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Settling your debts – formal arrangement or informal arrangement?

It’s commonplace in business to find yourself experiencing cash flow problems or dealing with debtors who are. Perhaps the tardiness of your debtors is preventing you from paying your own creditors on time? Whether you are the debtor or the creditor in scenario will ordinarily determine whether you would benefit from formalising a payment arrangement or settlement. Consideration should however be given to what the circumstances require and what suits your needs.

The Pros of formality
1. Remove any basis for the debtor to dispute the debt/s.
2. Increased security – personal guarantees, PPSR security registrations and charging clauses.
3. Increased protection – allow for prompt enforcement and recovery of costs in the event default.
4. Removes uncertainty – clear and unambiguous wording and due consideration given to all issues that need to be addressed.

The Cons of formality
1. Increased cost – if you are creditor you may seek to pass the cost on to the debtor
2. Formalisation can delay settlement – negotiation as to terms can delay payment dates that are calculated based on the date of the deed or agreement.
3. Can lead to arguments about terms or discourage the debtor from agreeing to an arrangement
4. Can overcomplicate a simple settlement

If you’re a creditor:
1. What security do you have already?
2. Is any existing security effective and enforceable?
3. If you cease supplying your goods or services to the debtor will this undermine its ability to trade and generate income?
If you’re a debtor:
1. Do you accept the debt/s as owing or do you dispute the debt/s?
2. Can you meet the obligations of the proposed arrangement?
3. What security, if any, have you provided to the creditor previously?
4. What existing obligations do you have to other creditors?
5. What recovery action has the creditor taken so far?
1. Should discussions or discussions about the arrangement be prefaced as being without prejudice?
2. Is it preferable or acceptable to have some level of wiggle room in the arrangement?
3. Is the proposed arrangement complex?
4. How much money is involved?

The formality of Deed of Settlement is not always the best option. It is generally preferred by creditors over an informal arrangement and generally best avoided by debtors where possible but there may be circumstances where a creditor is better served by an informal arrangement and a debtor is better served by a formal arrangement.

We can advise on what might best serve your interests in any given scenario and prepare a customised deed of settlement promptly and cost effectively or advise on one that has been submitted to you.

Get a fixed fee quote today.

Call Luke Gunthorpe direct 07 3152 4403 or