Due to recent changes in legislation Continuous Line of Credit, or Revolving Line of Credit Loan Agreements have become the centerpiece for protecting business owners and directors against hugh potential liability when using their personal credit cards for business expenses.
So, today we are going to discuss
Loan Agreements for All Circumstances
Debt Prevention Strategies
Now most businesses are not aware that a couple of years ago the government introduced new legislation which was by far the biggest change in legislation in the last 30 years. Essentially, the legislation (without going into too much detail) redefine or reclass what is classed as a secured creditor and what is classed as an unsecure creditor.
Now I know that doesn’t sound like much, but what it means is that you, as a business owner are now automatically classed as an Unsecured Creditor. That means that if your business was to get into any future financial trouble, and administrators or liquidators were appointed, you would probably be their first phone call. And the first thing they would demand is the return of any payments you had received from your business in the previous 6 months. And unfortunately, you don’t get any choice. As a matter of fact, with the way the legislation has been worded, we have seen liquidators demand the return of payments from unsecured creditors up to 18 months.
Our Continuous Line of credit or Revolving Line of Credit Loan Agreements solves that problem. These Loan Agreements have come about due to an article that was produced by one of the major credit card companies in Australia in which they stated that the average SME, or Small to Medium Enterprise spends around 60 to $80,000 worth of company expenses per year on their personal credit cards. These payments, of course, and then reimbursed by the company onto the owners or directors Credit Card. Unfortunately, in the process the business owner or director of the business has left themselves open to huge potential.
So, if all businesses in Australia are spending $80,000 on average a year of business expenses on their personal credit cards the potential liability changes dramatically when it’s looked at realistically. Let’s assume that not every business in Australia falls into that category, let’s assumed that only 50% of businesses in Australia are using the personal credit card for company expenses, even though they do get reimbursed, it means the remaining businesses potential liability could be more like $160 000 to $180 000 plus per year. When you revert that back to the 6-month Preferential Payment Clawback Period, or Relation Back Period, a business owner can still be looking at a potential liability of $80,000 to $90 000 of potential liability.
And it’s not just payments received as reimbursements for your Personal Credit Card expenses; the legislation could cover all payments from your business to yourself.
It’s called Preferential Payment Clawback and it’s all part of the PPSA or Personal Property Securities Act Legislation. I wouldn’t go into too much detail here as we have a detailed Information Video on the PPSA, which when you fully understand the ramifications, it will make your toes curl.
I will put a link here and in the above description.
Essentially there are 3 types of creditors when a company gets into trouble.
Now as a business owner, depending on how you have set up your business you could be both a Preferred Creditor and an unsecured creditor. If your business has paid you a wage those payments will more than likely make you one of the Preferred Creditor, but just for those payments.
All other payments you have received will more than likely be classed as payments to an unsecured creditor and be subject to Preferential Payment Clawback.
So, let’s have a look at what a Preferential Payment Clawback Demand looks like
Now as you will see Example 1 we have redacted the companies details that these letters were sent to but you can see the name of the builder,
The next thing you will see is that the liquidator is asking for the return of 171 000,
it outlined the legislation being 588FA and part of the Corporations Act 2001,
it then also outlines the 6-month Clawback Period, in this case they call is the Relation Back Period,
It also includes the invoices, the dates and the amounts,
And then to top it all of it gives the business 7 days to pay the 171 000.
And this one, Example 2 is the same as the first but for a different business which outlines,
And also here is Example 3 which is an extract from a 2016 / 2017 Creditors Report concerning preferential payments made to the ATO Totalling $52,636. You’ll notice the ATO settled for 50,000 in the early stages of the liquidation.
Because the ATO knows that the legislation applies to them exactly the same as any other business.
Now I understand that a lot of you be going, What the? But the legislation is the legislation, and it will more than likely effect most businesses one way or the other at some point in time.
You will, as the owner of your business either be classed as a secured creditor and are one of your companies largest and most prominent secured creditors, or you will be classed as an unsecured creditor with all the risk that goes with that.
AND, If you wait until there is an issue, it will be way too late. Don’t let all your effort and hard work amount to nothing. I don’t know of any business owner who doesn’t want to be their businesses biggest secured creditor.
So here is where our Continuous Line of Credit or Revolving Line of Credit Loan Agreements comes back into the Story.
In order to solve all the issues, we have just discussed, we need to consider a few key points,
And that’s exactly what our Continuous Line of Credit Loan Agreements does.
Given that you and your business are separate legal entities, our Continuous Line of Credit Agreements are simply ongoing Loan Agreement between you as your business owner, and your business itself.
Well, I think that about covers the everything regarding our Continuous Line of Credit Loan Agreements.
There will be things I’ve missed or forgotten to mention, so what I am going to do, if you have any questions, is to ask you to click the below link called Request a Chat at the top of the page, fill in your contact details and we will give you a call, answer any questions, and walk you through the whole process.
There is absolutely No Obligation.