Debt Restructuring
Debt Restructuring is a financial strategy to reorganise your debt to get back to financial stability. It can mean changing the terms of existing loans, negotiating new payment schedules, or other ways to make debt more manageable. By restructuring debt you can avoid bankruptcy and potentially reduce financial distress.
What Is Debt Restructuring For?
Debt restructuring can be beneficial for businesses in financial trouble. It provides an opportunity to reorganise debts without resorting to liquidation.
Here are other reasons why the debt restructuring process is done:
- Avoiding Default and Bankruptcy – Debt restructuring helps borrowers prevent default by negotiating new terms that make repayment more manageable. This avoids the legal and financial consequences of bankruptcy.
- Improving Cash Flow – Restructuring adjusts payment schedules, reducing immediate financial pressure and freeing up cash for other needs. It provides the borrower with more time to stabilise their financial situation.
- Reducing Interest Costs – Borrowers can lower their overall debt costs by negotiating for lower interest rates. This reduces the total amount they pay over time, easing financial strain.
- Aligning Debt with Revenue – For businesses, restructuring can match debt payments with projected future income, making repayment more feasible. It provides flexibility during periods of low revenue.
- Maintaining Creditor Relationships – Proactively engaging creditors shows a commitment to repayment, fostering trust and cooperation. This approach can lead to more favourable terms and potential future access to credit.
- Ensuring Business Continuity: Restructuring allows businesses to manage debt more effectively and continue operations during financial difficulties. It offers a path to recovery and growth without liquidation.
- Debt-to-Equity Conversion: Converting debt to equity reduces the debt burden while giving creditors a stake in the company’s success. This can be a win-win for both parties, promoting long-term stability.
When to Consider Restructuring Debt
Debt restructuring should be considered when a borrower—whether an individual, business, or government—is experiencing financial difficulties that make it challenging to meet debt obligations.
Here are some common situations where restructuring may be necessary:
- Imminent risk of default
- High interest rates
- Unstable cash flow
- Economic downturn or crisis
- Unsustainable debt levels
- Access to new credit or investment
- Preparation for business reorganisation or mergers
Debt Restructuring Options
There are several ways businesses can debt restructure, each with its own benefits depending on the business and its goals.
Loan Modification
Loan modification means changing the terms of existing loans, such as interest payments, monthly payments, or repayment terms. This option can help businesses manage their cash flow better so they can meet their financial commitments more comfortably.
Debt for Equity Swap
In this arrangement, unsecured creditors or secured creditors may exchange a portion of the debt for equity in the business. This strategy helps reduce the debt burden and can be beneficial if the company shows potential for recovery.
Informal and Formal Repayment Agreements
Depending on the situation businesses may negotiate new payment terms through informal agreements or more formal, legally binding contracts. Informal agreements can be a quick fix, formal agreements may be required if multiple parties are involved or if the debt is large.
Debt Settlement
In some cases, businesses may debt settle, where they pay a lump sum that is less than the total amount owed. This can work if creditors are willing to compromise and the business is on the brink of bankruptcy and wants to restructure debt outside of formal insolvency processes.
Note: Some businesses may use the threat of bankruptcy as leverage to negotiate more favorable terms with creditors. However, it is important to note that bankruptcy filing can remain on your credit report for up to ten years, which may significantly hinder your ability to secure future loans and financing. Therefore, we do not recommend resorting to such measures.
What Is a Deed of Company Arrangement?
A Deed of Company Arrangement (DOCA) is a legally binding agreement used in Australia during voluntary administration to restructure a company’s debts and avoid liquidation.
It provides a tailored plan for repaying secured and unsecured creditors, allowing the company to continue operating while managing its financial distress. DOCAs offer flexibility, legal protection, and enforceable terms, preventing independent creditor actions and preserving the business’s value.
By formalising a clear debt restructuring plan, a DOCA helps stabilise the company and maximise creditor returns, making it a crucial tool in the small business restructuring process.
Debt Restructuring Process
The debt restructuring process can vary but it usually involves a few stages:
1. Initial Review
The first stage often involves reviewing the business’s financial position to determine the options and strategies. This may include cash flow analysis, existing debt, and financial goals to create a restructuring plan.
2. Creating a Debt Restructuring Plan
With professional guidance, businesses can create a restructuring plan that meets their financial goals and creditor requirements. This stage involves setting realistic goals and timelines for debt repayment.
3. Creditor Discussions
Negotiating with creditors may involve reducing interest payments, extending terms, or other modifications that mutually benefit all parties.
4. Implementation and Review
Once the plan is approved. it moves into the implementation phase. Businesses put the new structure in place and review progress to see if the plan is working and make adjustments as needed.
Legal and Regulatory Requirements
When debt restructuring, businesses must comply with various Australian laws including those under the Corporations Act 2001.
The Corporations Act 2001 provides a legal framework for debt restructuring primarily through mechanisms like voluntary administration, schemes of arrangement, and receivership.
It’s important to know these laws to ensure the restructuring process meets all regulatory requirements.
Role of Restructuring Practitioners
For small businesses especially working with certified professionals can be critical. These experts help navigate the debt restructuring process and ensure all laws are met. Restructuring practitioners play a key role in aligning the business strategy with industry and regulatory standards.
Get the Best Out of Your Finances with Us
At Maxiron Capital we offer a range of financial services to support debt restructuring:
- First, Second, Third Mortgages – Competitive mortgage options for property development, business cash flow or refinancing.
- Bridging Loans – Short term loans to cover the gap between buying a new property and selling an existing one.
- Equity Release – Solutions to access the equity in your assets to fund business growth or other investments.
- Business Cash Flow Solutions – Options to manage operational costs and keep liquidity.
- Property Development Loans – Loans to finance construction and redevelopment projects.
Why Choose Maxiron Capital?
Since 2002 Maxiron Capital has been providing financial solutions to businesses across Australia. We bring decades of experience to every debt restructuring case and tailored options for every business.
- Expertise and Knowledge – Over 20 years in the industry we specialise in debt restructuring and know Australian business finance.
- Flexible and Customised – Our approach is to offer customised options for each client’s situation, flexibility and support when you need it most.
- Fast Funding and Personal Service – We are committed to fast funding and personal service so businesses get the financial support they need quickly.
Apply for a Loan With Maxiron Capital
Applying for financial solutions with Maxiron Capital is easy and stress-free. Our process aims to get you the support you need with minimal delay.
STEP 1 – Get a Quote
Discuss your needs and get a quote. Fill in the application form to have your financial situation evaluated.
STEP 2 – Approval
Once approved you’ll receive a letter. Then funds can be released to meet your business needs.
STEP 3 – Settlement
We will process the settlement and transfer the funds.
Our team will be with you every step of the way to get the best solution for you.
