that can absolutely frustrate a sale I've seen business owners where a sale has fallen over because some of those documents haven't been in place the actual transaction is also important now there's one tip on how to maximize the sale price of your business and that is focus on how you sell and who you sell to for every business that we work with there is always a strategic buyer you need to find that strategic buyer because they'll always pay more the same as a listed company will often pay more to buy your business as well but you need to be prepared they're sophisticated buyers and if I seen what they're looking for so preparation is the key then we've sold the business hopefully and we've successfully retired we need to think about a couple of key changes firstly as a business owner typically when the business needs money you put it in when you need money you take it back out you can't do that anymore that's now more changed you've actually earned the last dollar you'll ever earn from that business other than in best learnings and so the investment planning becomes very important the other thing that's very important is what are you actually going to do with your time I have a business well done a business only here in Sydney I sold his business several years ago for about 20 odd million dollars very successful financially very well-off and I asked him what he was gonna do when he exited the business and his answer was I want to play the top ten golf courses in Australia and I simply said filters that's only three weeks you can play the top ten golf courses in three weeks then what are you going to do you're only 65 life life expectancy says you'll move till 80 or 85 that's 20 years not three weeks you need to think about what you're actually going to do after you exit or succeed out of the business then we have to think about asset protection we've now got a different problem we've got a got a check or a payment or shares or something where we've exited the business we have to protect those assets we've often got children or grandchildren we've got blended families we've got children that have been divorced its debtor that becomes an interesting problem from an asset protection point of view and lastly estate planning how do we manage to make sure our wills and our powers of attorney and all those documents are up to date and actually provide certainty about what's gonna happen if and when it's not if it's actually when something does happen beyond the trap now I just want to talk about employee share ownership plans they're becoming far more popular for a number of different reasons they're actually about providing employees with a pathway to some kind of ownership stake this up aligns employees much better with the business and the business owners and it can be if designed successfully it can be a win-win-win that is the businesses better off the existing owners or shareholders are better off and the incoming employees are better off and that's just about how you design the plan they're becoming a practical solution for a couple of areas the first two are in succession planning firstly to help sell the business you can actually sell the business to your employees I've got several clients that are in them in the process of doing that right now the other thing that's important is to retain key people so if you're going to sell the business externally to an external buyer one of their key issues or key concerns or key risks is going to be the key people within the business how do I know they're actually going to stay after a sale an employee SharePoint can solve that problem obviously they're good for productivity and employee engagement they're also a great way for owners to extract cash from the business prior to retirement well before they're actually due to retire they're a very tax effective tool to extract cash leading up to retirement interestingly in terms of staff retention which was a big issue for businesses not quite double but close that typically an employee share owned company has nearly double the retention of an on a stock company and that's that's Australian research from computer share a couple of years ago it's quite different any if it's not close then we want to talk about the structure that we use we've designed a particular structure called a peak performance trust which is an employee's share plan structure for business owners to lock in key employees reward them in terms of performance improvements and per activity and also allow them to buy equity without needing to be funded then we look at an example this is Smith engineering where we've got John and Jane as the shareholders they've set up an employee share plan which sits there in the middle of the screen to corporate trustee and Smith engineering peak performance trusts in our example we use a profit benchmark $500,000 the businesses to perform better than that so we're actually able to share a percentage of that into the employees share plan which is down the bottom in the middle the company Smith engineering on the Left writes a check for $20,000 that actually gets paid into the employees share plan and the only thing the employee share plan is actually allowed to do is to buy shares in Smith engineering which it does from John and Jane the money ends up with John and Jane because they're distillers and the employees that we've invited in now I own shares in the business that mechanism can continue to work here and year until either the employees own the whole business or they might only own 20% of the business if we're selling part of it to our employees that allows them to fund the acquisition and importantly if they leave the business because it's an employee share plan make an arrow on their own chairs that creates the mechanism by which we retain employees and lock them in in a nice way of course to the business coupla key things we need to think about when we do an employee share plan how do we get people in into what eligibility criteria typically we might want them to work there for twelve months or two years before they can join then we've got some benchmarks firstly profitability but also we can put in things like personal performance or KPIs that we're looking to improve within the business obviously if the employee leaves they're automatically disqualified and in most of our plans if they leave early there's also a discount so they get penalized if you like for leaving early I hope that's been helpful and useful and I encourage you if you've got questions or further queries please contact us afterwards but thank you for the opportunity to join you on this seminar I hope that's been helpful thank you so much Craig I'm sure we all found that presentation very useful and a plenty of Caicos hi I'm Phil pimento the honorees compliance manager now we often get asked what are the early warning signs that the business is in trouble and need specialist advice to be honest sometimes there is no warning a major debtor goes into liquidation the business faces an unexpected legal claim partners have a falling out there's a worldwide health pandemic things just happen what we see in a lot of these cases is that when something major or potentially catastrophic happens the business just keeps trading on there is a problem but the action is about treating the symptoms rather than looking for a solution so cash flow comes under pressure legal and professional fees mount management attention is taken away from the business so something happens the sooner your client gets advice the better this can be a great opportunity to truly add value for your client and become a trusted adviser for life by advertising by identifying the signs and ensuring your clients gets the specialists help they need I'm not sure how ostriches have made it this far but I'm not sure that sticking your head in the sand is a good strategy sometimes though there are warning signs we spoke earlier about unforeseen catastrophic events more often than not though it's not a one-off event but a progressive downward spiral so not a car crash but more of a slow bleed whether it's a big event or a slow decline these businesses need help and we see the same sorts of situations coming up again and again today we'd like to focus on the four main issues shown on the screen now that we see over and over now this may be used to people in the audience today but banks have tightened up it's harder to get a loan or overdraft today than it wasn't even a couple of years ago royal commissions public scrutiny less Authority for the bank manager now sometimes if a facility is in place and it's just running its course the bank may not ask for anything other than annual financial statements now in there if the facility is subject to annual periodic reviews ends an interest-only period or is subject to reporting covenants they probably will the bank asking for more reports is usually not a good thing especially if it was not part of the original approval conditions if the bank finds out their borrower has tax there is they often get a little bit less willing to help out here and there now we don't expect that banks are going to aggressively pursue borrowers right now we also don't think they're going to be aggressively seeking to increase their loan books either lenders are more risk-averse in in in certain business environment and we're certainly seeing that in today's market if a business tries to refinance to another bank the new lender would want to see the ATO running balanced account the ATO now also has the power to lodge defaults on credit records in some cases banks are very reluctant to refinance a problem debt from another lender what do you think I would say about really financing when they sought tax rates is confer the limit for financing options so the key take-home here is that it is highly unlikely that the business could refinance or major or even a tier 2 Bank if it has tax reliefs while refinancing may be possible from a smaller lender there is a clear cost in higher interest in the feelings now there are lenders out there that advertise that they'll lend to businesses with tax arrest and we'll talk a little bit more about this in a moment most of the businesses that we held are falling into arrears on statutory obligations now some business people might say that they have their first overdraft with the bank and their second overdraft with the ATM here's a new switch the ATO don't like that the bank won't like it either when they find out - when faced with cash flow pressures businesses often get behind and can end up using their second day of your pretty hard coupled with this we see that the businesses start reporting their obligations later and later sort of kicking the can down the road to an extent growing ATO liabilities and late reporting is a clear sign of the business has serious issues in many cases this can be the first double-sided distress to anyone other than the owner the key take-home here is that if business has tax arrears they should really meet with their accountant bookkeeper or other professional advisors straight away as well as talking about stimulus packages and tax relief there's also a great chance to have a quality conversation with your client about the arrears why it has happened and how it will be resolved this is also the ideal time to engage with us to ensure that your clients get the specialist advice they need identifying problems and helping your client find a solution is a great way to build a stronger relationship and become a trusted adviser rather than just doing the tax reporting ATO memories can often just be the tip of the iceberg often by the time a business gets to this position most other options that may have already been exhausted lending against security is maxed out other finance options have been explored and used where possible cost Sabinas cut as far as possible with the directors way is usually the first thing cut it can be easy to think that the debt is just a bit overdue and that it was reported just a bit late maybe at first it doesn't seem like a huge amount of money maybe it's a sort of client that's always a bit behind but should be alright sometimes this is the case and the position is corrected in the short term sometimes it could just be the start of an escalation in ATO debt so a business gets behind on the statutory liabilities and it's a lot harder to get a loan from the bank where do businesses turn this latest is the next issue we want to discuss clean tech debt so what is FinTech the word comes from the combination of the words financial and technology sounds all scientific and cutting-edge the FinTech lender uses computerized scoring systems based on certain lending parameters to make a lending decision all done over the Internet some of the better-known names in this market segment a prosper and moolah so FinTech lending fast pretty easy short-term unsecured high interest rates high establishment fees this is a booming area of the business finance market and has clearly grown as banks have retreated when done for the right reasons there's going to be a good short-term funding options for businesses this reason should be short-term to match the funding so get some stock in sell it at a good price pay at the FinTech debt no problem some of these lenders are now advertising no interest payments for a period of time or other incentives using short term debt for a long term need that was a really bad idea unless there is a clear short-term source of clearance these loans are going to end up being a problem so fast pretty easy and short-term yes unsecured well yes and no when FinTech lenders say they are unsecured they mean they are not secured against the company while FinTech lending agreements give the lender the right to take security over the company they usually do not the lender will insist on personal guarantees though they may even ask for the guarantee of the co-owner of the property related to the director when businesses get in trouble this can cause a couple of issues firstly personal guarantees are granted k visible interest this gives the credit to the right to a logic cabe you know any property in the guarantor name if they remain unpaid by a business so unsecured not so much do you think most company directors would prefer a charge under their company or akkadian over their family home the key taken here is that in fact lending can make a director personally liable for debt that would otherwise stay with the company so taking a FinTech loan is an easy way to turn an unsecured debt into a debt that is that secured against the directors home often the other accountant or other professional advisor is not involved in the application process FinTech lenders may not need financial statements or cash flow forecasts like a bank would a good tip is to review the online accounting system and look for new FinTech debt as this can often to your early warning style problems here we'll be looking at some case studies today then I highlight a few of the common issues that we see some of the warning signs some of the indicators that a business needs specialist advice now as I said earlier there are some common warning signs that your client needs help this is even more critical today with code that 19 unfortunately the reality is that is it is going to treat businesses the way it treats people those that are vulnerable where a pre-existing conditions are much less likely to survive than those that are fit and healthy identifying these warning signs and assisting your client get the help they need could be the key to keeping that client for life okay study today comes from the Dion radar college and a based on real life clients that we have assisted now today we gained a look at creaking sun's constructions and the company director Mark Creek the business did admittance of residential and commercial work and things really took off with it one of the sub contract working on the NBN Network the work was profitable and the business expanded rapidly new equipment was acquired with the lease finance more starter employed life was good mark funded some of this growth by borrowing against his property and lending the money to the company as the business grew mark got a loan from the bank and then an overdraft limit again his property was used as security surd mark was running a good-sized business and turning out with good money as the NBN works progress though the lead contractor found that they weren't making money and started cutting costs marks profit margin started getting squeezed rather than main leads accounting and reviewing his business model not responded by increasing the company overdraft limit hit all these lease and loan payments now and he needed to keep the business trading another stage of the NBN contract a further tightening of margins this time when mark spoke to his bank about increasing his overdraft and if they weren't quite so accommodating mark and Barone as much money as he could against his property you still wanted to trade on though to push through business owners can be optimistic by nature and they really believe in their business the mindset can be that if they just work harder it will all turn around when the bank would not increase his overdraft limit might went to identify an answer the bank reduced the aircraft limit and the debtor financier took security out the debtors disarrangement brought forward cash receipts and enabled mark to keep trading NBN work progressed by stages in between times mark still hadn't lease payments to make and wages to pay the company started doing other work that loan modes it's just utilized the equipment and the staff turnover for turnovers sake with little or no money actually in the job no money maybe but lots of risks funny how a lot of those loan notes and jobs actually end up turning into loss making jobs a new star to be in a new stage in the yet beer more pressure on merchants financing options running out the business started to fall into arrears I had statutory obligations mark was using his second overdraft pretty hard you know that unofficial overdrive in the ATO that they don't want mark to have as we often see mark also started reporting his obligations later and later now mark was in a bit of a bind wages to paint finance payments on the new equipment loan repayments to the bank the ATO starting to get interested in response Marc Anthony nor payment plan with the ATO while disappeared and manageable at first each time the plan was reviewed the America ATO required is we increased as the pressure built the company started to get behind on creditor payments friendships were stretched and creditor payment plans broke the business struggled to maintain the payments to the ATO ultimately some creditors refused the supply unless they were paid upfront the OTO were chasing those new payments under the plan in desperation mark started looking at other funding options a quick Google search and market found a way to keep going FinTech that mark got a FinTech loan of $60,000 then use it to pay a few creditors and catch up a bit on the ATO payment plan the FinTech loan kicked the can down the road but the fundamental problems of low-margin work and large legacy debt were not addressed all Merck had done was buy some time it's still not met with his accountant or refused his business reviewed his business model the FinTech money was soon exhausted and another round of payments due due to be made now mud battled on for as long as he could in fact he'd stuck his head in the sand and just ploughed on mark didn't see any option other than to keep going he wasn't really listening to advice and he didn't really have a clear plan on how he turned it all around finally as his problems Mountain mark met with his accountant he convinced him to meet with Dion Reed we met with Mark and his accountant at her office at that first meeting creaking sun's position looked like it as if it is shown on the screen now now a few things to consider market honesty guaranteed a few trade creditors but not a lot retentions were related to defect liability periods and want you to be released in the short term the bank had security over mark's property identified answer you had security at all of the debtors the data finance facility was a bit out of whack due to some disputed invoice importantly not all ATO obligations were reported on time pa pa yg of $50,000 and separation of $30,000 had not been reported within the prescribed timeframes finance commitments were largely up to date but creditor payments were seriously overdue now mark had no security for the loan he granted the company as you can see he's owed more money than the bank you better believe that the bank had security open the company for their debts though so that's what the company looked like you can see the by sticking his head in the sand and just trading on marks problems have just gotten bigger and bigger the data financier looks like getting the lion's share of the data collections retentions would you to be released now and the banker in position to receive these funds under their security the equipment finances will get their money back from the sale or refinancing of the equipment Marcus left holding the bag on PAYG superannuation FinTech debt he wanted whatever credit is he had personally guaranteed now before Marc got here his situation would not have been this bad there may have been a time that night would have changed course and avoided a lot of the personal mobility in our faces sticking your head in the sand might be comforting for a short period of time but it can be expensive now let's have a look at Marc's position as you can see on the screen the only real asset mark has is his investment property a couple of points to note my bro the company car and had no vehicle in his own way the bank was using his property security for the overdraft business loan and Merc could have potentially had a significant liability under personal guarantees at that first meeting mark told us he wanted to continue to pursue his interest in the industry he did not want to go bankrupt him wanted to negotiate settlements with his creditors and that he could get some financial support from family members to help deal with some these issues so time to spring into action we developed a strategy from mark based on his clear objectives mark saw the value in our proposal and engaged us to assist importantly you might know how to play he had a way forward he could see that he had options this can be a tremendous relief for our clients and for mark this was a real turning point step one is to enable mark to continue to pursue his interest in the industry this means restructuring some people call this Phoenix yeah I said it the p-word shock horror or Phoenix it means is selling the assets goodwill an intellectual property of the company too you trading entity the new company then trades the business so like the mythical Phoenix the new business Rises out of the ashes of the earth now this next bit is from the explanatory memorandum to the Treasury laws amendment combating illegal Phoenix bill 2019 and it's a bit of a mouthful Phoenix activity is not defined in legislation and it can compass both legitimate business rescue activities and the use of serial deliberate insolvency as a business model to avoid paying company debts where the directors have been intention of defeating the interests of creditors a business rescue sometimes referred to by regulatory authorities as a commercial necessity Phoenix recognizes the fact that sometimes they need to restructure may arise outside due to events outside the owners control in layman's terms this means restructuring or Phoenix it can be a legal business rescue or it can be illegal the difference is whether the transaction is commercial this means paying a fair price for assets in goodwill and banking the process is in the old company's bank account this is completely legal and this has been specifically acknowledged by regulatory authorities the first step is for mark to identify what is it's will be needed to trade in the business in most case not all financed assets were requirement these assets were sold and the associated finance contracts paid out some of the assets that will require your unencumbered but some were subject to find in some security interests in marks case most finance he has agreed to assign the finance contracts than the new trading entity the financier the financier is will grow they continue to receive their payments run and repossess the equipment while this is not always the case mark was able to reach suitable agreements with his a certified the NCS now the bank and a security interest over the company this was an old security interest meaning all present and after acquired property the business could not be solved with this security interest in place without the bank's consent in marks case the best way to pay at the bank was with the retentions monies that were due to be released in the near future the data finding and here could be repaid with data collections and once the bank was paid out the restructure could proceed as is our normal practice all assets to be sold were valued by an independent license value an independent valuation was also obtained for all goodwill and intellectual property the total valuation came in at $50,000 the new trading unity we employed some of the staff at Creek and Sun an assumed liability for the outstanding employee entitlements excluding superannuation these total twenty thousand dollars and was offset against the purchase price employee in tournaments have the priority for payment and offsetting against the purchase of assets in goodwill is entirely appropriate the sale agreement was documented with everything based on valuations and known employee entitlements mark son Chris it had been working with his father for years was the director of the new company code for privately with some help from family the new company paid $30,000 in the tree concerns these funds would then use the payment staff superannuation was outstanding so the bank got paid from the retentions the data file in see you've got paid from data collections with a little bit of money left over for the company the asset finances were satisfied employees either retained all their entitlements in the name of the new company or were paid in full all staff superannuation was paid the new company commenced trading on a smaller scale the new business was not burdened with the legacy debt decree concerns had been struggling under it was not permitted in the same level of wage asset finance and loan payments either creaking code tended for the next round of the beat of the end being worth but did not win the contract without the pressure are needing to push a big debt wheelbarrow the business was able to secure a number of jobs at Murray's enabled margins so what about mark can you business it up and running in Marcus and a decent wage for the first time in ages the bad news personally guaranteed creditors the FinTech debt and the directors penalty notice from the Australian Taxation Office for $50,000 mister being reduced from a potential liability of $80,000 when the staff superannuation of $30,000 was paid now as it turns out mark could actually not guaranteed that like many trade creditors or if he had they didn't pursue him for whatever reason in his in his industry we're not quite sure how we manage that but well done mark marvin told us that he did not want to go bankrupt and he was adamant about that right through the process Chris was prepared to help out so that his father could settle some of these debts so now it's time to negotiate with creditors in reality negotiations with the ATO almost always around the terms of payment rather than the about mark really has no choice other than that of paying the directors penalty notice all go bankrupt now three negotiations turned into four and then ultimately five now team of expert negotiators and we do a lot of this kind of work we conduct a detailed assessment of the likely return to creditors if they were the pursued mark into bankruptcy and show them that the offer that mark is making would provide a better return in marks case he had some equity in his property but he little else in the way of assets the problem with the negotiations of this nature is that you need to get pretty much everyone to agree to a deal sometimes people can be unreasonable little things can get personal sometimes you run into company policy sometimes the issue can be debtor insurance or a collection company that it's just for the day whatever the reason sometimes people just say no while agreements or arrangement with a number of parties one of these creditors was just a brick wall the minimum amount they would accept was just beyond marks capacity to pay the FinTech lender then launched a caveat on Mark's property nasty things carrots once they go on it can be really hard to get them off unless the creditor is paid the credit who all want to be paid the cost it took to to put the kv8 on and then take it off it into the deck can also continue to accrue interest while it is there as well so well four out of five creditors agreed mark now faced a dilemma the sources cent of the settlement offer was to be from family members if Mark settled with the four creditors who agreed it still have no way of dealing with the creditor that rejected his offer or the cambian on his property then they were still the directors penalty notes of $50,000 to consider after a lot of discussions with our firm and a good deal of soul-searching mark made the difficult decision to prepare for bankruptcy now after selling the drag car substantially less it was originally forward the only asset mark had was actually in his property less equity now that acadia spike lodged as you can see on the screen there is $40,000 of equity in the property the property of a lien was confirmed by an independent formal valuation and mark entered into an agreement to sell his current and future equity to his son press this was documented and Chris made payment into a bank account in mark's name mark used some of the money from the sale of his orchid pepper t to buy a car now that he was not driving a company vehicle after he paid some personal living expenses he entered into bankruptcy with a private trustee bankruptcy brought finality to all the claims that personally guarantee creditors and the directors penalty notice as the purchaser of the equity the caveat all was now Chris's problem beyond raid then entered into a new round of negotiations with the KBO tore on Chris's behalf the family could've helped mark pay the directors penalty notice and said all these closely to creditors and now they can use these funds to make an offer to the FinTech lender eventually a deal was struck with a lump sum payment upfront and payments over a period of time so ultimately Mark had to go bankrupt while he retained his property and was able to make a decent income this had come at a cost if Mark enacted sooner rather and sticking his head of ass and he may not have needed to go bankrupt at all the early warning signs were all there sometimes by the time the accountant or other professional advisor realizes there is a problem things are actually worse and they may appear from the outside the earlier a distress business gets some help the better the outcome usually is let's listen to what Marx account and thought about working with doyeong Reid and the outcome for the clock [Music] we refer clients to do young read because at Adrienne's we speak expect to give our clients really high quality if we are really happy with the results that we get and not only that we are involved in the process and with the client and with Dion Reid and the communication is always excellent we know what stage the client is at and what the next steps are so everyone is on the same page in regards to the result for the client recently it was absolutely fabulous result we knew that the the business couldn't survive the way it was operating the change in in the process I think admitting that he'd grown a business too quickly and he didn't realize that he was not in control being able to reset and effectively morph into a business where he could control the situation meant that he can actually have his lifestyle back the owner has been able to come out of it he's working in a strong business now and he's regrouping but not only that he actually said to me the other day that he's never been happier you know yet that's that's worth its weight in gold look it's really important as a business adviser to know where your skillset lies we know what we're really good at but we also know when we need to bring in experts in different specialities so Dion read probably the act what I regard as the experts in pre-insolvency we know that we can rely on them but we also know that very good at what they do so that was Kimberly and you hurt yourself for getting a specialist advisement to both her and her client without a well-managed strategy the business would have ceased trading Kimberly is not any retained marked as a client is now happier than he's ever been to me it sounds like Kimberly hasn't the client for life some proactive steps from our key take homes today can help you identify problems even earlier as we've seen today sometimes the first visible signs are just the tip of the iceberg to us some real siren and flashing light issues are overdue and late reported ato obligations and FinTech debt reviewing online accounting systems and looking for femtechnet we're engaging with clients with tax arrears may be the key to keeping that client for life in many cases these are the signs of the business need specialist advice and help right now and then this advice is probably already over to you with the recent government relief packages announced there may be a lot of businesses out there that are waiting to see what happens a lot of these business made businesses may already have been teetering on the edge for some time so they could apply for a loan from the government get some tax relief or help with wages whilst these measures are important are they going to fix the problems that the business already has maybe but not in the long term the time available now with the lengthening of the time to respond to creditor recovery actions is precious sticking your head in the sand or to wait and see what happens and just trading on will come with a cost this time could be critical in developing and implementing a strategy that will ensure that the business has a future for the current crisis has abated in all seriousness we've never heard an client say he got me specialist help too soon we've heard the opposite lots of times though you're finally I've gotten help sooner if only I'd known that there were options the best relationships we see between clients and their professional advisors are those were the advisors saw the early warning signs and got the client the special help I needed straightaway that's the advisor that saved the business or save the family hi this brings us to the end of our webinar today and we really hope that you found this interesting and can use the take-home messages we discussed users as a resource and maybe talk through the options that may be available for your clients