Increases in late payments ofinvoices,dishonoured payments and post dated cheques are all indicators that a debtor may be experiencing financial hardship or possibly headed for insolvency.

1. WHATISA
“FINANCIALCYCLE”&
HOW DOESITAFFECT
YOURBUSINESS?
Increases in late payments ofinvoices,dishonoured payments and
post-datedchequesareallindicatorsthatadebtormaybeexperiencing
financialhardshiporpossiblyheadedforinsolvency(iftheyarenotthere
already).
OOnceapersonorcompanyisdeclaredinsolvent,theircreditorsmustgo
throughtheprocessofprovingtheirdebtinthebankruptcyorliquidaon,
inordertorecoveranyoutstandingmoniesowedtothem andtypically
onlyrecoverafraconofwhattheywereowed.
Sowhatisacreditortodo?Thefirstinclinaonofmanyistoquicklyand
aggressivelyrecoverwhatevertheycan,beforetheshipgoesdown.
HHowever,thisiso ennotthebestcourseandmayleadtofurtherunnec-
essarylegaldisputesdownthetrack.
WHYCREDITORSNEED
TOTREADCAREFULLY
AROUNDAFINANCIALLY
TROUBLEDDEBTOR
Onceadebtorbecomesinsolvent,aliquidatorortrusteeinbankruptcyis
appointedtomanagetheiraffairs.Oneoftheirmaintasksistoscru nise
thecompany’sfinancialrecordsinordertodeterminewhetherpayments
made justpriorto the insolvencywere authorised and iden fyany
“voidable”payments.
Yes,certainpaymentsmadepriortothecompanyenteringliquidaonor
bankruptcycan be voided and clawed backfrom acreditorbythe
liquidliquidatorortrustee.Thismeansthatacreditorwhomanagedtocoerce
paymentoftheirdebtpriortothedebtor‘goingunder’canfacecostly
recovery
proceedingsfrom theliquidatorsforrepaymentofsuchamounts.The
creditorwillthenbeforcedtoprovetheirdebtintheinsolvencylikeallthe
othercreditors,andreceivetheiroutstandingdebtsatX centstothe
dollar.
WHATPAYMENTSCAN
BECLAWEDBACK?
Creditorsare commonlyaffected by‘preferencepayments’. Thisisa
paymentmadebythedebtor:
1.within6monthspriortowindinguporbankruptcy;
2.whilethedebtorwas‘insolvent’(unabletopaytheirdebtswhenthey
falldue);and
3.wherethepersontowhom the fundswere paid received an ‘unfair
ppreference’byreceivingthepayment.
It’spossibleforacreditortodefeatapreferenceclaim byaliquidatorby
provingthatthepaymentswerereceivedingoodfaithandthatneither
theynorareasonablepersonintheirposionhadanysuspicionthatthe
debtorwasinsolventatthe meofthepayment.Inanyevent,itistypically
astressfulandcostlyprocess.
WHATTODOIFYOU
SUSPECTFINANCIAL
TROUBLE
Creditorscanavoidunnecessarylegaldramasattheoutset,bytakingthe
followingaconwhenfacedwithadebtorwhoisstrugglingtopaybillson
me.
1.A empttodeterminethedebtor’struefinancialposion.Raiseyour
concernswiththedebtorpersonallyormakeindependentenquirieswith
regulatorybodies.
2.Getlegaladvice on howyoucanbolsteryoursupplytermstobe er
pprotectyou.Forexampleyoumaybeabletoincludesomeformofsecurity
suchasareten on of tle clause.(Onlyunsecured debtscan bethe
subjectofpreferenceclaims.)
3.Seeklegaladvicefrom anexperiencedinsolvencylawyeronthemost
efficientwaytogoaboutrecoveringyourdebts.
CONTACTUS
E:BCS@thebostongroup.com.au,P:1300668699,F:1300668499
www.bostoncommercialservices.com.au