Recently I had the Director’s of a hospitality business referred to me by their lawyers. The business was significantly impacted by COVID-19 wherein its doors were shut for a long period and trade had not fully returned since reopening.
The Director’s had tried to liaise with the landlords for rental assistance during this time, however, the landlord had been unwilling to make reasonable concessions. The Director’s felt they had no other option but to cease trade and walk away from the shop rather than continue to accrue losses.
The Landlord was understandably a little frustrated and upset due to abandonment of the premises and had issued a claim for over $100,000 for the recovery of the rental arrears and other rights under the lease which had 2 more years left to run.
When I became involved the Director’s were stressed and considering bankruptcy as they thought this was their only way out. While they had no significant assets to their names, one of them was the Director of 3 other corporate entities each trading their own hospitality business. These businesses, however, had all experienced similar impacts from COVID and were still recovering, with one yet to re-open. There were no profits and the assets held minimal value.
After discussing the options with the Director’s, the decision was made to approach the landlord with an offer to settle the claim. This was on the basis that bankruptcy would create other issues under franchise agreements and impact their short to mid term financial goals.
We presented a proposal to the landlord outlining the directors financial positions and the likely returns to them should they take further recovery action. The key to this proposal was being up front with the landlord showing them the true financial position of the Director’s and their associated entities.
I often find in these scenarios the perception held by third parties can be different to the reality. In this instance the landlord thought that because the Director’s had 3 other businesses they must be making money and were trying to avoid paying him. The reality however was far from the truth with the other businesses only just starting to recover.
In the end the landlord accepted our proposal and agreed to settle his claim for $10,000 and retention of the bond. This outcome was a great relief to the Director’s and means they can focus on rebuilding the other businesses without the stress this situation was causing. This outcome was achieved informally without any significant legal expenses.
At Griffin Solvency Solutions we do not just take a one size fits all approach. The easy path would have been to bankrupt the directors. However, listening to their long term goals with the other businesses and reviewing their cash flows showed the impacts would outweigh the short term benefits.
While supporting directors and individuals through the insolvency process and acting as their advocate is a key part of what Griffin Solvency Solutions does. Our experience shows that creditors are generally open to accepting a commercial settlement when presented with the facts. Often entering into informal negotiations can result in avoiding the worst case scenario.
If you, or your Clients, are in a similar position with their lenders, landlord or any other creditors please feel free to reach out for an obligation free consultation.
