COVID-19 : Businesses Are Deserted

Print Friendly, PDF & Email

In fear of infection, public places are deserted,
businesses are deserted, but this is only the start

There is no cure, yet, to this coronavirus.

We do not know how long will this last before people feel safe to go back into public places. 

We do not know when businesses will go back to normal, or can it?  Is it possible for businesses to return back to normal?

Mounting Debts

Rent is due, salary and wages are due, superannuation is due, tax is due, but business is bad and almost zero during this fearsome period, and overdraft is fully drawn. 

The Government has announced relief packages for relief small businesses.  It is yet to be seen whether this assistance is adequate to save your business.

Some of this assistance is merely asking a mortgagee (and maybe a landlord in the future, maybe) to delay payments.  It does not mean no payment.  Business owners are still liable to pay them at some point in time in the future.

IMPORTANT: If you allow yourself to lose track of these mounting debts, you will risk trading whilst insolvent.  Be warned that insolvent trading is one of the situations where the corporate veil will be pierced and directors can be made personally liable.

Tips on How to Reduce the Long-term Impact

Take control now, be pro-active.  Start planning your strategies.  Here are some of the steps you could take to reduce the long-term impact of the current situation. 

  • Have a well thought-through plan on how to potentially negotiate out of the situation with your mortgagee (or landlord).  What do they want to see before they are prepared to put a hold on enforcing the debt against you?  Do you have a cashflow projection?  Have you prepared your business case to bring about a strong recovery?  Note that you must exercise care in preparing these documents.  You must not express opinion that is unreasonable or unfounded, as this could be seen as your “misrepresentation”.
  • Can you plan for ways to increase your business cashflow, whether through capital raising or debt raising.  Do you have a convincing and realistic business plan to attract investors or financiers?  There are specific rules under the Corporations Act 2001 in raising capital.  Please obtain legal advice before conducting, or attempting to conduct, raising for funds.
  • Stress-test your business for survival and prepare for the worst case scenario.  At what point in time will you need to start taking steps to scale down your operation, or to close your business (in order to avoid personal liabilities)?   Think and plan, in advance, on what you can do to crystallise your losses?   You need to look at all the business contracts and work out the implications of terminating them BEFORE you decide to “walk away” from the business.
  • Do you have a sellable business?  How do you make it sellable when the business turnover is suffering?  The most valuable part of the business is its “goodwill”.  Goodwill can comprise of a few things, including location goodwill, special rights goodwill, and system or IP goodwill.  It is the core things that give a business the drivers to trade and to create income.  You should be amplifying these drivers now.  Turn them into your goodwill, sellable goodwill.

About Writer

Kelvin Tang has over 18 years’ experience practising law in Western Australia. He is the founder of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing migration advice to clients, advising on “Eligible Businesses” within the definition of the Migration Regulations. Kelvin also has extensive experience in civil litigation, commercial and corporate law matters.

Gabriel Wong is a senior lawyer at Tang Law and holds Bachelor’s degrees in both Law and Commerce. Gabriel was admitted to legal practice in early 2001. Gabriel has over 18 years’ experience and extensive knowledge in advising clients in relation to property, general commercial, trusts, and wills and estate matters. He regularly provides advice to in relation to the acquisition, development (both greenfield subdivision and multi-level mixed use strata developments), leasing and sale of residential, commercial and rural land.