It seems that every day we hear more bad news regarding the economy. Corporate collapses, increasing petrol prices and higher interest rates have led to a significant dip in business confidence throughout the Australian economy. We have seen weakening retail sales, record credit card debt and cash flow pressures, and the flow-on effect has been record levels of businesses difficulties
Protect Yourself (PY) is a company that helps business owners protect their assets and future. Unlike an Administrator or Liquidator, who must act in the interests of all creditors, PY acts for the client alone. Some of PY's services are:
- Business Plan development
- Debt recovery
- Dealing with the Australian Taxation Office
- Insolvency services
- Project Rescue
Whilst these subjects may strike fear in the heart of small business owners, we cannot shy away from any facing our business problems. To show how PY works with clients, here is a case study (with names changed for privacy).
Karen and John had been living together for just over two years when Karen decided to set up a Personnel Agency. They formed a new company, owning it together; and Karen worked in the business full time. John was employed elsewhere but referred business to the Agency.
In the early days, Karen didn't think much about drawing an appropriate salary for the hours she was putting in. As long as the money was there to draw – and it was – the couple used the profits to travel and enjoy life.
Karen was a natural and she soon had a profitable business. After a couple of years, everything was going well in the business but Karen and John’s relationship was deteriorating. Furthermore, John continued to expect Karen to put in the hours working for the business and that he had a right to an equal share of everything in the business.
Karen approached PY and together they went through the history of the business and Karen's personal objectives. A strategy was developed to ensure that Karen would maintain control of the business, even if John became completely hostile.
PY drew up an Executive Services Agreement for Karen that contained a number of protections for her. As the “Key Man/Key Person” in the business, the Agreement between the Agency and Karen’s personal company provided her with a number of entitlements and rights – including the ability to register a charge over the Company in the event contract payments and other conditions were not met.
PY advised Karen as her relationship with John worsened and he began issuing legal demands on her, in an attempt to access company assets. He even attempted to force the Company into Administration by refusing to sign documents.
PY then perfected the charge permitted by the Executive Service Agreement and filed with ASIC. As the business was continuing to trade profitably, all other creditors were kept up to date and the debt owed to Karen’s personal company – secured by the charge – made her the controlling creditor in any Administration.
John tried coming at Karen from several legal angles, but in the end it all came back to control. Karen had control, not only as the founder and key person in the business, but also over the Agency’s business future.
If Karen had not implemented PY’s strategy, it is likely that John would have succeeded in forcing the Company into Administration as part of their personal break-up; and that in Administration Karen would have no control over the business being wound up. In the process she would have had to argue her entitlement to salary or wages. John most likely would have succeeded in making sure she received a lesser result and he would have gained access to 50% of the remaining assets, which included the Agency’s cash reserves. “I never thought he would go as far as he did” said Karen. “Protect Yourself certainly protected me. I still have my business, John signed over his shares on my terms, not his – and life has never been better.”