Creditor pressure and their rights

What is Creditor Pressure and what can I do?


If your company has growing debts and you’re receiving creditor pressure for payments that you can’t afford, you’re not alone. The good news is, if you act early enough you give yourself the best chance of turning things around. As a director of a financially distressed company, there are a number of options available to you. Thousands of companies across Australia face financial distress and corporate insolvency every year. While there are common themes, each case is unique. Some companies can prosper again with minor restructuring and basic debt advice, while others need significant intervention to avoid liquidation.


Creditor pressure can be caused by one simple event – for example, the loss of a key contract or client. As a result, you suddenly find yourself unable to pay invoices. In other cases, the pressure has been building for some time and your attempts to improve cash flow haven’t worked. The ATO is the most common business creditor. Dealing with them is a daunting prospect for many company directors. The ATO has the power to garnishee your bank accounts and your debtors directly. In serious cases, the ATO can petition to wind up the insolvent company, which can be very stressful and result in personal liability for a director.


At Financial Distress Solutions, we can give company directors options when it feels like you have none. We can negotiate with creditors, whether the ATO or trade creditors, on your behalf. We can even present options which may avoid a winding-up process and subsequent liquidation. In some cases, we can turn things around and get the business operating profitably again. If creditors are chasing your company for payments you cannot afford, contact Financial Distress Solutions today to arrange a free consultation with a turnaround specialist at one of our 8 Australian offices. Call our specific director hotline on 1300 747 577 for immediate and confidential advice from a registered insolvency practitioner.


Further reading on creditor pressure


It’s stressful for directors or owners of a struggling business to deal with demanding creditors who aim to intimidate you with threatening phone calls and emails. Ideally you will be actively communicating and negotiating with your creditors, however you do not have to put up with excessive harassment or undue pressures. Understanding the rights of creditors will help you protect yourself from lenders that use scare tactics to force cooperation.


“Trying to understand the best option for your business can be challenging. I have worked with businesses in financial distress in every industry and can help clarify what your options are.”

-Shane Cremin


What rights does a creditor have when collecting a debt?


If a creditor cannot collect a debt from you by directly demanding repayment, they may decide to issue legal proceedings or sell the debt to a third party to collect. If the debt is secured by a security interest over an asset or property as collateral, the creditor may take possession of the asset/property to enforce the security. If a loan has fallen due for payment, they are entitled to serve you a written notice requesting payment plus any interest owed.


How do you know if a creditor is overstepping their boundaries?


You shouldn’t have to avoid answering your phone or checking your mail because of continuing creditor pressure. If creditors cross a certain threshold they can be found guilty of harassment, and you may be able to pursue compensation in court. Under Australian law a creditor could be accused of harassment or misconduct for the following:


• Calling on an unreasonably frequent basis (several times per day) or at inappropriate times (early morning or late at night)
• Using multiple debt collectors to demand repayments for the same debt
• Pressuring you to make larger repayments than you are obliged
• Disclosing information about your debts to another party – for example, relaying messages about a debt through a family member, friend, or co-worker
• Making aggressive attempts to contact you in personal venues (eg your workplace), or through social networking sites
• Suggesting that court action will be taken against you personally when they cannot
• Threatening to take you to court when aware that they don’t have the right to do so
• Stating that you could face imprisonment if you fail to repay debts (failure to repay is not a criminal offence in most cases)


If any of these tactics have been used by creditors to pressure you into making payments, you may be eligible for harassment compensation which can reduce or eliminate the debt you owe.


When can a creditor take you to court?


Depending on your unique situation, a creditor may be able to take you to court to undergo an involuntary formal insolvency procedure, which could lead to bankruptcy. If you’ve been served with a statutory demand requiring payment of an owed debt greater than $2,000 and fail to comply within 21 days, you are deemed legally insolvent for the purposes of court proceedings.


What rights do creditors have during bankruptcy filings and insolvency procedures?


The aim of insolvency procedures is to maximise the outcomes for creditors; however there are some limitations. Some proceedings may remove the debtor’s obligation to repay certain debts. The creditor can legally challenge a debtor’s bankruptcy claim, and has the right to be heard in any bankruptcy filing (although they do not have to be present at the first bankruptcy hearing to challenge a bankruptcy claim.


How can you alleviate creditor pressure?


The surest way to ease creditor pressures is to negotiate a repayment arrangement that works for both parties – it gives the creditor comfort that the debt will be repaid, while giving you the breathing space you need. If you can’t get a creditor to agree to terms, it may be best to engage a registered Insolvency Practitioner (IP) for advise and enter into a individual or company voluntary insolvency. Your other options include arranging consolidation loans or using other financing solutions to repay debts.


If your creditors are being unreasonable and continually pressuring you, contact Financial Distress Solutions today for a free consultation. We can assess your situation and help you develop a business turnaround strategy that will give you the scope to repay debts and rebuild the business.