During a small business restructuring, avoiding unnecessary taxes and other costs is challenging. Not least, you’ll be keen to avoid losing valuable personal assets.
The process can be wise for your company, resolving debts and allowing you to return to regular trading. However, navigating through a plan without losing your assets takes careful consideration. In this expert guide, you can understand how to protect your personal assets in the event of financial distress.
How to Protect Personal Assets
Protecting personal assets includes the likes of property and vehicles. If you own assets in your trading company, then they are at risk during a restructuring plan, as overseen by a restructuring practitioner. The goal of a plan is to repay creditor debts, and the sale of items can help to recover the money owed.
A business restructuring can protect assets such as:
- Capital, loans, and investments
- Plants and heavy-duty machinery
- Intellectual property such as business innovations and plans
- Employees
However, your personal assets may be at risk. This is why there are specific strategies you can use to go about protecting personal assets from business financial distress.
Understanding Your Corporate Structure
In Australia, a proprietary limited company protects assets. If you’re under a separate legal entity, you can have more control over your valuables. The action to take here is to ensure your business and personal finances are individual so your company is run as a corporation.
Reviewing and Limiting Personal Guarantees
You may have to provide personal guarantees to creditors and lenders to secure loans. If you do this, your assets can be exposed to recovery actions. As such, carefully check terms before agreeing to loans with such a clause.
Additionally, if you’re currently under a loan with this clause, then you may wish to renegotiate (if applicable). If that isn’t possible, your option is to see out the loan terms and then choose a different financial solution in future.
Using Asset Holding Structures
Asset-holding structures are used by many Australian SMEs (and larger organisations). This can include:
- Family trusts
- Discretionary trusts
- Self-managed superannuation funds (SMMFs)
This may shield your personal assets from business risks. For example, you may wish to transfer assets to an SMSF. This could be real estate, which reduces the exposure to your creditors.
Ensuring Director’s Duties are Fulfilled
It’s a director’s legal obligation to act in good faith. This is legislated under the Corporations Act 2001. This includes avoiding insolvent trading and always acting in a company’s best interest.
A director’s failure to do this can have significant legal implications. That includes the seizure of personal assets. As such, it’s good business practice for directors to:
- Maintain up-to-date financial records
- Offer business transparency
- Avoid incurring debts
- Seeking legal advice when necessary
The earlier a director addresses financial distress, the less likely personal assets will be lost.
Use Binding Financial Agreements
If your situation involves a partnership or family business, consider a binding financial agreement (BFA). With this, you can define asset ownership and overall entitlements. This means you have greater control over your property in the event of unforeseen developments.
Use Insurance and Indemnity
Director’s insurance and professional indemnity may protect against any claims arising against you. Such as conduct during business operations or small business restructuring. This level of business asset protection may also prove suitable outside of the aforementioned considerations.
Seek Expert Legal Advice
It’s good business practice to seek legal support before and during a business restructure. Alongside receiving the guidance you’ll need to navigate the process, you can request advice for your specific circumstances and the personal assets you want to protect.
Without this support, you may lose these assets—taking the step to safeguard them can pay long-term dividends.
Protect Your Personal Assets Now
Corporate Lifeline is an expert in legal advice for personal asset protection. Speak to our team today for a free opening consultation on how to protect your business and personal assets in financial distress. We provide judgment-free advice.
