Debt Restructuring Loans for Businesses Under Pressure

By the time a restructure reaches us there is rarely one problem. There is a private lender wanting to be paid out, a second mortgage that has to come off the title, an ATO position accruing interest, and trade creditors who have started calling. Each carries a different deadline. We clear them into a single property-secured facility from $250,000 to $10,000,000, and we can settle within 24 hours where the security and the exit stand up.

What Debt Restructuring Actually Involves

A restructure is not a better interest rate. It is a rebuild of the whole debt position: what is owed and to whom, what is registered on the title, which obligations carry real enforcement risk, and the order those have to be dealt with in. The facility that comes out the other side is one loan with one lender, secured by a first or second mortgage over residential, commercial or industrial property.

What separates it from a refinance is scope. A refinance replaces one facility with another. A restructure deals with several at once, usually because the position has reached the point where clearing them one at a time is no longer possible. What separates it from consolidation is pressure. Consolidation is a cost exercise. A restructure is normally a deadline.

Paying Out a Private Lender

Private loan payout is the single most common reason a restructure reaches us. A short-term facility taken at speed twelve months ago has expired, the lender will not roll it, and the rate has stepped up to a default margin while the borrower looks for a replacement. We request the payout figure, confirm what is registered on the title, and clear that lender at settlement.

The payout figure is rarely just the principal. Expect accrued interest, a default margin where the term has run out, discharge and legal costs, and in some cases an exit fee written into the original terms. We ask for it in writing in the first week of a file rather than the last, because it is the number that decides whether the available equity supports the restructure at all.

• •Clear a private lender whose facility has expired or will not be extended
• •Pay out a caveat loan before the lodging party moves to enforce
• •Replace a default margin that stepped up when the original term ran out
• •Consolidate two private facilities held over the same title
• •Refinance out of a lender who has changed appetite mid-term
• •Settle a payout figure that has grown well past the original principal

Discharging a Second Mortgage

A second mortgage ranks behind the first and is paid after it. In a restructure it usually has to come off the title, either because the second mortgagee is the party applying the pressure, or because the combined cost of running two facilities is what put the position under strain in the first place. We either pay out the second and register in that position, or clear both and hold a single first mortgage instead.

• •Pay out a second mortgagee who has issued a default notice
• •Collapse a first and a second into one facility over one title
• •Remove a caveat lodged behind an existing mortgage
• •Clear arrears on the second while the first stays where it is
• •Work around a first mortgagee who will not consent to a further advance
• •Release the equity needed to clear both, where the property carries it

Which Debts Get Cleared First, and Why the Order Matters

Not every debt in a stressed position carries the same risk. A registered mortgage in default can lead to possession proceedings. An ATO liability can produce a director penalty notice or a garnishee. A judgment can support a winding-up application. An unpaid supplier is often the least urgent of the four, even when it is the loudest.

The order is set by which creditor can do the most damage soonest, not by which one is chasing hardest. That assessment is worth making before a facility is drawn, because a restructure has a fixed amount of equity behind it, and spending it on the wrong obligations leaves the dangerous ones untouched. We work through the sequence with you before terms are issued.

Restructuring When the ATO and Trade Creditors Are Both Owed

An ATO liability and a set of trade creditors behave very differently. The ATO holds statutory recovery powers that need no court: garnishee notices to your bank and your customers, director penalty notices that make a director personally liable, and the ability to report a business debt to credit reporting bureaus. A supplier has to sue first. Both get cleared in a restructure. They do not get cleared in the same order.

• •Clear an integrated client account balance before a garnishee is issued
• •Pay out a director penalty notice inside the 21-day window
• •Settle with a supplier who has threatened a statutory demand
• •Clear a judgment debt before it supports a winding-up application
• •Bring superannuation guarantee obligations back up to date
• •Fund a payment arrangement deposit the business cannot find from cash flow

Where This Sits Alongside Formal Insolvency

Small Business Restructuring under Part 5.3B of the Corporations Act is a formal insolvency process. It is run by a registered restructuring practitioner, it requires the company to be eligible and either insolvent or likely to become so, and it ends in a plan put to creditors. We are a lender, not restructuring practitioners, and we do not advise on whether that process is right for your company. That conversation belongs with your accountant or an insolvency adviser.

What we do is fund. A property-secured facility can pay the contribution a restructuring plan requires, clear the secured debt sitting outside the plan, or resolve the position early enough that a formal process is never needed. We have funded all three. Where a practitioner has already been appointed, say so in the first conversation, because it changes what can be settled and whose consent is required.

What We Need to See Before We Restructure

A restructure moves at the speed of the information behind it, and the usual cause of delay is a payout figure requested late. The list is short:

• •A current title search showing every registered interest
• •Payout figures in writing from each lender being cleared
• •The ATO position, including any payment arrangement already in place
• •What the property is worth, which our valuers confirm in house
• •The exit: a sale, a bank refinance, or a transaction that repays us
• •Any notice already issued, whether default, statutory demand or DPN

Debt Restructuring or Debt Consolidation: Which One Do You Need

The two get used interchangeably and they are not the same product. Several facilities at several rates, and you want one cheaper repayment, is consolidation, and you run it on your own timetable. A lender has issued a notice, a payout figure is climbing, or the ATO has started recovery action, is a restructure, and the timetable belongs to somebody else. A single facility that has simply stopped working is neither of those. It is a refinance.

Restructures We Have Funded

Restructuring Business Debt With Bad Credit

A position that needs restructuring has almost always left a mark on the file. Arrears, a default listed by a lender who stopped waiting, sometimes a judgment. None of that is what we assess. We start with the equity in the security property, add up what has to be cleared, and look at what repays us at the end of the term. Rates from 9.7% p.a., 70% LVR, and no full financial statements on an asset-backed file.

"Most restructures we see have one thing in common, which is that the borrower waited for the notice to arrive. Come to us when the payout figure first starts climbing and there is usually enough equity and enough runway to deal with all of it in one facility. Come to us the week a receiver is being appointed and the options narrow quickly. We are glad to look at either, though the earlier conversation is a much better one to have."

Gino Tabila

Associate Director