In mid-last year, we published a two-part article shining a spotlight on the importance of ensuring that your small-business owner clients protect their personal investment in their company as a secured loan registered on the PPSR. In that article, we not only highlighted the benefit to your clients but also the benefit to accountants of protecting their practices by saving clients and their own fees.
Since publishing the articles, we have seen a great number of small business insolvencies, where business owners often loaned significant sums to their companies. Very few of those loans were secured or registered on the PPSR.
In this article, Mathew Kelly revisits the issue of PPSR registration of these loans:
Most small businesses survive on the largess and constant capital inputs of their shareholders. These capital inputs are often borrowed using the family home as collateral. If these owners’ loans are secured with a registration on the PPSR, the owners would be in the best position to restructure and revive their companies through the Corporations Act if they face insolvency. They can take greater control as the secured creditor, in the same way that a bank does. Unfortunately, in too many cases that we have seen, owners’ loans have not been secured, which has meant that those companies have been unable to survive and have gone into liquidation.
On liquidation, the owners can look forward to receiving a mere fraction of their investment. The inability to revive a company not only impacts creditors and suppliers, but it can also have severe financial implications for the owners and often adversely impact their personal situation.
Another significant issue caused by the insolvency of a company is that the company’s accountant regularly loses that client and their outstanding fees. It is not uncommon in those circumstances for the accountants to be owed a significant sum by clients they have serviced for many years.
It is difficult to predict when a company is about to face a scenario that puts it into financial distress and on the path to insolvency. As a result, it is crucial that loans are secured as early as possible to be in the best position to deal with that distress and be able to survive. Whilst ideally, that is, at the time that the money is loaned, it can be secured after the event, even years after the loan, so long as it is as far away as possible from insolvency.
Lawyers can put this protection in place, and in complex corporate structures, they should do so. However, cost is often a factor that causes your clients to opt against taking this step. If your clients do not want to spend the fees on a lawyer putting this protection in place, they need to find another option. Krodok offers a quick and inexpensive online platform to put the documentation and registration in place, which is a fraction of the costs typically charged. A national law firm backs Krodok’s system and has been set up to be the cheapest protection your client hopefully never needs. The Krodok system has now been tested in several insolvencies and has been held to be enforceable in those situations. It takes five minutes to process and protects your client’s investment for the life of the business. The process does not require any subscription, is pay-as-you-use, and can be accessed at www.krodok.com.au.
It is essential that this protection is put in place as soon as possible for your clients with a loan balance owing to their owners, before it is too late. Small businesses cannot wait until they are in financial distress to take action. Insolvency can come without sufficient warning. If your clients face insolvency, protect them and give them the best opportunity to help them survive. For help registering your client’s loan interests, contact Matthew Kelly at Krodok by email at inquiries@krodok.com.au.
A postscript from Riad Tayeh:
Having seen a lot of SMEs go into liquidation, it is readily evident that those with strong and supportive secured creditors stand a better chance of restructuring than those who merely rely on trying to convince a disparate group of unsecured creditors that are largely not versed in the company’s financial position and are often too busy to truly consider the alternatives, especially in complex restructuring issues. In a society of little time and patience, you need a mechanism to cut through to allow you time to fix a problem. This is one such tool.
DVT Mcleods is a business advisory firm that specialises in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.
Krodok is a digital tool designed for you. If you have invested in your company and want to secure your future, you need krodok. It automatically generates legally-enforceable documents that raise you to being a first-ranking creditor of your business without the fuss or expense of dealing with lawyers.
