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Informal and Formal Options For Insolvent Entities Part 1

Cash flow problems followed by debt issues and staff cutbacks are a significant worry for all businesses. When a business is facing difficulties paying its debt, a creditor will often engage a debt collection company to recover the receivables. This blog series will help you gain insight into the process of debt restructuring and its informal and formal options collection agencies perform, using the strategies of workout, voluntary administration, liquidation and receiverships.



The term “workout” refers to an informal deal between the debtor and the creditor on mutually beneficial terms. This kind of negotiation between the two parties is usually made early in the debt collection process and based on the assumption of a potentially viable debtor whose business has a good chance to recover fully. A workout could either be a so-called composition, a contract in which the creditor agrees to take partial payment in full satisfaction of his claims, or an extension for paying the instalments. A workout agreement is a sustainable solution for the debtor as it will spare the business from the stigma attached to bankruptcy with its reduced company asset followed by the loss of customers and investors. If all parties agree to the workout terms, this option is furthermore a money-saving alternative to any formal appointment as this will involve further costs.

The advantages of a workout are as follows:

  • Reduction in costs
  • Directors retain control of the business
  • The company’s reputation is preserved
  • Directors can avoid insolvent trading and other voidable transaction recoveries;
  • It is not a creditor-driven process

The disadvantages of a workout are as follows:

  • Directors may be found during the process to have breached their director’s duties;
  • Any standstill and workout agreement requires the agreement of all creditors, i.e. without such agreement, the non-consenting creditors are free to pursue their normal legal remedies, and this can jeopardise the objectives of the workout. This is contrasted with a VA, wherein the decision of the creditors present, and voting at the Section 439A meeting binds the entire body of creditors. Hence, formal administration provides for more certainty than an informal workout;
  • Financiers can potentially fall foul of the Act provisions with respect to insolvent trading by ‘shadow’ directors;
  • Directors may be held liable for insolvent trading.

Our next blog in this series will discuss the informal option of Voluntary Administration and its advantages as well as disadvantages.

If you would like to learn more about the debt recovery services we offer, contact us now. We have over 30 years of experience providing professional and discreet debt collection solutions for clients of all sizes and across all industries. With debt collection agencies in Sydney, Melbourne and Brisbane we have you covered.


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  • I have worked closely with Boston Commercial Services for over twenty years across four different companies and would not work with anyone else in regards to helping me with my outstanding accounts. Whenever I have started a new role, the first thing I am asked is, “How would you go about cleaning up our accounts receivable ledger?” My answer is always the same – “The first thing we need to do is call Boston Commercial Services”.

    Voytek Bradford

    Freedom Foods Group Limited (National Credit Manager)

  • I have known the principal of the BOSTON Group (Derryn HARRISON) as well as key staff members (including Ben GOWER) for well over 2 decades and have been using their professional services for myself as well as for Powerhouse Logistics Pty. Ltd. on a regular basis, not only in Sydney but on a national basis.

    At all times BOSTON have been extremely pro-active, attentive, courteous and professional with all matters we threw at them. Their advice has always been extremely sound and commercial and I find them to be a "breath of fresh air" within the legal fraternity and have no hesitation whatsoever to highly recommend them.

    Peter Brueckner

    Powerhouse Logistics Pty Ltd (CEO)

  • Expect A Star has worked with The Boston Group for 10 years. In this time we have appreciated the ongoing support of Boston for all of our collection and legal requirements. Like most businesses cashflow is critical to ongoing success and growth, with Boston we have found a partner who are an extension of our business and play a key part in our cashflow management. The Boston Group bring a level of expertise to our business which is valuable and coupled with their excellent customer service we look forward to continuing to work with them for many years to come.

    Ryan Meldrum

    Former CEO

  • I have been using the services of The Boston Group and their legal entity for over 11 years. During this time I have found their service to be impeccable, delivered with the utmost professionalism and integrity. The vast majority of cases that I have placed with Boston were far from straightforward, requiring legal acumen and delicate handling. Having used all methods available without success to procure payment, I confidently placed these matters into their safe hands. In all instances a successful outcome was achieved.

    Mark Parish

    Credit Manager

  • SNP Security has had the pleasure of working with Boston Commercial Services for the past 11 years. Boston has played an integral part in the continuing success of SNP Security’s low DSO’s, 90 Day % Debt & of course Bad Debts Written Off.

    Amanda Griffiths

    National Administration Manager

Boston Commercial Services prides itself in offering specialised, professional services, through a highly experienced team of debt collector, with personalised client attention.