Trusts

When businesses come to us with a problem and they are a trust they are often very messy.

Your Business Angels PTY LTD has worked for nearly 25 years with those who have trust structures to make sure that we untangle the information, understand the issues and who truly has the tax debt and create solutions for all parties.

We are not surprised when we see business owners who operate in a trust structure and who have no idea about their structure. “My last accountant set it up and it was meant to be good for me”.

There are times when an established business can operate well with a trust structure, or there are assets with a passive income that can mean better management of that income, as usually its known and predictable, but for many business owners it just becomes a mess and needs untangling.

There is usually confusion between the trust and the trustee, who and what should be done and how income for beneficiaries should be set out. Your Business Angels PTY LTD will look at this and help you through.

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Company structure
When things go wrong.

If you keep lodgements on time, and keep your personal affairs separate through wages then it works and there is still a benefit. But….

When things go wrong, your drawings account and tax debt can collide.

Your Business Angels PTY LTD, after nearly 25 years has seen all the problems that can plague a company before finding solutions and working through to get business owners the best results.

We have worked with Administrators, Liquidators and Lawyers as well and we constantly talk to the Australian Taxation Office for our clients.

When things go wrong, the key can be the conversations we have with the Australian Taxation Office. They have heard all the stories before, so we make sure we are strong on negotiations and keep them updated with what the plans are. If they have a real plan and solution being offered, rather than another promise, there is more chance to be able to work with them.

The following is an extract from the book “How Not to Commit Business Suicide” by our CEO Gavin Waring

No one is under the illusion that keeping a business profitable, cashed up and meeting its debts on time is easy. There might be a time when you become aware that you simply cannot continue trading in your company – it will feel like the world is crashing in.

All the alarm bells will be ringing. The ATO wants to be paid, creditors are hammering on your door, the staff are looking worried and concerned and then the bank bounces another cheque on you. Even though it might feel like your world is caving in, it is in fact the company’s world that is caving in, and as a director there are a number of things that you should do to prepare yourself for the inevitable.

If you have not received a DPN. A complaint form or any other legal action from the ATO, it will be on the way. Now is the time to start preparing to evacuate your business.

In Chapter 17 I discussed a format for completing a crystallisation calculation. If your company is in an unhealthy state, this is worth doing so that you understand what you have left in the business to juggle while you consider who to hand your business over to.

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The following are some key points that should be considered if your company is in trouble:

1. Be completely honest to people who are really important to you, such as your friends and family. You will need their help to get through this period.

2. Look at any risks that exist to your family home, especially if it was taken as security for any loans your business has taken out. Refinance your family home through a low-doc loan so that you can remove the secured creditor from your company.

3. Get yourself off the title of your home if possible (depending on which state you live in), leaving your life partner on the title.

4. Consider any personal guarantees that you might have given. In the case of assets, such as machinery or vehicles, you are probably going to get a better price by arranging the sale yourself and paying off the finance companies. Alternatively, if there is no equity in the asset, a liquidator should be happy to note they have no interest in it and allow you to keep paying it off personally. This way you get to keep the asset without owing the difference directly to the finance company. In the case of trade creditors, be careful that you do not pay them in a manner that makes them look like they have been given priority over other creditors. A liquidator can ask for money to be paid back that they consider a voidable preference (an unsecured creditor paid in preference to another unsecured creditor).

5. Staff superannuation and staff entitlements are priority creditors in a liquidation, so you can pay these if you have the money to do so.

If you have followed and implemented the suggestions I made in previous chapters, especially those that involve structure and borrowings, you should find yourself in a strong position where your family home and personal assets are protected.

One of the major problems you have, apart, of course, from introducing yourself to the ‘right’ insolvency practitioner, is that most of the professionals whom you will ask for help will have little experience in preparing you or your failing business for the liquidation process. It is worth remembering that a liquidator is there for the creditors, not for you. This must be kept in mind when giving out any piece of information.
The most important thing to remember, as with a failing sole trader or partnership, is that you will get through this, it will work out, and you will live on and be able to do great things again.

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Sole Trader and Partnerships
If My Business is Sick – what Your Business Angels PTY LTD is thinking?

Sole trader/partnership – Your Business Angels PTY LTD has helped 1000’s of sole traders and partnerships through their crisis. What you need is a plan, and working with us will create that plan and help you through.
We look at what you have achieved, what the future can look like and what can be done without massive disruption to you and your family. When you make mistakes and things go wrong, you don’t need to be bullied by the officials, you need to be able to get on and make your business work again, or settle the problems and get on with life.

Something you may not know

We have a lot of clients who are clients of ours in our accounting firm who are bankrupt but operating a sole trading business. They are getting on with what they know. It’s of course extremely important that clients with this status are compliant, and we have tax payment plans for them. Disasters are not always the end, they are often with the right help a way to have a new beginning.

The following is an extract from the book “How Not to Commit Business Suicide” by our CEO Gavin Waring

Unlike in a company structure where the debts are the company’s responsibility and the risk to director’s lies mainly with personal guarantees (signed with trade creditors, finance companies, and so on) and changes in tax legislation that directly affects the directors, sole traders and partnerships belong to the individuals responsible for the running of these entities. There are a few options available to you should your business be in irreversible trouble, two of which are:

• To resort to Part 10 of the Bankruptcy Act, where you either complete a personal insolvency agreement, which could involve arranging to pay out your creditors so many cents in the dollar or where you hand over some or all the assets you have to be sold to compensate the creditors. Part 10s are becoming more complicated and you will need a very good commercial lawyer (see Chapter 15) to help inform you about your options. You are going to need a number of creditors on side to allow this to happen. As a matter of course, finance companies and other similar organisations like to not support any Part-10 applications and will try to torpedo such applications when they can;

• To go bankrupt. I must emphasise that this is not the end of the world and although it might feel like you are just giving up, it is important that you stay in control of the situation. With bankruptcy, it is definitely better to jump than to be pushed.

For many people, going bankrupt takes a lot of pressure off their shoulders. Creditors can no longer chase them and they are no longer hounded for payments they will never be able to pay.

Many people who have gone bankrupt have done so after years of running excellent businesses and contributing so much to society, only needing a small sales slump to push them over the edge. Often, people who end up bankrupt were beaten by huge change in business conditions, such as the introduction of GST and the lowering of tariff barriers. Consequently, these are two major factors that have wiped out many Australian businesses, especially family-run manufacturing businesses.

If you realise you are in trouble, you will have to look at your personal assets and your family home in somewhat of a different light from someone trading under a company structure. The biggest misfortunes occur when life partners are both on the title of the family home and partners in the business. Any accountant who has recommended this scenario has fallen short of looking after your best interests (see Chapter 13). It is the most dangerous structure possible for a family.

There are some ways of saving your family home, especially if it can be shown that the business owner has used up their share of the equity in the property.

As with company failure, the most important thing to remember is that you will get through this, it will work out, and you will live on and be able to do great things again.