Due to recent changes in legislation Continuous Line of Credit, or Revolving Line of Credit Loan Agreements have become the centrepiece for protecting business owners and directors against hugh potential liability when using their personal credit cards for business expenses.
A Continuous Line of Credit Agreement insures you as the Business Owner become your businesses largest and most important Secured Creditor.
Changes in legislation centre around the introduction of the PPSA OR Personal Property Securities Act and its register PPSR or Personal Property Securities Register.
The Key Points we are going to review
The average Owner / Director of a SME, (Small to Medium Enterprise) in Australia spends around 60 to $80,000 worth of company expenses per year on their personal credit cards which are then reimbursed by their company.
Unfortunately, Legislation changes have now redefined what is classed as a secured creditor and what is classed as an unsecured creditor.
This means that if your business was to get into any future financial trouble, and administrators or liquidators were appointed, you would probably be their first phone call. And the first thing they would demand is the return of any reimbursements you had received from your business in the previous 6 months.
You see unfortunately as an unsecured creditor you would be subject to Preferential Payment Clawback.
The only way to avoid this is to register as a Credit Provider on your business's PPSR making you a Secured Creditor.
Most business owners are not aware that a couple of years ago the government introduced new legislation called the PPSA or Personal Property Securities Act and its register call the PPSR or Personal Property Securities Register. In short, it allows liquidators to Clawback any payment made to unsecured creditors when there are secured creditors which haven’t been paid.
This means that any payments made to a Business Owner who hasn’t registered on their own business's PPSR is classed as an unsecured creditor and could be subject to Preferential Payment Clawback.
Preferential Payment Clawback legislation has been around for the last 30 years. However, since the introduction of the PPSA Legislation liquidators now have a clear line in the sand when it comes to identifying Secured and Unsecured creditors. For a business or individual to be classed as a secured creditor they must be registered on the PPSR. Any business or individual who isn’t is automatically an unsecured creditor and subject to Preferential Payment Clawback.
However, the good news is that by using a Continuous Line of Credit Agreement, which includes the appropriate legislation, a business owner can legally register as a secured creditor on their own business's PPSR file. In the process making themselves one of their businesses largest secured creditors protecting themselves against Preferential Payment Clawback.
Why is this Important?
Unfortunately, without a Continuous Line of Credit Agreement a business owner has no way of meeting the legislative requirements which demand that any agreement must be in writing, must include the appropriate legislation, must be signed, and of course, must be registered on the appropriate PPSR file.
Without the appropriate legislation requirements in place, we have seen some unsecured creditors lose up to 18 months of previously paid payments when a business goes into liquidation.
If you like to know more about "How You Can Become Your Business's Largest Secured Creditor and Protect Yourself From Preferential Payment Clawback" please feel free to request our FREE Facts Sheet here.Until Next Time, Have a Great Day
With over 35 years’ experience Collection Consultancy Australia prides itself in offering Products and Services designed to Protect Business Assets and Cashflow. Quite often the process can start from simply making business owners aware that there is option available, through to business specific solutions and education. We are here to let business owners know that there can be a better way to secure their financial future.
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