Episode 9 - Bankruptcy & Insolvency with Victoria Young

In today's episode, Gerry talks with Victoria Young, a specialist in personal and corporate insolvency. 

Victoria is a Registered Trustee in Bankruptcy and has over 15 years of experience in providing compassionate and appropriate advice to individuals facing personal insolvency.   

She has managed a range of formal and informal insolvency appointments for businesses involved in education, hospitality, building and construction, the mining industry, manufacturing and transport industries. 

There are some great tips here on how to avoid insolvency and the importance of planning ahead.

Our theme music is by rsquareddj - find them on instagram https://www.instagram.com/rsquareddj/

Transcript

SPEAKER_00 0:15

Welcome and thank you for joining us on business themes and more. My name is Jeremy. And my name is Tina. And we'll be delving into business topics which hopefully you find to be helpful and of interest. I've had many years' experience of owning and running various companies, and look forward to sharing my experiences with you.

SPEAKER_02 0:39

And I'm just starting out in a business and have lots of questions about what's involved owning and running a business.

SPEAKER_00 0:46

The more part of our podcast will be talking with people who have started their own businesses and will share with us their experiences and their stories.

SPEAKER_02 0:56

So stay with us as we explore the nuances of business.

SPEAKER_00 1:19

With us today is Victoria Young, an expert for over 20 years in the field of insolvency and bankruptcy. And we know even the strongest businesses face unexpected challenges. We will be discussing with Victoria how to spot the warning signs early, make smart decisions, and protect your business before trouble hits. And if it does hit, what next? Good morning, Victoria. Morning, Jerry. Thank you for joining us. We're going to be talking today about insolvency and bankruptcy. Just for our listeners, can you say give us an explanation of the differences between the two?

SPEAKER_03 2:01

I'm gonna sort of make a little correction in that insolvency is an overarching term which is used to describe an inability to pay debts as and when they fall due. When we talk about bankruptcy, we're talking about individuals who are insolvent. When we talk about external administrations, liquidations, administration of companies, we're talking about corporate entities that are insolvent. So insolvency is a very general term which can be used to describe both. When we're talking bankruptcy, we're talking individual.

SPEAKER_00 2:34

So in the event that someone has a business and they're the only person in that business, then bankruptcy would be sort of itemized towards them.

SPEAKER_03 2:44

Yeah, so bankruptcy is really the original insolvency. So before corporations were even established, when you were trading with an individual, if they were unable to pay their debts, as and when they fell due, there were laws that were established back in the 1300s to deal with what happens in that situation when you're trading. So then as companies began to be developed in limited liability companies, which came around the time of the Industrial Revolution, because bankruptcy wasn't an appropriate format for that, then different laws needed to be established to deal with those insolvent corporate entities. So when I talk about bankruptcy, I'm thinking about the original insolvencies and you know, going forward even to today.

SPEAKER_00 3:29

Right. Okay. Well that that that does make a difference. And you can then sort of get an idea of the subtle differences, which is what they are really.

SPEAKER_03 3:37

Yeah, it is. And I think, you know, if you think about corporate insolvency is really focused um on applying legislation which was originally established for an individual and then applying it to a corporate scenario. So that's a much newer set of legislation. The bankruptcy act that we work with here in Australia today was written in 1966. So our bankruptcy legislation turned 60 this year. It wasn't actually greatly rewritten from the original legislation from the 1920s.

SPEAKER_00 4:11

Right, okay. So very old legislation. We'll get into the um the nuances of that particular genre anyway. I'll start with a question. And so, what is the biggest misconception people have about bankruptcy? And so what stops them from seeking help?

SPEAKER_03 4:30

I think what largely stops people seeking help is they get caught up in their own head. They they don't understand or know what the options are for an individual facing personal insolency, and they they get really overwhelmed by the their levels of debt and their inability to manage it. I think it's probably not it's not widely known what the options are. And so if people aren't accessing resources available, they might not understand that they there are processes that they can go through to help dealing with unmanageable debt.

SPEAKER_00 5:05

Right. Okay. So in the event that someone's, you know, really concerned or thinking, well, there's I've got money here, but uh I'm running out of cash and I can't quite understand where I'm going with all of this, what would be their first reaction? Would that would they ring someone like yourself? How would the warning sign pop up and then say, right, I've got to I've got to call someone?

SPEAKER_03 5:27

I think that's probably a huge area as to where the problem is, is a lot of people are just in denial as to the level of debt that they're in and how they can move forward. So the Australian government has a national debt hotline, which is an incredible resource. It's free. People can contact that number, I think it's available 24-7. And it provides individuals with links to people who are appropriately trained to help them to understand what their options are.

SPEAKER_00 5:54

Right, okay. So that where where would they find that?

SPEAKER_03 5:57

If you look at the national debt hotline, that that'll come up straight away.

SPEAKER_00 6:02

So you could do that on your computer, you could just punch that in.

SPEAKER_03 6:06

Yep, go to Google.

SPEAKER_00 6:08

Right. What do I do now?

SPEAKER_03 6:09

Yeah, absolutely. So what are my options? Um, AFSA's website, sorry, the Australian Financial Security Authority, that's the government body that is responsible for dealing with bankruptcy and also the personal property securities legislation in Australia. But under their ambit in the bankruptcy realm, um, they they provide a lot of free resources to individuals which can really help them to understand what their options are.

SPEAKER_00 6:35

Right, okay. So go to Google. Uh if you can.

SPEAKER_03 6:40

Um phone a friend, speak to your accountant. There's lots of options, but I think denying that a problem exists when it does, it's not going to help it go away.

SPEAKER_00 6:51

No, right, okay. Well, i well, in that case then, if if someone does decide to think, well I'm in trouble, will they lose all their uh parts? Is it will they be explained what what happens from there when they say uh, you know, will they lose everything? And probably they're probably scared, I suppose, at that stage.

SPEAKER_03 7:09

Yeah, I think people are really frightened about what happens, and there's a lot of a lack of understanding. So to sort of go back a little step, there are actually three different options for individuals facing personal insolvency, which the bankruptcy act provides for. So there's a thing called a debt agreement, which is specifically designed for debtors with low assets, low liabilities, and low property. So there's a threshold for the debts. Um you can't owe more than$148,000, otherwise you become ineligible for that process. A debt agreement can run for ordinarily up to three years, um that can be increased, but it offers an individual an option to pay cents in the dollar on their outstanding liabilities.

SPEAKER_01 7:53

Right.

SPEAKER_03 7:54

Um, once creditors accept that proposal, it's binding. And so that can be a huge relief to an individual. Second option, if that's not available, is a thing called a personal insolvency agreement, which is covered under part 10 of the bankruptcy act. So there's not as many of those that occur in Australia every year, um, probably around 200 to 250 Australia-wide.

SPEAKER_01 8:16

Oh, okay.

SPEAKER_03 8:17

Um, but generally I see those as being a good option for people who've been in business who often have access to assets which wouldn't otherwise be available in bankruptcy.

SPEAKER_01 8:27

Right.

SPEAKER_03 8:28

So again, it's a compromise with creditors. There's a meeting of creditors, a proposal's prepared, and creditors vote to accept cents in the dollar on their debt in full and final satisfaction. So it can be a really quick turnaround, sort of anywhere between three months, and then can run for up to three years if required. Then there's also bankruptcy, which is probably the option that most people think of when they're talking about personal insolvency. But when we talk about those three different options, bankruptcy is the majority. Um, so about 6,900 new bankrupt last year.

SPEAKER_00 9:02

Wow. Is that in South Australia?

SPEAKER_03 9:04

That's Australia-wide. Australia-wide. Yeah. So debt agreements 5,093. So you don't really hear about the debt agreements, but yeah, bankruptcy account for the the majority of personal insolvencies, um, but not all.

SPEAKER_00 9:18

Right. Okay.

SPEAKER_03 9:19

So for an individual missing personal insolvency, bankruptcy can be a huge relief to them. It means that they stop getting pestered by their creditors and followed up about bills that they can't pay. All claims will fall part of the bankrupt estate, and then their creditors are able to put in a proof of debt to claim for the outstanding liability. If there are no assets recovered, there's no dividend.

SPEAKER_01 9:44

Right.

SPEAKER_03 9:44

But the debts are captured in a bankrupt estate and people have the opportunity to move on with a fresh start.

SPEAKER_00 9:50

Well, I suppose uh if you're a a business owner, I mean, what are some of the early warning signs that you're heading in the wrong direction? Um, it's something that a lot of people would like to know. Um those little things that you might just overlook, but obviously it's gonna lead to um all sorts of problems.

SPEAKER_03 10:12

For a business owner, what you should actually be considering is your setup at the beginning. So when you're starting, you know, if you incorporated your brand new company and people are very excited about their fancy new role as a director and running their own business, um, one of the first things I see people do is they sign a lease for their corporate premises.

SPEAKER_01 10:32

Right.

SPEAKER_03 10:32

When they do that, they also sign a personal guarantee to their landlord for their rent. Oops. Um, so then they get a business overdraft account and that's supported often by a mortgage over their personal home. Then they'll set up trading accounts with their trade suppliers, which are also supported by personal guarantees, often with the ability for the trade creditors to put a caveat on their personal press property. People think that they're protected by having incorporated a company, but even in a good business, there's often those little holes that are peeking through the corporate veil already. But then when the business starts to struggle, then things start to ramp up because you know if if you're missing paying the superannuation, you're going to be personally liable for that.

SPEAKER_00 11:22

And probably your tax.

SPEAKER_03 11:23

If you're missing the GST and the P A Y G, where you've lodged the returns but haven't paid it, you might have an option that you may be if a if a director penalty notice is issued, it may be a non-lockdown DPN rather than a lockdown DPN.

SPEAKER_01 11:37

Right.

SPEAKER_03 11:38

Which might mean that if you take action in relation to the company within a 21-day time frame, you may be able to get out of paying. But if you've not lodged and if you've not paid for a number of quarters, then you're really starting to get into the bad lands.

SPEAKER_00 11:55

Right, okay. So really when you talk about the lease and creditors, uh, would be a good idea then to actually get some legal advice on the lease document and probably the um the creditors requirements.

SPEAKER_03 12:11

Yeah, absolutely. And I think you know, people uh hate spending money, but you know, if you're spending money on your accountant and your legal advisor to get the setup right, I think it's probably the best money you're ever going to spend.

SPEAKER_00 12:24

Yeah, well I well I think that's something that uh a lot of our listeners have have said that they they should have done that at the beginning. Um and it's never too late, is it?

SPEAKER_03 12:34

Oh, absolutely not. And I think one of the other things I see is a lot of people who have changed accountants recently. And so it's off it's always uh my former accountant didn't do any of this, it's their fault that I'm behind on the tax. Um, but it's the new accountant who's got more involved and hands-on, probably because they're actually getting paid for the work they're doing. But yeah, it's a bit of a recurring theme that I see people who have recently moved to a new accounting firm and the firm's gone, hang on, there's a lot of issues here. You you need to speak to an insolvency practitioner.

SPEAKER_00 13:07

Yeah. So I think that's that's something that uh people should keep an eye out for, I think. Um the other part is that of this, I suppose, is when does seeking that advice uh become s significantly more difficult? How far down the track?

SPEAKER_03 13:23

I think you know, people should really be looking at doing a health check with their accountant in terms of their business on a very regular basis.

SPEAKER_00 13:30

Uh what would what do you mean by regular? How regular?

SPEAKER_03 13:33

If all your accountant is doing is preparing your Bass and lodging that, you're not really getting an advisor. You're paying for lodgements.

SPEAKER_00 13:40

Right.

SPEAKER_03 13:41

Um, if you're spending the money and you're getting business advice and a review, whether it be si six monthly or twelve monthly, and they can help to advise you in terms of strategy and where things are going well and what you should be pivoting and things that maybe are not doing so well or that you might be able to remove from your service line. That's that's advice.

SPEAKER_00 14:02

Yeah. So I'll bring it this up is that you should do your due diligence on the actual accountant before you actually actually go there.

SPEAKER_03 14:11

I generally find accountants are really good. It's often the instructions that they're given that might not be great or people don't want to pay for advice. They want to pay for lodgements.

SPEAKER_00 14:23

Yeah, right. Yeah, I suppose that's a bit of a pothole, really, when you think about it. Uh you've really got to I mean, there's a lot of accountants out there, but you've got to be a bit gotta be a bit careful and and sort of look into them anyway.

SPEAKER_03 14:37

Um I think you've also got just got to find the right fit. You know, not everyone suits every style. And so finding the style of accountant that suits that will help guide you with your business uh and help lead you forward is is a really important process to go through.

SPEAKER_00 14:55

Yeah. So so just going back again for a for a second, uh, when you say timing, so if you did that once every six months.

SPEAKER_03 15:04

Yeah, absolutely. But I think uh business owners also need to take a lot of personal responsibility for keeping on top of how is the cash flow tracking. Yeah. What are what are my good lines? Do I have any bad lines?

SPEAKER_00 15:16

And I would say that that then comes back to the systems that you're actually using.

SPEAKER_03 15:22

Yeah, definitely. And having up-to-date, accurate recording systems is really important because you know, if all you're doing is putting your receipts in a shoebox and you select who you're gonna pay for like in terms of your trade creditors based on who screams at you the loudest over the phone, that's not really a strategy.

SPEAKER_00 15:41

No. And and really I suppose the other part of all of this for um businesses is to keep the accounts separate. You know, like you would you would have your personal account and you and you would have your business account. Absolutely.

SPEAKER_03 15:56

Um no, I I laugh because um I I can't tell you how many um small corporate insolvencies I've dealt with where there's a line in the financials that is director loan account or director drawings. And those those are recoverable and repayable in a corporate insolvency. And the number of times directors have said to me, No, but that's my wages, but it it hasn't been recorded that way.

SPEAKER_01 16:21

No.

SPEAKER_03 16:22

Um, you've actually not paid PAYG on that. So you've got the benefit of not paying tax and you've taken money out of the company, which unfortunately is repayable, and we have to have a conversation about that.

SPEAKER_00 16:33

Yeah, well, I think that's that's a real trap for um people in small business, I think.

SPEAKER_03 16:39

Yeah, absolutely. And I think if you don't have the funds available to be able to pay yourself a proper wage to be doing your job working for your company, you really need to start thinking about whether this is what you want to be doing.

SPEAKER_00 16:53

Yeah, and that must go in your personal account separate from your business account.

SPEAKER_03 16:58

Okay, I I don't want to see Hungry Jacks or McDonald's or you know, personal uh deductions on a corporate account.

SPEAKER_00 17:07

Okay, I've got I've got a question here because you've obviously seen a lot of it, Victoria. So what separates businesses that successfully restructure uh from um from those ultimate ultimately collapse?

SPEAKER_03 17:21

Yeah, so the the businesses that successfully restructure um have a very good grasp of their cash flow. Um they know what money is coming in, they know what their liabilities are and how they're gonna pay them. They're accounting for their tax, they're paying their super, they're paying their staff properly. If you're not managing your cash flow, you're not gonna be able to restructure.

SPEAKER_00 17:42

Right, okay. Well, that that again comes back to having the proper system, doesn't it?

SPEAKER_03 17:48

Yeah, and knowing what your financial position is. Um I can't tell you how many companies I've seen and I've said to them, What's your cash flow for the business? And they look at me like a deer in headlights, you know, eyes wide, confused, like, what is she talking about? And so then it's like, okay, so I need to understand, you know, what money's coming in and what's going out. And you make it really basic. And then I'll I'll look at some companies and they say, Yeah, we've got a great cash flow, it's it's excellent. And the director has, you know, put it down on paper and you look at their sales figure, and they're selling, you know, levels of product they've never sold before. Yeah, yeah, that's not achievable. And you you ask them, you know, why are your sales figures in your cash flow budget so high? And they say to you, well, because that's what I need them to be for the bottom number to be positive. It's like, well, that's not a that's not your cash flow. You know, that's working from the bottom up. Yeah. Um, what you need to be doing is actually being realistic. And if if the sales level is if the figure for the sales is completely unachievable. I did have one director who put up a sales budget which involved all his staff working seven days a week, 40 hours um a week. No, 60 hours a week. It was crazy. And we're like, I don't think that your staff are going to appreciate that. Oh, but that's what we need to do to make the cash flow work. So that will it's it's unachievable.

SPEAKER_01 19:15

Yeah.

SPEAKER_03 19:16

And so if it's unachievable, think about what the other options are rather than persisting.

SPEAKER_00 19:21

Yeah, well, that brings me to creditors then. Creditors um they start issuing d demands for their money. Uh, what is the smartest intermediate step a business owner should take?

SPEAKER_03 19:34

Uh talk to them. Don't hide from it. If it's a temporary liquidity issue, explain that. If you know it's a bad month and you know something's popped up that was unexpected, talk to the creditors. They're generally fairly accommodating. If you hide from them, if you ignore it, if it becomes a bigger problem and it snowballs, you've you've got some real issues.

SPEAKER_00 19:57

Yeah, I I think that's where a lot of people get frightened or or um that they're not really sure what to do next. They think, oh well, I can't ring them because I owe them this much money. And it tends to tends to escalate things, I suppose.

SPEAKER_03 20:11

Yeah, hiding from the problem, um, I think that's probably going to be one of my recurring themes. Um it's it's never the answer. And insolvency practitioners are not scary people. We're always happy to have a conversation and help people through. But also your accountant shouldn't be a scary person either. Your creditors aren't scary people, they're just people doing their job.

SPEAKER_00 20:32

So someone comes in to see you, you they rang you and said, Oh, I really, really need to have a meeting and just have a chat to you. That those things I suppose a lot of people don't know the questions to ask sometimes. And uh they they need a lead from someone like yourself to say, Well, have you got this, have you got that? And uh and where's the biggest hole do you think that they just don't see? Is it is it the systems themselves, or is it is it the way they um they go about the fact that that they're really not sure where to start?

SPEAKER_03 21:05

I mean they've been in business say six months and they come to see you and do you tease that out of them in a way to to Yeah, I I would absolutely try to, but I I would suggest that if they've been in business for six months, uh their accountant's probably a better resource than me. Save for the fact that if if there's some things that the accountant just might not have picked up on. So if we're talking about a corporate structure, I'll be looking at, you know, what's your accounts payable, what's your receivable, what's your balance sheet, what's your cash position, where are you at with your tax? Um, there can be a few things that I because insolvency practitioners look at things a little differently to your regular accountant, we might spot and say, Hey, have you thought about, you know, changing this? Or you know, you're doing these deliveries for this particular customer and you're losing money every time you do it. So stop it.

SPEAKER_00 21:59

Right.

SPEAKER_03 21:59

Um So we're probably looking at things through a different lens than your regular accountant.

SPEAKER_00 22:05

Okay. So uh there's a question I'd like to ask you. Some people probably never hear these sometimes, but understanding your options if they come along and think I've got a problem here. What are the main differences between chapter seven, chapter eleven, and chapter thirteen?

SPEAKER_03 22:21

So you're talking about um bankruptcy options in the United States.

SPEAKER_00 22:28

Right, okay.

SPEAKER_03 22:29

So chapter eleven is uh is an insolvency option which is called bankruptcy, yeah, but it's for a corporate entity in the United States of America.

SPEAKER_00 22:37

Right. Someone asked me that question, and I I thought to myself, I don't know.

SPEAKER_03 22:41

I'll ask when I'm um that that's the uh the American model. Um so interesting, you know how I've explained that you know insolvency is overarching for corporate and personal. The term bankruptcy refers to insolvency for corporate and personal in America. So in America, companies go bankrupt, not in Australia.

SPEAKER_00 23:01

So if an American company works here then, do they come under our laws?

SPEAKER_03 23:05

I'm gonna say that depends.

SPEAKER_00 23:07

Right, okay.

SPEAKER_03 23:09

So yes, you can have jurisdiction, um, but there can also be some crossover and some cross-border insolvency issues.

SPEAKER_00 23:16

Right, okay. So that that I think we'll leave that one. Okay. But the the impact on finances, how will it affect their credit score, you know, if they have to file for um insolvency?

SPEAKER_03 23:28

A personal insolvency, so bankruptcy or a debt agreement or even a personal insolvency agreement will stay on someone's credit rating for five years.

SPEAKER_00 23:36

Right, five years.

SPEAKER_03 23:38

Yeah. Um bankruptcy ordinarily will run for three years and one day, sometimes longer. So if the bankruptcy runs for longer than the three-year period, the record of the bankruptcy will remain on your credit record for two years after discharge.

SPEAKER_00 23:54

Right, okay. So it's quite a long period of time.

SPEAKER_03 23:58

It is quite a long period of time. Um, I think the other thing that, you know, from a director perspective that people might not be aware of is if you have been a director of a corporate entity that has gone through a winding up or a liquidation, the fact that you've been a director of that entity may also appear on your credit record. So people need to be uh keeping up with it and make you know a ki attuned to what's going on in their situation.

SPEAKER_00 24:27

Right, okay. And and does that affect your personal assets like uh your home, your car, savings and things like that?

SPEAKER_03 24:35

Uh we're talking bankruptcy? Um, yeah, bankruptcy absolutely will affect all of those things. So in a bankruptcy scenario, pretty well all of your assets will vest in a trustee. Right. This includes your interest in the personal family home, motor vehicles, if you've got shares, if you've got cryptocurrency, cash in a bank account. There, but there are some specific carve-outs. So a bankrupt is entitled to keep ordinary household goods. There's a specific list in the bankruptcy regulations. So, you know, how many TVs, washing machines, fridges, etc., you're allowed to keep. I have to say that I don't tend to go through that. I know I'm not really interested in going and visiting and counting people's TVs. I just assume that well, what we're talking about is, you know, personal ordinary household items and they're excluded. There are some other carve-outs. So a bankrupt's entitled to keep a motor vehicle up to a value of$9,600 is the current threshold. So if I've got a bankrupt who has a motor vehicle which is worth$50,000, but it's subject to finance, and the finance is$45,000, the equity is$5,000.

SPEAKER_00 25:50

Right, I get that.

SPEAKER_03 25:51

Provided they can keep paying their finance and they want to keep paying their finance, they can keep that vehicle. So there there can be some different options available. Uh bankrupts are entitled to keep tools of trade. One of the reasons why that's important is because you want to be able to continue to earn an income. So tools of trade up to$4,450 are protected. Yeah, yeah, yeah. The other thing that I think is an interesting carve-out is superannuation.

unknown 26:18

Yeah, yeah, yeah.

SPEAKER_03 26:18

So super is a protected asset and non-divisible unless you have specifically sold assets and hidden them in your superannuation.

unknown 26:30

Right.

SPEAKER_03 26:30

Um, in which case we can claw back. But ordinarily the idea is that superannuation is to provide your for your future and your retirement so that you don't become dependent on the pension. And so super is protected.

SPEAKER_00 26:46

Right, okay. Well, I uh there's another question that that interests me is bankruptcy is always a sign of financial uh irresponsibility, or are there other common causes that you could think of?

SPEAKER_03 27:00

I think that that sort of um plays into the mentality of bankruptcy as being a personal failure. And there can be situations where and that there often are situations where it's through no fault of an individual's own b being a director of a company and if you were not aware of a tax liability or signing on to become a director of a company and finding out that there is outstanding superannuation. If you if you're in that situation and you haven't resigned as a director within 28 days, you've become liable for that superannuation. So you've really got to do your homework before you become a director of a company.

SPEAKER_00 27:39

Yeah. I th I think that's something else too, that even in my limited experience, I suppose, but uh generally it's about understanding what a director's duties are in relation to uh starting a company.

SPEAKER_03 27:53

Yeah, and I think if you're not you know made aware of what the position is, then you're really putting yourself in a very, very difficult position. Clubs New South Wales actually require all people joining um committees to undergo mandatory training. Right. We have no mandatory training for directors. Anybody can sign up to be a director. You sign a form.

SPEAKER_00 28:15

In this state.

SPEAKER_03 28:16

In Australia. Oh, in Australia. In Australia, I didn't look at it. There is no there's no compulsory training.

SPEAKER_00 28:21

Yeah, and and I think that's where something needs to be done, I I believe, and because directorship is is a response a big responsibility.

SPEAKER_03 28:30

Yeah, it is. And I think without that education piece, you know, a lot of people are signing up for things that they really don't understand.

SPEAKER_00 28:37

Yeah, and uh so really then there should be some legislation, really, for people to uh understand their their responsibilities as that.

SPEAKER_03 28:46

Yeah, that that would be great. I'm not gonna hold my breath. Uh in 2016 the government issued a huge report in terms of um the the PJC report, so in relation to insolvency systems in Australia. We have seen very little change since that came out. The previous report was the Harmer report. I believe that was issued in 1992, um, well precedes my time. But changing legislation, particularly in insolvency spaces, is very difficult.

SPEAKER_00 29:15

Well well, can I ask you a question then?

SPEAKER_03 29:17

If someone does come in, would you would you actually say to them, look, do you understand what a director, you know, what you're exposing yourself to if you're giving advice that you're Yeah, that's um r not really um I guess my space in terms of generally by the time people have, you know, faced the reality and made a time to come and see me, things are looking pretty grim. So um what we're talking about are, you know, what are the options for the company? Or if that's gone too far, what are the options personally in terms of you know different insolvency options?

SPEAKER_00 29:50

Yeah, well that that's interesting because you find a lot of people, um, their wives get involved and they become a director and they're not even doing anything in the business.

SPEAKER_03 29:59

Yeah, and that so they're signing up to a whole raft of personal liabilities and not understanding what it is they've signed on to. Yeah, I that's uh I talk a little bit about um sexually transmitted debt. So in terms of you know women who've signed up to roles that they don't understand, or they've not been given information about who are a director, but they don't understand that you know ATO lodgements aren't up to date, or their employees' entitlements aren't up to date. And so they can really put themselves in a bad position.

SPEAKER_00 30:33

Yeah, so again, it comes back to that very first part where you start. It should be part of your business thought and and ideas to actually go and get some idea of what a director does.

SPEAKER_03 30:44

Yeah, absolutely. Understand what it is you're doing and what what role you're undertaking and educate yourself about what you need to be doing and how you can actively manage the business.

SPEAKER_00 30:54

Um well that that's that's really good. That's a great tip because I think a lot of people just overlook that. And they once they start on that road, it it it's a bit of a journey, I think.

SPEAKER_03 31:05

Yeah, and also, you know, it's not terminal until it's terminal. So if things are starting to, you know, pop up and you're struggling to pay, you know, one bass quarterly instalment, start to think about how you know things are going to be tracking going forward and get get some help and think about what can be done. We often say around my office, you know, early intervention is the best thing that you can do. So come to us when there's still some life in the tank.

SPEAKER_00 31:34

Yeah. And again, I think I'll I'd like to um highlight the fact that you must see an accountant if that's the least you do to get started on your business or even get that health check.

SPEAKER_03 31:48

Yeah, or I mean we can offer some input there as well, but you know, if people leave it to a point where the phone call is, I think I might need to speak to you about my company, and you start running through, you know, what's the background, what's what's caused you to call today. I I've got wages due and I can't pay my wages. You know, that's a pretty fundamental issue. And then the options as to what we can do become very limited when there's no cash in it in the bank.

SPEAKER_00 32:16

All right. Well, that brings me to um the the part that I suppose a lot of people get into, and it that's the mental and emotional toll that this would take. And I suppose understanding that would make you more diligent to do things that you just don't want to go there, I suppose. I mean, bankruptcy or insolvency carries a stigma. There's no doubt about that. So how do you see business owners cope psychologically, for example, and what what mindset shift helps them move forward constructively?

SPEAKER_03 32:50

I I think you know, mental ill health is a real problem for people who are in business and for individuals who are in or facing personal insolvency, I think they just become incredibly overwhelmed. And so I I think one of the things that would really help is for people to realise that there are always options. There are people you can turn to and there are people who will help with the situation. You know, bankruptcy is not a life sentence. Um, we stopped incarcerating bankrupts back in the 1870s. So it's not it's not the worst thing that can happen to an individual.

SPEAKER_00 33:26

Right.

SPEAKER_03 33:27

And it can provide a huge amount of relief for people who have been living in emotional distress for many years often for them to finally get it get a opportunity to move forward. You know, the bankruptcy provides a line in the sand. The outstanding debtors or creditors are captured in their bankrupt estate and they are free to move forward with their lives. So that can that can be a huge relief for people, and probably overwhelmingly the feedback I get from bankrupts is I wish I'd come and seen you sooner.

SPEAKER_00 34:01

Yeah, well, it's the what if. I think that's something. I mean, the thing I would take home today is that obviously get the right accountant, make sure that uh you do your due diligence around that accountant, um, and really try and get your systems in place and get somebody to check them. I mean, with AI now, I mean you can actually go on to AI and say, I want a cash flow uh system.

SPEAKER_03 34:23

Yeah, absolutely. And um, you know, Zero has a lot of AI built into it as well. So um that like Just Ask Zero Jax will help you to do a lot of that cash flow modeling. So if it's difficult, there's lots of options available. But um, yeah, I think people tend to sort of get, you know, caught up in their headspace that if I go bankrupt, you know, I'm branded forever, which is just simply not the case. You know if you are giving yourself an option to move forward, I think that's it can be a massive relief.

SPEAKER_00 34:55

Yeah, and uh again, I think that uh what people worry about is how do I live from day to day once this happens? And uh I mean like credit cards, your credit cards, you your credit rating would disappear.

SPEAKER_03 35:07

Yeah, no more credit cards, but it's not going to stop you from working and earning an income. And I think one of the one of the big misconceptions that I get is people say to me, but I can't earn over this threshold. Well, that's absolute rubbish. You know, the sky's the limit for what you can earn whilst you're a bankrupt. But if you're earning over a certain threshold, you m you will have to contribute 50 cents in the dollar on the amount that's above that threshold. So, you know, I'm ac I actively encourage my bankrupt to work and be employed because I think if you know people have this mindset that I can only earn up to this threshold, if they just sit in that sort of space for three years, the only person they're holding back is themselves.

SPEAKER_01 35:50

Right.

SPEAKER_03 35:50

If they're deliberately earning an amount under a threshold so that they don't have to contribute to their bankrupt estate, where does that put you in three years? Like if you've got an opportunity to earn good money, you probably should be paying something towards your bankrupt estate.

SPEAKER_00 36:05

Yeah, I I did have a person I knew that uh was a painter and he had three or four people and he he just couldn't make it. He in the end he thought, no, I've got to make sure I don't uh make a whole range of debts. So he actually folded the company and actually went back on his tools and he and he ended up so much better off.

SPEAKER_03 36:26

Yeah, and I I've heard that sort of story over and over again. You know, um it had a business and the director went from, you know, employing his wife as the bookkeeper, and then you know, you've got a couple of employees, and then suddenly there's 40 employees, and things just become unmanageable and unfun, and then the company folds, and the the director goes back to working as a as an employee or running a very small business themselves. And the feedback I get is I can sleep at night because I'm not stressed about you know what's happening, I'm making enough money to get by, and it's just easier.

SPEAKER_00 37:02

Yeah, well, I suppose if you've got a family, then then that becomes even more important.

SPEAKER_03 37:08

Yeah, I think and people really need to, you know, focus on what's important and you know if bankruptcy provides an opportunity to move forward, then you know that can be incredible for people.

SPEAKER_00 37:18

Yeah. I thought it was interesting to bring that issue up because uh it the the mental side of it i is is quite um destructive in a lot of ways.

SPEAKER_03 37:28

Yeah, definitely. Um you know, people sort of can get so caught up in their own headspace, but if they actually, you know, have the conversation and ask the questions, you know, what what does this mean and what will it entail and how is this going to impact me? You know, education is the key and understanding what what the options are so that you can you know see the light.

SPEAKER_00 37:48

Yeah, well, well that's that's good uh good advice, I think. I definitely thought that was worth bringing up with you anyway. So we've we've covered quite a bit of ground, Victoria. So I'm I'm I'm really appreciative of your time. And we're coming to the end of our yeah, it soon goes. I mean, that when you when you're talking about things. But I mean, just to to recap over a lot of things then is seek advice at the earliest opportunity.

SPEAKER_03 38:15

Yeah, definitely. And don't don't be ashamed or think that your situation is unique. There are plenty of accountants and insolvency practitioners. This is what we do. We're not here to judge people, we're here to find solutions.

SPEAKER_00 38:27

Yeah, that well that that's great. So what would be the one major advice you'd give somebody? Some a small business or a business that's been starting and having a few problems.

SPEAKER_03 38:38

Get get educated and get get in, get your hands dirty, look at your cash flow, understand whether it's actually do you have a viable business, or if you don't, let's talk about how we're gonna deal with it.

SPEAKER_00 38:50

Yeah. And and definitely I I always say this, but AI is is is a something you can use to give you a lot of those answers.

SPEAKER_03 39:00

Yeah, definitely. Um AI will assist, um, but I don't think there's any sort of, you know, you're always gonna want some professional advice as well.

SPEAKER_00 39:09

Totally agree with that. I I think I was really sort of down the line.

SPEAKER_03 39:12

It'll give you a great starting point. Exactly.

SPEAKER_00 39:14

It gets you to ask the questions that you need to ask, basically.

SPEAKER_03 39:19

Yeah, and often um often when I'll have conversations with the directors, you know, you can see that the business has been tracking along very well for a period of years, and then all of a sudden something's happened and you know, things have gone off track. Um, Bass hasn't been lodged, super hasn't been paid, and it's often it's often things that people don't necessarily think of. So, you know, I'll I'll speak to the directors and say, What what happened this year uh on this day? Because you can see where it started of year off course. And they'll say, Oh, that's when my marriage broke down, or that's when my dad got sick, or you know, there's often a personal factor which is sort of causing them to, you know, it's a block which they're not getting through. But if if that's the situation, I think you've got to start looking at relying on others and getting assistance so that you uh don't have that become a fatal problem for your business. Deal with your personal stuff, but make sure the business is uh still tracking well.

SPEAKER_00 40:21

Yeah. Okay. Well look, thank you, Victoria. It's been uh quite enlightening to uh to have a chat to you and uh hopefully the people out there that have started businesses and who who want to start a business can pick up some ideas from what you've told us today, which is um which is very grateful. We really appreciate it. Thank you.

SPEAKER_03 40:42

Not a problem. Thanks, Jerry.

SPEAKER_02 40:44

Well, what a really interesting interview that was, Jerry. Um Victoria has an incredible amount of knowledge, and I certainly learned a lot of things. I didn't know the difference between bankruptcy and insolvency, and I actually don't realize think I realized how you have to think about it before you start, not when you're in the middle of it.

SPEAKER_00 41:05

Yeah, well, I I think that's that's one particular point that um a lot of people make is that they don't realize if just if you know these the the pitfalls and the potholes, then then it gives you a really good indication of what you've got to do to avoid those. And and the the points that she made, I thought were excellent. And there's there's something for everybody there, I believe.

SPEAKER_02 41:33

And also I thought it's a lot of it is kind of common sense, but if you don't know it, you don't know it. And maybe you can get carried away at the excitement of starting your own business, and you're so excited about the product you have or the service that you have, and you think this is going to be a winner. And then you don't actually think about putting something in place that avoids insolvency. And the other thing I picked up was what she was really emphatic about was make sure you know what's coming in and what's going out.

SPEAKER_00 42:08

Well, the other things I picked out that really stood out to me, what a lot of people don't even realize, is that the issues you have or the exposure you have as a director. And you've really got to have a look at the director's duties, what you're responsible for, because really what's happening is that you're signing away just about everything you've got unless you put these certain items in place which came out. So you've really got to understand what it being a director is all about, and you've got to make sure this is what I thought were very good points was you've got to pay your tax and your super and your wages. And you've got to keep them in separate accounts. A lot of people just go into business and these are the basic, it sounds like common sense, but a lot of people don't even give it a second thought.

SPEAKER_02 43:03

Um the other thing that she mentioned that I thought was really useful was like it's not the end of the world. Whatever set of circumstances happens, you it looks like you're going to become insolvent. There is a way out of it. That's what she does. She's an expert in that field, but you don't really want to go there. She's the kind of person you don't want to need. Exactly.

SPEAKER_00 43:26

That is no offense, Victoria. I must admit, that that is one place you just don't want to go. So all these little bits and pieces, and even the points we've brought up, can make a major difference to you as your business starts to grow.

SPEAKER_02 43:42

Definitely. And so it is important to take that into consideration when you're doing all your planning and when you're, you know, getting ready to start. Have that in the back of your mind that what if? Yes. What if somebody doesn't pay you?

SPEAKER_00 43:56

Or if you have a a disaster and you you have Have a major sickness, or they go all of a sudden they go bankrupt. And then what where does it leave you? Uh you're owed could be tens of thousands of dollars. So you've got to do your due diligence against some of the contractors that you are relying on to pay you. I mean, I know it sounds like common sense. I mean, I have seen some businesses, really good businesses, big businesses, that are falling down on some really basic, basic laws of running a business.

SPEAKER_02 44:34

And I go back to your little phrase again, Jerry. There's owning a business and running a business. Yes, and they're very different. They are. So another great piece of information in our Business Teams podcast, and a big thank you to Victoria for sharing all that information with us. And we hope that you get something out of that. And uh, if any of it has resonated with you and any feedback, we'd love to hear feedback.

SPEAKER_00 45:03

Yes, definitely. And look, um it it's we're only a phone call away, so or um an email away.

SPEAKER_02 45:11

Business themes with gt at gmail.com. So that's it for episode nine. Yeah. Thank you for tuning in, and we look forward to bringing you the next episode of Business Themes and More. Thanks, Tina. Thank you, Jerry. Always a joy.