In Show 084- Surviving Insolvency with Hank de Jonge originally broadcast on Facebook Live on Wednesday 25 April 2018 we explore this interesting topic.
You can download the work book here: 084 – Worksheet
Insolvency and winding-up has been the focus of this month’s episodes. Today we’ve invited an expert on insolvency to share his decades of experience with us. Hank de Jonge is the co-founder of de Jonge Read a business consultancy focused on guiding business through insolvency. Hank has an extensive background both operating and buying businesses. He founded de Jonge Read in 2006 and has strived to help companies to navigate the complicated world of bankruptcy.
Hank had been buying and selling small businesses for most of his career. He was a running a successful business but everything changed in 2001 after September 11th. Tourism dropped dramatically in Australia and that put his company into insolvency. He found it difficult to find someone that could give him straightforward advice. Insolvency experts usually work for the creditors not the debtors. Once he emerged on the other side of that stressful experience he decided to found a firm that would help others avoid the difficulties he encountered.
Every insolvency situation is different but Hank says there are some similarities. About 75% of his clients do end up going through a formal insolvency process. But in the last five years banks have become much more amenable to proposals to avoid that. Some businesses have encountered a one off event like a flood or an embezzlement. Those businesses are still in good shape they just need help over the hump. Other businesses, however, are no longer profitable and need more dramatic intervention.
Hank has seen it all when it comes to insolvency. Companies can make many different mistakes that leads to bankruptcy and winding-up. Poor management is one of the main reasons for companies faltering. However, one-off events can also put a company in dire straights almost overnight. When companies don’t react quickly enough to a problem it can lead to disaster. The sooner a firm like Hank’s becomes involved the better.
Hank often represents companies that are facing an insurmountable debt. They may owe money to the tax man or to their creditors. So long as the business is still viable there may be an opportunity to restructure the business to keep it from sliding into insolvency. But that’s not always the case. Hank once had a client who moved opened a fruit market and was losing close to $10 thousand per month. In that case the only viable option was to wind-up the business.
One of the newer changes in Australian law around insolvency is the concept of safe harbour. If you continue to trade while your business is insolvent you could become personally liable for any of the debts the business incurs. Recently, Hank represented the owner of cafe on the Gold Coast. The businesses debts were secured with the owner’s personal home. If she would have gone into liquidation she might have lost her home. By using safe harbour she was able to trade for another five months by showing that she was going to be able to turn around the business. That would allow her to sell the business rather than becoming insolvent. The safe harbour strategy allowed her to show to creditors that her continued business would benefit them in the end. Her loss in the end was reduced by nearly $180 thousand. Hank is quite passionate about safe harbour and thinks it’s a hugely useful tool for struggling businesses.
Disruption is a constant in business and that’s true in the pre-insolvency world too. Hank feels the industry has been tarnished recently by some bad operators. Hank is very keen that his industry becomes better regulated.
What book are you currently reading?
What book should every business owner read?
Richard Branson’s autobiography Finding My Virginity is a particularly good read.
What advice would you give to your younger self?
Don’t stick your head in the sand. Deal with things head on.
More about this Show
We started Business Legal Lifecycle to create a simple way for you to understand complex legal terms. Most importantly we want to help you to develop a plan to take your business successfully into the future. There’s a startling statistic the underscores the importance of developing a solid plan. The majority of business owners are just seven months away from losing everything. A single aspect of your business that is not set-up correctly can shut down your whole operation very quickly. Legal advice is not cheap and even when you can afford it there is often a divide between lawyers and their clients. We want to close that gap once and for all. We want to put legal knowledge and tools into your hand to prevent the worst from happening to you.
Twice a week we are going to deliver those tools right to your home or office with Business Legal Lifecycle TV. We’ll start the week with Fast Fix Monday, a short 5-10 minute video that will tackle a single issue that businesses have to deal with. Then on Wednesday’s our main show will feature with more fulsome discussions and interviews all delivered in a straightforward and easy to understand format.