What to do When You Can't Pay Your Debts

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WHAT TO DO WHEN YOU CAN'T PAY YOUR DEBTS DOUG CONSTABLE All Rights Reserved Copyright @ Doug Constable 2014 No part of this book may be reproduced or transmitted in any form or by any means, including, but not limited to, electrical or mechanical devices, including photocopying, recording, via computer, magazine or newspaper, or by any information or retrieval system, without permission of the publisher, except for reviews and critiques of no more than three hundred words. Condition of Sale: This book is sold on the condition that it shall not in any way be re sold, hired or lent out in any form whatsoever other than in the cover and binding that it is printed. Declaimer and Legal Notices While every attempt has been made to verify information contained in this book, neither the author nor participants in the content of the book or the publisher assumes any responsibility for errors, omissions or accuracies. The content given here is general educational and is not advice. An individual is urged to seek independent advice before taking any financial decisions based on information in this book. Any slights of people or organisational is unintentional. The services of a property qualified professional should be sought by the reader for any legal, financial, tax advice as the content of the book is educational material and cannot reasonably expected to be applicable to any individual’s unique circumstances. The author and his specifically disclaims responsibility for any liability, loss or risk – personal or otherwise – which has occurred as the direct result of the publication of this book. Neither the author nor the publisher shall be liable for damages arising herein.

What To Do When You Can't Pay Your Debts ISBN 978-0-9871354-4-5 Doug Constable [email protected] 2

TABLE OF CONTENTS

Introduction ..........................................................................................4

PART 1

DISCOVERING THE TRUTH................................................................. 12 Chapter 1 – Things I don’t understand...................................................... 13 Chapter 2 – Mindset: why our education system lets us down ......................... 17 Chapter 3 – People who have faced financial ruin and bounced back ................. 20

PART 2 WHEN TO HOLD AND WHEN TO FOLD ....................................................... 25 Chapter 4 – Emotional stuff .................................................................. 26 Chapter 5 – Mental strength .................................................................. 41 Chapter 6 – The line in the sand ............................................................. 46

PART 3 COLLECTING MONEY - OVERVIEW OF HOW IT ACTUALLY WORKS ....... 49 Chapter 7 – Dealing with government debt collectors and bullies .................... 50 Chapter 8 – Bankruptcy general principles ................................................ 64 Chapter 9 – Choosing who you work with ................................................. 75

PART 4 MOVING FORWARD (“WHERE TO FROM HERE?”) ............................... 90 Chapter 10 – Fail fast ......................................................................... 91 Chapter 11 – Rebuilding ..................................................................... 95 Next steps ........................................................................................ 98

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INTRODUCTION

This is not a book for dodgy business people. It’s not a book for financial gurus seeking to take advantage of other’s misfortunes. It’s not for scoundrels. It’s not for people trying to find a way to avoid paying their debts or looking for ways to cheat the system, to cheat their creditors and engage in unscrupulous behaviour. That’s not who this book is for. Its intention isn’t to show you tricks to avoid your debts and scam your creditors or to scam anyone else. It’s about debunking the myths surrounding bankruptcy and giving people affected a clear path back to normality. It’s about educating those in the industry to be more effective in dealing with the parties involved. I can appreciate that some may view it this way. In particular I imagine that aggressive debt collectors, lawyers, trustees and liquidators, all of whom make a living out of pursuing companies and individuals who are under financial pressure, would rather that I hadn’t written this book.They would I imagine, rather that I hadn’t exposed the truths about bankruptcy and insolvency that they would prefer remain shrouded in

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mystery. These people are experienced in debt collection, bankruptcy and insolvency and dealing with inexperienced people with very little money to get advice. To those who are dismayed or believe that I have removed the mystery surrounding Bankruptcy and Insolvency and wish that I hadn’t, I make no apologies. Some may say that I too make my living from what some would call the “misfortunes of others”. I do believe however that the basis of the laws of bankruptcy and Insolvency which were created to provide a “compassionate solution for those experiencing financial hardship” and the ability for individuals and companies who had reached the “end of their line”, to draw a line, push the pause or reset button, should be upheld. A society which preys on those individuals already in distress is not a society with much hope in my mind. I strongly believe that when people make a commitment to pay a debt or keep a promise that every endeavour to honour that commitment should be made. I also strongly believe that with all the best intentions in the world sometimes it’s just not possible. And that shouldn’t mean the end of the world. Everybody should have the opportunity to push the reset button, learn from their mistakes and be given a chance to start again. Good people do make mistakes and bad decisions. Everybody has a story - a story that they can relate to a point in their life where things changed, and from this point on things could never go back to how they were before.

My story started at 6 o’clock one Wednesday morning. The house phone next to our bed, on my side of the bed, starts to ring. It wakes me and I know exactly who it is. My heart is racing and I can feel the panic rising through my still half asleep body. My wife is lying next to me. Things haven’t been great lately. I know it’s my fault, I’ve been stressed and secretive and nervy and grumpy. None of which are conducive to a harmonious marriage.

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I ignore the phone. My wife is awake and I can feel her tense next to me. What is she thinking? Surely she’s suspicious that I didn’t answer the phone. Suspicious of what? Was it a girlfriend calling? Proof of an imagined affair? An angry business associate? Just a prank caller. Or, as I latter discovered, should she get her hair done? I lay there feeling embarrassed and ashamed. I know now that I should have been feeling neither. However, back in the early 90’s, I like most other people thought that anyone who couldn’t pay their debts was a scoundrel. The phone starts ringing again. By now I’m immobilised with fear. What are my options? Clearly there are only two options. I can ignore the phone and be straight with my wife and tell her that everything we have worked for over the last 20 years may be lost. Alternatively I can answer the call; pretend they have the wrong number and try to fudge my way out of the call. Or perhaps there is a third option and aliens will come down and abduct me and I won’t have to make any decisions at all, or face any realities of the situation I have found myself in. In the five-second period I made a decision which would change my life. The point from which there was no turning back. I decided to be honest, to tell my wife everything. “Jane, I have something to tell you. “Without willingly knowing it I have acted as guarantor for hundreds of insurance brokers.” “I don’t understand” Jane deliberated. “What do you mean you have acted as guarantor?” Over the next 30 minutes I explained, to my then wife (that’s another story for another book), how I had allowed a number of insurance brokers to use my insurance licence to sell insurance on behalf of several insurance companies. I told Jane that I had not done it for financial gain. I received no commission for allowing my licence to be used. This only made her angrier. Why take such a big risk for no financial reward? A fair question and one which I wish I had of considered earlier before I so generously allowed these brokers use my licence. Stupidly, I had authorised these insurance brokers to use my licence to sell insurance products. The insurance companies would then pay these brokers generous upfront commissions. Unfortunately, for me these insurance companies had a clause in their contracts which stated that in the event of claims being made, on these insurance

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products, not only would the deferred commissions stop but also that they had the right to re-claim any upfront commissions made. That is, re-claim these commissions against the associated licensed broker. Unfortunately, that licensed broker was me. “Tell me what this means”, she demanded. “Will we lose the house?” “Probably”, I sheepishly admitted. If I didn’t feel alone before I definitely did now. Everybody seemed to be teaming up against me. If it wasn’t the insurance companies now it was my wife. I knew this was coming and I did exactly what I will tell you throughout this book not do. In fact, I did several things during this period which I will later advise you not to do. Firstly, I acted like an ostrich. That is, I knew that I had debts which I could not readily repay – well at least not repay them without dramatically restructuring my personal/ family finances. This included either having to sell the family home or being forced to considerably re-mortgage it. However, despite knowing all of this I still went into denial mode. That’s what I mean by behaving like an ostrich. Ostriches bury their heads in the sand when something that they don’t want to face happens and this was exactly what I was doing. There is a fine line between optimism and being an ostrich. I just wanted this nightmare to go away. But of course it wasn’t going to. My second mistake was taking advice from friends; this was probably my biggest mistake. I took advice from people who thought that they knew what they were talking about, but who really knew nothing. In fact, probably the most dangerous advice that I took was from so-called “experts”. These experts were lawyer friends of my friends and people who themselves been bankrupt in the 60’s and 70’s. These ex-bankrupts had said to me, “Ahh, it’s no big deal.” But it was a big deal; a very big deal. Things had changed exponentially since the 1960’s. Computers and increased electronic communication between institutions which meant things had changed irrevocably. The third mistake was related to the second strategy. I talked to my friends - but I had no strategy. Without a plan I had no effective way to move forward. How was I expected to make a plan though? I’d never been in this situation before and I had no idea what type of strategy I should be making.

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I didn’t understand complex credit laws and things like guarantors and unprotected and protected assets. Was this my fault? Should I have known what to do? Maybe. But at the very least I should have sought help from someone who did know how things work. I wish someone like me had been around to help me then! Maybe they were, but I didn’t know how to find them. What I needed is what I do now for my clients. I look at their life and help them turn bankruptcy into a means of rebuilding their life and fortune. Do you think bankruptcy is the worst thing that could happen to you? I’ll show you how it could quite possibly be the best thing. I could go on and on about what happened next in detail, but the reality is that the following happened. I’ll fill you in on bits and pieces as we travel through the book, but for now what is important is the summary of what I did and didn’t do and which conveys the ‘take-away’ message. Even if you only get as far as reading this introduction I hope you’ve learnt something already that will help you – knowing that there is more to bankruptcy than the fear of it. • • •

I acted like an ostrich and pretended things were just going to fix themselves - they don’t. I took advice from friends - as well meaning as they were they really didn’t understand how things work. I had no strategy; without a strategy you can’t prepare for the future or move ahead to start fixing things.

The reality is that I didn’t just need a lawyer, someone who looked at things purely from a legal perspective (and with the limitation of their own experience). I didn’t need an accountant; someone who simply looked at my situation from a tax perspective. I didn’t just need a financial counsellor, someone whose goal was to help me pay my debts and work out which shoestring I could manage to live on. I needed someone who looked at things from a life perspective, who could see the multiple sides of my situation, who could work with me, instead of just for me. I needed someone with experience that could help me formulate a plan to start rebuilding my financial (and personal) future.

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WHAT IS THIS BOOK ABOUT? This is the first book of its kind in Australia, because it does not focus on the legal and financial rules and laws but focuses on the individual. Thus, it’s important that I am as clear about this as I possibly can be. This book is about bankruptcy (personal) and insolvency (company) and how it works and the stories of other people and how they dealt with it. It’s a guide book if you like, to help you avoid financial calamities. And, if they aren’t avoidable, how to minimise the damage they can do to your emotional health, your relationships and your attitude to the future. The stories you read within this books pages you won’t find in any textbook. You won’t find them on the internet and it’s highly unlikely any of your professional services people – the lawyers, the accountants and the like - will provide you with the knowledge they have. It’s not that they don’t want to, it’s more likely that they just don’t have the experience or knowledge that you need. I’m hoping that people pass this book on to their professional services firms. My job would certainly be a lot easier if they had a stronger working knowledge of the principles within the book. In writing this book my desire is to share my experiences both personal and of those of people I have worked with, to help people in financial difficulty looking for the way out. There is no quick fix; the only thing to do is to fix it quickly and, apart from paying the debts (wether immediately from a loan or sale of assets), the only other way is to set yourself free through the insolvency process. I believe the worst thing you can do is let these debts linger. Debt destroys people; not owing the money but all the worry, scrimping, arguments and blame that go with over-committing, on what you can pay - regardless of the reason.

WHO AM I? WHAT DO I DO? I have to say there probably isn’t a day that goes by that somebody doesn’t ask me, “Doug what is it exactly that you do?” It is difficult to explain precisely what I do as most people know very little about the practical side of personal bankruptcy or its corporate equivalent, corporate insolvency. That’s not really a surprise since people usually have no need to know about it until they

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experience it. Even then I’m surprised at how little, people who have experienced it actually know about it as well. The best answer of what I do probably comes from a client I had recently helped achieve annulment from his bankruptcy and restore his credit file as if it had never happened. “What is Doug Constable? He’s The Conductor.” If you’ve ever been to the symphony you’ll know what he meant. The orchestra is made up of groups of individual musicians. These musicians are grouped into families. The woodwind family, the strings family, the brass family; you get the idea. If you’ve ever heard one of these families on their own you’ll appreciate that whilst they are entertaining on their own, the sound when these families play in unison is far superior to the individual families playing on their own. Imagine that one of the families is your legal service, the other your accountant’s services, the other may be your financial advisor; each individually respected and, hopefully, efficient services. Do you ever wish you could get them operating in unison? Do you ever wish you had a way to coordinate their services in a harmonious manner? That’s what I do. I’m the conductor. In the same way that an orchestra needs all of the individual families to make the beautiful sounds you hear at a recital, individuals and businesses need a variety of services to achieve their financial goals. I’m not a solicitor, nor an accountant, nor a barrister, or a valour, a trustee or liquidator. My role is to strategize a plan for you to conduct your professional services in unison.

HOW DO I SEE MY ROLE? The conductor title seems to fit (except those that know me know I couldn’t carry a tune in a bucket). My role is to help my clients orchestrate a smoother financial transition and to walk alongside my clients and provide a partnership if you like through, not just this phase, but also their ongoing business or personal financial journey for the years to come. Another client refers to me as the Master Strategist. This too fits. My philosophy is that a strategy is the most important tool you can have in your toolbox. Without a strategy it’s difficult to fulfil my role as the conductor. It’s a bit like trying to conduct

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an orchestra without any musical score to work from. I’m sure you would agree it just wouldn’t work. It’s the same with my role as the conductor. It won’t work if I don’t have a strategy to work from and it’s the ability to create an effective strategy that defines what I do. You can’t study the techniques I deploy to create my strategy at any educational institution. It’s something that you can only learn with lots of experience and dealing with lots of personal and business-insolvent clients. That’s what I have - experience. This book is about this experience and I’m delighted to share it with you. You won’t read what I’m about to tell you anywhere else. Simply put, I’ve never met anybody with my experience and who does what I do. There are many books about the laws of bankruptcy, the rights of creditors, the role of the trustee, as well as biographies of famous bankrupts, but none that I can find that can I can share with you, and which could teach the strategies and techniques that ordinary people like you have used to survive and build a better financial future. My goal is that by the time you have finished reading this book you’ll have learnt something that you may be able to use yourself or pass on to a friend experiencing financial hardship. I believe you will discover what is possible to assist a bankrupt or somebody in a poor financial situation. This book is about how to avoid bankruptcy and insolvency where possible, but not at the expense of your own sanity, health, relationships and future business and income opportunities. It’s about knowing when to draw the line, how to be timely with your decisions and what you can do to move forward. In short, this book is about how to benefit from the financial mechanisms available to you; how to find the armour you need to join in the battle and how to emerge from the battle victorious and back on the path to future financial prosperity for yourself, your business and your family. Doug Constable

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part 1

DISCOVERING THE TRUTH

Chapter 1

THINGS I DON’T UNDERSTAND

Dealing with debt often leads us to feeling guilty and debt collectors and creditors play on this, they firstly try to humiliate us into paying. This is normally a lot cheaper for them than paying a solicitor to take you to court (giving you the time to organise your assets) only then to be advised you don’t have anything. It’s a lot better to string you along collecting little bits at a time knowing one day if they embarrass or humiliate you long enough you might pay. I often think that you, the debtor, is paying for the mistake of the creditor in loaning you the money or suppling credit in the first place. Lenders now have very strict guidelines on the information they need before giving you the money. So why is it your fault if a supplier didn’t do their homework? After all, who made the money out of giving you credit? You got the goods or services you wanted but you didn’t make money out of them. The supplier made interest or profit from you; he took the risk he made the bad decision.

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For sure, you probably signed for it but if something goes wrong accept your part in it but don’t beat yourself up because there were other parties involved equally responsible. Just because someone rings after hours or knocks on your door, you have every right to politely tell them to call during working hours or get their number and ring them back when it is convenient. They may even try to confront you at home; you don’t have to answer the door and if you do you can tell them to leave and you will speak to them when you have gathered your thoughts at a convenient time to you. The last thing they will want is for you to go on the front foot and take out a restraining order or use the anti-bulling laws against them for harassment. So much of what happens in our lives is based on how we view things. We find we are conditioned to certain ways of thinking therefore it becomes acceptable. For example, why do we rush around to get the cheapest petrol to save a few cents and pay for example $1.47 a litre for petrol and pay $2.50 for 600ml of water without even thinking because every day we are told the price of petrol by the media? We search out the discounts we drive an extra five kilometres to save 4c yet at the same time pay $2.50 for a bottle of water that we could get at the supermarket for $1.40

BLOCKED NUMBERS AND SNEAKY TACTICS USED BY DEBT COLLECTORS When someone is under financial duress, they are going to be stressed. They might be vulnerable at an emotional level. It seems to be common practice by many operators in the debt collection industry to make these people feel guilty and hound them. If you have ever been in debt beyond the normal credit terms of the creditor, you may have experienced what I call the ‘blocked number tactic’. I don’t understand why you receive a blocked phone call from a person who identifies themselves as calling from the tax office, yet they have called you on a blocked number. They then proceed to ask you to identify yourself and you are expected to divulge personal information.Yet, they are the ones who have called you and they have called on a blocked number! An example of this was when a fellow called me and said that he was calling from the tax office. He called on a blocked number. He asked me to identify himself. I asked

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him to give me his number before I would answer any of his questions. He also told me the phone call was being recorded, I told the caller that I was not divulging any information until he gave me his phone number and I would then call him back. The caller was reluctant, however after realizing he wasn’t going to get anywhere, the caller decided to give me his number. I returned the call, as promised only to discover that the number was from a debt collection agency, not the tax office as the caller had told me. I finished my conversation with the lying debt collector by asking “So this call is being recorded? I’d like to comment that he had used sneaky, devious tactics to misrepresent himself.” What I don’t understand is why we are expected to identify ourselves and be truthful, yet debt collectors and other creditors can use sneaky tactics to get your attention. The fact is, it gets people cranky. Yes, some people will not play fair when they owe money to creditors which need to be paid. When called they might say “I’ve got money coming in next week.” But f you’ve lied then the debt collector may ramp up his hounding activities. They will put you on the guilt trip - for sure.

HANDLING A DEBT COLLECTOR In my view, the best way to handle a call from the debt collector is to apologise that you still owe the money and say, “I can’t pay it. It will be three months before I am able to pay it.” Then, at least, the creditor or the debt collector knows where they stand. You are making it clear that it’s not a case of you not wanting to pay; rather it’s a case of not being able to pay. Legal action may ensue, but then we can work with the parties concerned as we set out in this book. To illustrate how far a debt collector will go, I worked with a single mum some time ago; she had debt collectors hounding her. She got to the stage where she no longer answered the phone for fear of it being a debt collector. One day, her neighbour came to her door with a hand held phone saying there was someone on the phone wanting to talk to her – the debt collector! In this case it was from one of the telecommunications providers: they are very effective at hounding! I don’t understand the blocked phone concept but I do know that you should never get to a stage where you feel guilty.

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CAN’T PAY SO WE WILL FINE YOU I believe most people want to pay their debts. One of the things I don’t understand why the tax office would compel you as a business person to collect their taxes on their behalf then leave it up to you to report it and pay them and the when you are faced with a decision to send them the money or pay your staff and feed your family for the weekend and you choose to feed your kids and fix up the tax next week (which only means your business is in trouble and you need to make changes). I can understand that as a business person you need to be an optimist but this works against you because catching it up next week never comes and, ultimately, you get fined; sometimes doubling the debt that you can’t pay. How do they think you are going to pay the fine and the debt when you can’t pay the original amount? Pushing a person too far only leads to them giving up or putting their head in the sand which only increases the interest being charged that ultimately can’t be paid. So often we see laws introduced that, although the intention is to stop people from doing the wrong thing, when the very reason the law is needed is because the offender was breaking the law in the first place. So why wouldn’t they then go on to break the new law?

HOMEWORK Why do kids go to school from 9am to 3.30 pm (6.5 hrs or 39 hrs pw) and then have up to 4hours a night home work? We accept a 40hr or 38 hr week as an adult but kids have to work after hours. Does this mean they are not keeping up with the work or that the teachers can’t teach or there is so much information we are trying to give them. Either way as an employer we would need to change the load somehow to prevent burnout of our staff we all know we need balance in our lives so why do we expect our children to focus so much on study at the expense of family, social and activity time. These are juts habits and traditions that seem to lock us into thinking that there is something intrinsically right about this. But you can see that it is not always the case.The way we view things is ingrained through habits and morays and means that an alternative way at looking at things seems out of the ordinary.

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Chapter 2

MINDSET

WHY OUR EDUCATION SYSTEM LETS US DOWN Schools, parents tell us that education and getting a career are the compelling pathways to wealth. They may be and there is certainly nothing wrong with getting an education. This book promotes education as a lifelong process. But if you were told at school that you would need to work for 35-40 years from 9 to 5 and then live a very, very modest retirement, how many would sign up for that? Alternatively, how many do you think would volunteer to learn how to set them up financially, so that from age 25 to 30 onward they never had to work another day in their life unless they chose to? Instead they would get to spend quality time with family and friends, travel to all the places they ever wanted, establish a career that they believe in and live the life of their dreams. My guess is nearly 100%

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But, life isn’t always fair. It doesn’t dish out rewards for a good education which does not take into account for the emotional complexity of the human condition. Life isn’t fair and that’s just how it is. There you go - I’ve said it out loud: life is not fair. There will be a million kindergarten teachers all over the world who would challenge my reasoning for this, because unfortunately that sentiment is the opposite of what we teach our children from kindergarten age. We teach them to share, to play nicely, to be fair, to take responsibility for their actions and to put their wrongs right. Everything we teach them in these formative early years is about justice and fairness. That doesn’t mean we shouldn’t teach them these things but we should also teach them that, unfortunately, the reality is that life isn’t always fair, that bad things do happen to good people. People do lie, people do break promises, good decisions don’t always end with good results, and as frustrating as it is to accept, we often have no control over the actions of others, and most importantly, often you need to accept what you believe is right or just may differ from what other’s believe is right or just. My personal opinion is that if more people understood that life is nothing like what they teach you in kindergarten there would be far less angst, less stress, less wars, and less lengthy and costly court battles going on all over the world in the name of ‘fairness’ and ‘justice’.

TEACHING CHILDREN ABOUT RISK TAKING The curriculum for children in primary and secondary school does not teach our kids how to handle situations when something goes wrong. Taking away the stress of exams, pass and fail marks and winning and losing doesn’t teach them how to handle stress. And, some people are simply better at some things than others. Entrepreneurship is all about stepping into the unknown. You do not have guarantees of customers and you certainly have no guarantees for profit.You don’t even know what you don’t’ know when you hang up the shingle. For sure you cannot teach entrepreneurship in such a way as to cover off on all the uncertainties and risk factors but thankfully there are emerging programs now in schools in NSW and Queensland which encourage secondary students to step into entrepreneurship within a curriculum and receive guidance from teachers and mentors.

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They can be great nurturing ground for budding entrepreneurs. I do hope the program encourage people to ‘fail’ early. That is, to test the water in such a way that any business weaknesses (as well as personality attributes) are faced early so that young people can experience risk and disappointment and work out that failure can be part and parcel of personal development. Why is this important premise to present here in the book? It’s important because throughout the pages you’ll read stories of things that happened to essentially good people through misfortune, unjust acts and things that were just downright bad luck. And one of the biggest injustices we give our youth is the lack of understanding that “shit just happens”. If you lose it doesn’t mean you’re a looser it just means someone can do it better which is okay. Life isn’t fair. Deal with it and move on. Sometimes the only way to reconcile why things are the way they are is to accept that sometimes there is no fair explanation for why things happen the way they do. I have a great respect for fair play and equality but equally those that go out and take a risk should be rewarded above those that choose to not to take a risk. We have ads playing on radio advertise for unfair dismissal in cases “where a manager just wants to get rid of you” as an employer. Having been a manager I can’t think of a reason why I would want to get rid of an employee that was doing a fantastic job, all the other staff liked and our clients thought was fantastic if as an employee you aspire to this then your job is safe.

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Chapter 3

PEOPLE WHO HAVE FACED FINANCIAL RUIN AND BOUNCED BACK After one of my own early setbacks, a good friend framed the following: “If you think you are beaten, you are; If you think you dare not, you don’t. If you’d like to win, but think you can’t It’s almost a cinch you won’t. If you think you’ll lose, you’ve lost, For out in the world we find Success being with a fellow’s will; It’s all in the state of mind. If you think you’re outclassed, you are: You’ve got to think high to rise. You’ve got to be sure of yourself before You can ever win a prize. Life’s battles don’t always go To the stronger or faster man, But soon or late the man who wins Is the one who thinks he can.”

Walter D.Wintle

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Examine the lives of many leaders and you’ll find a pathway strewn with more failures than you expected. In his now-famous 2005 commencement address at Stanford, Apple’s Steve Jobs reflected on a key turning point in his life – being fired by Apple. Just 30 years old and grappling with the loss of the highly successful company he’d founded, Jobs joined the ranks of the unemployed when his own board of directors fired him. Jobs was crushed. But instead of giving up he didn’t wallow in self-pity, he threw himself back into the fray at his small start-up, NeXT computer, then another, Pixar. Within a decade he had built a two billion dollar company and, as we all know, found his way back to Apple after a decade of exile. Has anybody not heard of IPhone and Ipad? “It turned out that getting fired from Apple was the best thing that could have ever happened to me,” he said. “The heaviness of being successful was replaced by the lightness of being a beginner again.” With this, Jobs’ determination to rebound became central to his legacy. Becoming successful takes fortitude and perseverance While Henry Ford is today known for his innovative assembly line and Americanmade cars, he wasn’t an instant success. In fact, his early businesses failed and left him broke five times before he founded the successful Ford Motor Company I was once told that you aren’t a true entrepreneur if you haven’t gone bankrupt at least once! Well Walt Disney shows us how it’s done, he was fired by a newspaper editor because “he lacked imagination and had no good ideas.” He went bankrupt several times before he built Disneyland. In fact, the proposed park was rejected by the city of Anaheim on the grounds that it would only attract riffraff. J.K. Rowling, the mega successful author of the Harry Potter series, was rejected by twelve different publishers before she found one to accept her manuscript. Even after agreeing to publish her first novel, they advised her to keep her day job. It seems no one had any faith in J.K. – but J.K. herself. Abraham Lincoln failed all the way to the White House. Lincoln’s resilience in the face of defeat was among his greatest strengths – a good lesson for anyone striving for lofty goals.

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3. PEOPLE WHO HAVE FACED FINANCIAL RUIN AND BOUNCED BACK

PRESIDENT LINCOLN’S ROAD TO THE WHITE HOUSE

1816: Family was forced out of their home -- went to work to support them. 1818: Mother died. 1831: Failed in business. 1832: Ran for state legislature – lost. 1832: Lost his job, was denied entrance to law school 1833: Borrowed money to begin a business – bankrupt within the year. (Spent the next 17 years paying off this debt.) 1835: Engaged to be married – sweetheart died. 1836: Had a nervous breakdown, spent six months convalescing. 1838: Sought to become speaker of the state legislature - defeated. 1840: Sought to become elector – defeated. 1843: Ran for Congress – lost. 1846: Ran for Congress again – won. 1848: Ran for re-election to Congress – lost. 1849: Sought the job of land officer in his home state - rejected. 1854: Ran for Senate of the United States – lost. 1856: Sought VP nomination at national convention – got fewer than 100 votes. 1858: Ran for U.S. Senate again – lost again. 1860: Elected president of the United States. Simon Cowell had a failed record company. By his late twenties, Cowell had made a million dollars and lost a million dollars. Cowell is quoted by The Daily Mail (2012), “‘I’ve had many failures.The biggest were at times when I believed my own hype. I’d had smaller failures, signing bands that didn’t work, but my record company going bust that was the first big one.” Even after such a momentous loss, Cowell picked himself up and became one of the biggest forces in reality television, serving as a judge for “Pop Idol,” “The X Factor,” “Britain’s Got Talent” and “American Idol.” Forbes has estimated his net worth at over $100 million. Sometimes the difference between success and failure is minuscule. Many people are successful after they have failed because they know that they have got so close to success that they have tasted it. They are believers in what I call ‘The principle of the slight edge’

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THE PRINCIPAL OF THE SLIGHT EDGE Think about horse racing –1st place horse wins $3,600,000, 2nd: $900,000 and 3rd: $450,000. First place is worth eight times third place and was the first placed horse three times as fast? Or did it train three times as much? No.You can win by a short half head and there can be less than one hundredth of a second between 1st and 3rd place. The difference between 1st and 3rd is $3,150,000 a pretty good pay check for just doing that little bit extra THE CHRIS JUDD STORY

The Chris Judd (of AFL fame) story is informing. He talks about “big” mistakes made on the field. Indeed he is quoted in The Age as saying “They (the mistakes) both go down as mistakes but if you were to break my footy career up into moments, there’s been 260 games made up of 240 minutes per game – you break that up into seconds, it’s a lot of seconds – and they’re two instances where in the split second I made a poor decision. I guess I’d choose to weigh that up with the other hundreds of thousands of seconds where I made good decisions. That doesn’t mean the mistakes weren’t mistakes, but if the mistakes stick like Velcro and the positive things slip off like Teflon, then you’re going to beat yourself up for the rest of your life.” Wise words from Chris Judd. That one second split second decision. People beat themselves up over some decisions they’ve made. I can tell you my own story I was building selling investment house – a lot of them. My wife was looking for something to do: I’d like to do some interior design for houses. I said ye in a fairly dismissive fashion I must admit. She did the makeover with design flair. I was putting in the low budget items for dishwashers and stove which she put in designer labels for cook tops and the white goods. When it came to sell the house we lost money on the hours. What happened was that it became a point of conjecture between is, she berating me for losing money on the house: she forgot that I had made money n about 17- houses that year. It was the one point that she hung on to; and made me know it! What I am trying to emphasise here with this story and the Chris Judd story is that we spend our lives worrying and stewing over one little moment in time when there’s

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been many, many other moments of good times, good results. It’s a mindset/ what we do is establish –perhaps subconsciously – how we want to feel about something and find points to prove. It’s self-fulfilling. One of the good things about football – is that you make a decision – your kick the ball, you mark it, you do whatever you do and then it’s gone. And then you’re on to the next mark or the next tackle. You’re not living on that one point. Football coaches are very good at dealing with this. Some will say it is the last kick of the day that might well be the important kick; but it is no more or less important. There are no point couples or professional players berating another for one bad decision and we should not berate ourselves for the rest of our lives for losing money. In the world of business, no matter how confident, competent or experienced you are – setbacks are a part and parcel of being in business (and sports!) How well you handle those failures and challenges will often determine how successful you are going be. The reality of business is rejection, failure. In sales for example, hearing ‘NO’ is part of sales. No matter how good your technique, rapport or sales process is, you will be faced with rejection, failure or cold feet from clients who say ‘NO’. Your success doesn’t come from not receiving a ‘NO’, but rather, what you do with that ‘NO’. The very reason why rejection, complaints and failure damages egos, drains energy, and de-motivates personal drive is determined by how resilient you are to pressure. Resilience is characterized as being able to adapt to, and bounce back from, tough situations and setbacks - without compromising your objective. Being able to bounce back quickly from a setback, even failure instead of dwelling in self-pity allows you to get on with your work and keep working towards rebuilding, moving forward. Your body is designed, by nature, to be resilient and bounce back from setbacks because it adapts itself to restore balance and health. You don’t have to think about how to become resilient – you are innately resilient. It is in your genetics – it is part of your survival as a species to be able to get back on your feet and keep on pushing forward. The reason why you, sometimes, don’t bounce back is that you get in the way. And we will look more into this in the following pages.

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part 2

WHEN TO HOLD AND WHEN TO FOLD a.k.a. drawing a line in the sand

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Chapter 4

EMOTIONAL STUFF

Are you a procrastinator and wait until the last minute to get things done or worse put things off for so long so that it actually hurts your business? When all is said and done, there are two types of people when it comes to stereotypes in times of crisis. There are the ones who are burdened at an emotional level by the life crises, be it sickness, relationship breakdown or business failure and who get stuck in recrimination, anger, bitterness and inertia. Then there are the ones who take full responsibility for what has happened, absorb the losses and move on. In insolvency I have found that the best response to a business failure is to do it quickly. We can be a complex bunch. Some will tend to deny the impending doom and procrastinate, hoping it will go away or waiting for some magic to happen. The reason to act quickly is that time is money when insolvency looms. If one moves quickly not only are expenses saved but you have every chance of moving on and re-building. The people who procrastinate are likely to be the type who becomes burdened with excuses for why they didn’t take action sooner, for not making the right choices along the way.

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There are many reasons to act quickly. Your creditors will be treated fairly, you can protest your personal assets, you don’t get grumpy with those you love but most probably the biggest reason for acting quickly is so that the saga does not become a complex web of stories. If the husband is hiding some of the facts of the business by denying their existence or under-playing the serious extent of losses or debts then this behaviour of non-disclosure will erode trust and eventually break down a relationship with your partner. Worse; it actually changes personalities. That once fun loving person that was full of hopes and dreams becomes secretive and evasive as they become skilled at evading creditors in many ways. This is the most important reason for acting quickly the very spirit that had the drive and ambition to start the business in the first place can very easily be lost when years of just surviving take hold. I have a situation where I sat with a husband and wife who were going through a business breakdown. The husband didn’t tell his wife the biter reality of the state of the business. She knew he was withholding something from him. It was eroding trust and the relationship. Once the truth and facts of the state of the business were revealed she was almost relieved. She said “Is that all it is I thought he was having an affair.” THE OSTRICH PHENOMENON

As mentioned in my Introduction, that’s when people, afraid of learning bad news, avoid information about their progress (or lack thereof). Sometimes people don’t step on the scales because they’re scared of what they’ll see. In our schools now our kids play sport without keeping score I wonder where and when they learn that their performance relates to the end result. CONSIDER THE STORY OF FARMERS, BRIAN AND EMILY.

Brian and Emily were farmers. They had a small family milking farm operating - what you might call a ‘Mum and Dad’ business – it provides enough to pay the bills but not enough to employ staff or expand. We all know that life for farmers hasn’t been easy.There’s been the drought, floods, supermarket wars and a multitude of factors beyond their control impacting on the viability of the farming sector.The newspapers are full of these stories.

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Brian and Emily were hard workers.They didn’t make rash decisions. Like most farmers they exercised caution in their business habits and took each day as it came. . Things weren’t too bad. Brian and Emily were holding their own, managing to pay their bills and keep their farm going along relatively smoothly. Unfortunately, a change of feed for their livestock resulted in a number of the milking cows developing health issues and they ultimately died. Their carefully calculated milk cheque suddenly depleted. This happened very quickly and the ramifications would have been felt sooner had Brian and Emily not felt secure because they had an overdraft facility with their bank and family to rely on. Instead of taking a clear look at their financial situation, they chose to ignore it and pretend that everything was going to be fine. A completely normal human reaction to stress I might add. A friend referred them to me, but they insisted that they didn’t need help with a strategy - they simply needed more time and things would be fine. Things were not going to be fine. Each month the overdraft increased and the milk cheques continued to deplete as more cows became unwell and died. After six months Brian and Emily were faced with mounting farm debts that they were unable to pay.They were living month to month, shuffling credit cards and hoping things would somehow get better.The good months that usually came would surely arrive - soon. Brian and Emily sought help from Emily’s parents who gifted them a significant sum of cash. They also refinanced their livestock and asked Brian and Emily’s parents to go guarantor for them. That’s all they needed they told themselves - until things got better. Unfortunately things didn’t get better. How could they? There was no plan in place outlining the course of action to ensure things could get better.This wasn’t their fault.The blame lay with the supplier of the new stock feed. By placing the blame on someone else Brian and Emily reconciled to themselves that this wasn’t their fault therefore ignoring the issue should make it go away.They were wrong. They had been borrowing money using their own personal assets to pay the company bills fixing the immediate problem without fixing the problem of why they were in so much debt. Brian and Emily both chose to enter bankruptcy. A good decision on their part ultimately, but about six months too late.

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THE CONSEQUENCES OF THE OSTRICH PROBLEM 1. You’ll become scared to leave your comfort zone. Those who most need track their progress are the least likely to do so. If you’re comfortable with your current modus operandi, it can be very tempting to delude yourself that there’s no need to change, and avoiding progress monitoring is one way to do that. 2. You won’t be able to evaluate your methods. The only way to improve at any process,-whether it’s losing weight or cutting costs,-is to hone your techniques through trial-and-error methods over time. Measurement is the only way to compare the results of one method to those of another. That’s why I say, “Draw a line in the sand”. Name it and get it on the table; it will be relief. From that moment lives can be rebuilt.

OVERCOMING THE OSTRICH PHENOMENON What’s the best way to stay diligent about measuring and tracking? Here are some tips: • Set deadlines. In the absence of deadlines, we procrastinate. In the presence of looming deadlines, we catch fire and work harder with more focus. Psychologists call this largely unconscious mechanism the “goal looms larger effect”. The nearer you are to the finish line, the larger the goal looms in your mind; the more it dominates your thinking and benefits from your attention. • Automate the measurement process. If you ask colleagues to check progress on your behalf, you’ll no longer need the willpower to check things on your own. Someone else will have to do the work of checking and breaking the news to you. Bookkeepers can do weekly reports so that you know how much money your making (this is the biggest reason for you to use a bookkeeper so that it’s not you at night or your partner because you end up only doing the essentials e.g. invoices and GST, rather than the more powerful management reports that the accounting software packages provide. • Find ways to confront and get past negative news. Let’s say you’re scared of measuring something, for fear of detecting a dispiriting lack of progress. Look anyway. Then forgive yourself for the result. Remind yourself not to be a perfectionist. It’s okay

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to make mistakes. Struggles and setbacks aren’t an abnormality, they are part of the process they’re just bumps in the road. JIM’S STORY

Jim first experienced financial stress five years ago. Jim ran a small photography business. A one-man show for many years Jim’s business took off when he was awarded a school photography contract. Needing staff Jim employed new photographers to share the workload and employed a bookkeeper/ administration assistant. Jim’s business world changed almost overnight as the school photography contract took off. Jim was busy, running from school to school on a daily basis for some months and spending weekends at the studio processing the photographs. His cash flow was fantastic, like nothing he had every experienced in his 20 years as a small time photographer. About six months down the track Jim realised that he had more bills than cash in the bank. Baffled because things were going so well, Jim took a closer look at his books and realised that his bookkeeper/administration assistant had been ripping him off by paying friends for work that wasn’t done. Distressed that this was happening to him, Jim spent the next month dwelling on chasing this staff member down putting intent on putting things right and recovering what was rightly his. Meanwhile his business began to suffer. His business lost contracts because he was unable to schedule his calendar effectively, the two other photographers he had hired left when the work became sporadic. Eventually Jim defaulted on his home mortgage payments and the bank took the course of action Banks are entitled to take.They repossessed his home and sold it. It may not be fair, but life is not fair; period. IT’S NOT WHAT HAPPENS IT’S HOW YOUR RESPOND THAT COUNTS

What is important to understand is that it’s not about what happens to you that defines you, it’s how you respond to it, how quickly you accept it for what it is and take actions to remedy the situation as swiftly as possible. Lingering on the fairness and justness of the acts or circumstances helps no one.

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Many a person has gone broke by insisting that the principal of the matter is what is important and instead of moving on and fixing the situation they’ve dwelt on the ‘justice’ of the matter. Don’t get me wrong, principals are important and I’m not suggesting for one minute that you should give up your principals. What I do believe is that focusing only on the principal’ can get in the way of logical and best end result solutions. The truth is the people who move on and respond instead of react are the people who can claim success. However, moving on and responding instead of reacting is often easier said than done. There is no denying that when financial stress begins to affect your business, your relationships and your health it becomes an emotional time and it’s sometimes difficult to have the clarity to see the path you need to follow. In many ways that’s what my job has been over the years; to help people see through the emotional stresses and help guide them down the correct path - the path that leads them to a place where their life is back on stable ground and where they can begin rebuilding for their future and find the courage to continue and ultimately regain their fortunes. It’s what we learn that’s important, not who is at fault. It is about learning what you’re good at and what you are not good at and to have others to the rest. WHO’S TO BLAME?

I can’t tell you how many clients I’ve had who feel the need to tell me their side of the story and reaffirm that the blame for the dire financial circumstances they find themselves in lays firmly with somebody else. There seems to be a pre conception that if the blame is placed elsewhere, then the consequences of their actions and therefore the course necessary to put things back on track will be different. They won’t be. The result can be much worse in fact. The simple truth is - it really doesn’t matter whose fault it is. It doesn’t change anything and it doesn’t make any difference to the way things are resolved. I ask them a simple question: “Do you care more about whose fault it is than you do about putting your life back together and moving on?” The most common response when this question is asked is the latter.

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This is important. It’s difficult to find the energy and momentum to move through the resolutions required to fix things if that energy is being used to apportion blame. Above and beyond the solutions I have provided over the years the single best piece of advice I have offered is “Let it go and move on”. Sometimes this is the only advice I’ve been required to give. Some people take it and some don’t. In the case of Jim, over the last five years, Jim has been to see me three times. Jim decided to follow his own course of action. At the point when Jim had his home repossessed I advised Jim to take a deep breath, move on and start rebuilding his future. BANKS ARE NOT TO BLAME

Jim couldn’t move on; now he had someone else to blame. This time it was the bank’s fault. According to Jim, the bank had no right to sell his house for the price they sold it for. He is of the opinion that they sold his family home for at least $50,000 less than its true market value. Now it wasn’t the bookkeeper he was pursuing, it was the bank. Banks as we know are big institutions. Their business is the business of making money. Banks don’t like to lose money and they will fight every fight to make sure they protect their reputation as the ‘money makers’. They employ top notch legal advice and, unlike almost all of their clients, banks have bottomless pockets to fight the fight. Decide to fight a bank and make sure you have the same. Unfortunately Jim had neither. Nevertheless Jim pursued to bank because according to him, this was about the principle of the matter. Banks don’t care about principles; banks are in the business of making money. Full stop. So far Jim has been fighting the bank for three years. He’s accrued a legal bill in excess of $200,000 in the name of the “$50,000 Principle”. He hasn’t won yet and it’s not looking likely, but Jim is determined to put the wrong right. Simple maths highlights that a $50,000 injustice can’t be righted by a $200,000 legal Bill. Jim however still maintains that that’s not the point. The reality is, that is exactly the point. During his third visit in five years to my office Jim has conceded that he has run out of means to pay his legal bills, the fight has taken its toll on his marriage and he’s in the middle of an emotional and messy divorce, his business has suffered and he’s likely to place it into liquidation in the near future.

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He doesn’t have the resources to pay his legal bill and is currently considering personal bankruptcy. My advice to Jim was to move on and let it go. Had Jim taken this advice the first time I made his acquaintance when he was pursuing the fraudulent staff member five years ago, his current situation could be entirely different. Advice given: The advice I gave Jim five years ago followed these lines: • •

First and foremost focus on rebuilding his photography business. Contact his creditors and explain the situation and ask for extended credit to enable him to pay his bills.

It’s entirely likely that, had Jim taken my advice five years ago, he would in all likelihood not be sitting in my office five years later facing a far more extreme financial crisis. He’d likely to have retained his family home, still have a happy marriage and quite possibly a thriving photography business. Unfortunately, Jim has none of these things anymore - but he does have his “principles”. The world is full of financially bankrupt individuals who have lost their business, their marriage, the family home, the respect of their colleagues who insist that they at least still have their ‘principles’. FACING YOUR DEMONS

Entrepreneurs are complex as I noted earlier but there behaviour can be changed if they are willing to face up to what is going on. Yes, for sure an entrepreneur needs unbridled self-confidence and backs themselves but that does not mean flying blind. As Jim Rohn powerfully observes, “Failure’s most dangerous attribute is its subtlety. In the short term those little errors don’t seem to make any difference. We do not seem to be failing. In fact, sometimes these accumulated errors in judgment occur throughout a period of great joy and prosperity in our lives. Since nothing terrible happens to us, since there are no instant consequences to capture our attention, we simply drift from one day to the next, repeating the errors, thinking the wrong thoughts, listening to the wrong voices and making the wrong choices. The sky did not fall in on us yesterday;

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therefore the act was probably harmless. Since it seemed to have no measurable consequence, it is probably safe to repeat. Surely we are better than that!” Unfortunately, failure does not shout out its warnings as our parents once did. Like the child who places his hand on a hot burner despite his parents’ warnings, we would have had an instantaneous experience accompanying our error in judgment. What, after all, is bankruptcy? It’s a point in time when you ask your creditors for a discount. That’s all it is. They don’t want to give it. When negotiating it’s a case of ambient claim. Bankruptcy is just the ambient claim where the parties “meet in the middle”. Bankruptcy just get’s you to the “middle”. Don’t make a mountain out of a molehill. What happens with bankruptcy is that people start focussing on what went wrong – all the negatives and focusing on how am I going to get money to meet this month’s payroll? Or how am I going to have money to feed the kids after bankruptcy? They focus on people who owe them money as opposed to “How am I am going to earn some more?” IT’S NOT WHERE YOU START, BUT WHERE YOU FINISH

I’ve borrowed this title from a great little book by David Schwartz, a very accomplished business person who has penned his lessons from business. He writes about failure and the mindset needed to deal with it and not be diminished by it. I quote him here: He writes, “Failure IS an option If you’re going to fail, fail hard, fail well, because it simply means opportunity and success are just around the corner.– Richard Branson I don’t have a fear of failing. It isn’t about having no fear. Anyone who aims to achieve something will have fear and doubt. It is about ‘feeling the fear and doing it anyway’.We put something at stake, and it might pay off or it might not. The real deal is about managing and reducing risk. For some, the word risk spooks them because it brings with it the implication and possibility of failure. They are right. If you take enough risks, sooner or later you will fail. But it’s not about failing from time to time which, as Richard Branson says, all entrepreneurs do; it’s about minimising risk of failure and then not becoming ruined when we do fail.We can do this by being cautious and making sure we only take well-considered, researched and calculated risks.The point

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is, we don’t have to fear or avoid failure, we just have to be well prepared and know how to deal with it, if and when it comes.We also have to make sure we are not too exposed. I’m not surprised to discover that many people who fear risk become stuck. But if we are prepared properly to take a risk, it’s then about having the discipline to keep going, to stick to the plan, and not be spooked. Sure, I become nervous about financial ups and downs, but I don’t let that cloud my judgement or stop me going forward. Learning from failure Business can be hard. Consider these words of advice from media mogul, Rupert Murdoch:“You just gotta learn to take it.You just gotta shrug it off.”The trick is to convert a failure into a lesson. If you have had problems with managing disappointment in the past, and your instinct is to give up when things get sticky, it’s probably because you’ve let setbacks and stumbles overwhelm you. If you tried to take a new product to market and it failed, take it as a lesson.What can you differently next product launch? Think it through, find the lesson and then set a new goal. Get wise – learn from the difficulties and isolate the exact problem, identify the weak spot, then find a solution. Mistakes and failures are the roadmap to success.” I couldn’t agree more with David’s “lessons”. STEPS TO SUCCESS

The first thing to do is work out what you a good at and what you want to do then employ others do the things you aren’t good at this may mean someone else running your business while you go out and create the work. Now, here is the great news. Just like the formula for failure, the formula for success is easy to follow: it’s a few simple disciplines practiced every day. The “secret” is not earth shaking. What I say to clients in difficulties is simple. In generic terms, it’s establishing new disciplines that replace old ways of behaviour. No shock therapy; just sound, common sense. Daily discipline may not result in instant gratification but positive results will appear in a very short period. When we change our diet, our health improves noticeably in just a few weeks. When we start exercising, we feel a new vitality almost immediately. When we begin reading, we experience a growing awareness and a new level of self-confidence. Whatever new discipline we

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begin to practice daily will produce exciting results that will drive us to become even better at developing new disciplines. We all understand the notion of bad habits; why not replace them with good habits? Habit is a powerful force in our life – for worse and for better. The real magic of new disciplines is that they will cause us to amend our thinking. If we were to start today to read the books, attend the classes, listen more and observe more, then today would be the first day of a new life leading to a better future. Have you heard the phrase that success leaves clues? I have found in my experience that failure leaves more clues. Usually when things are not working we need to look within. One sure way to end up without financial freedom is to play the blame game.That is to nurture the ability to blame everyone else for your problems and to create elaborate excuses. We all have had this happen at times. I know that when I had a business failure I went directly into blaming my business partners. But what I realized was that I was taking the power away from myself whenever I blamed other people. Leo Tolstoy said “Everyone thinks of changing the world, but no one thinks of changing himself. • • •

• • •

How much of what you see around you is because of who you are, how you think, and how you behave? Are you a victim of circumstance, or can you change your circumstances? Look at people around you who you would consider to be more successful than you. How would they answer the above questions? If you are unsure of how they would answer, go and ask them : Rather than waiting for circumstances to change, how can you change yourself to be more successful? What thinking or beliefs hold you back from the changes you desire? What different thinking or beliefs will generate the changes you desire?

These are some of the questions I would ask of people going through bankruptcy. Sometimes we fall into a version of blame called ‘excusitis’. It usually has certain key words or phrases that inform us e.g. “if I could just find the right job or the right

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career, or if someone would help me out, then I would make it.” I heard once the following “You can make excuses in your life and you can make money, but you cannot do both at the same time.” BILLS’ STORY

Bill was a tradesperson, a person who always had idea buzzing around but who mostly failed to execute on his ideas. He had the big idea that going into business was going to get him a bucket-load of money. But without focus and without passion; it’s very, very unlikely that an idea of making heaps of money is far-fetched. For sure, Bill has technical skills but that’s alone is not enough. He came to me with some idea. He went on to sell property – from new estates. He found himself sitting in a display home but few people came in. He was on a fixed income of about $1,000 a week, not enough to make a decent living. I said to him “Let’s set up a property division here”. He agreed, but rather than go out and sell and gain listings, he waited for the phone to ring. His excuse was “I can’t sell houses because I am here sitting in a display home.” If a person isn’t succeeding at what they are doing then they will tend to remain in that rut at whatever they take on. Unless they change their mindset; their habits, their willingness to go out and chase business, they will not succeed at the next venture they take on. It will be a case of finding one excuse after another. Bill changed his employment and was given the opportunity but he fell into his comfort zone and instead of making the changes within himself he looked to change his job again and again. It’s a theme in this book that if you do nothing different, you don’t need to wonder why nothing changes in your life. Principles will not help you. The wrong actions won’t lead to the right results. The plain truth is that most of us don’t have the belief that we can succeed in life – at least at the level of achieving wealth and financial freedom.

BLAME AND MARRIAGE I will never say that partnerships in business don’t work; I’ve just never seen them work. When I was married, I was working in insurance industry with a partner, called Mark. One day I had a client come to Melbourne from Sydney, and I had consulted the client on his insurance policy. The client returned to Sydney and not too long

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afterwards. Mark travelled to Sydney for a deal and signed up this client, unbeknown to me, while he was there. On a trip to Sydney, I followed up the client, and he told me that he had already signed up with my partner, Mark. Annoyed that I had done all the leg work and Mark had simply signed him up and taken the commission, I vented my frustration to my wife. The following day, I had planned to confront Mark, but he was not in.The day after, Mark was still not there, so I was unable to have my concerns verified. As I was walking through the office, I saw the state manager, who waved me into his office. He told me that Mark had asked him to tell me that he had signed the customer up in Sydney and had credited the commission to my agency. I was relieved as I had made an incorrect assumption of Mark. However, I’d forgotten to relay this information to my wife. I’d even forgotten I’d vented my frustration with her. A few weeks later, Mark had a party and my wife and I were invited. We were drinking the infamous Black Russians at the time and my wife was chatting to Mark’s wife, and mentioned that Mark had ripped me off. Again, unbeknown to her, she had no idea that the mater had been resolved and that my assumptions of Mark were incorrect. Suffice to say, my relationship with Mark fizzled out after that. It is difficult to not share your frustration about work with your spouse or partner. After all, it is human nature. I have learnt to be careful about expressing professional frustration with my wife. Although generally, it is with good intentions that your other half wants to help, he/she can be supportive of you and part of that support is that you wind her up and she winds you up talking about the injustice prevailed upon you. I’ve witnessed many situations where a husband and wife squabbled about who was to blame. In life partnerships we all need to come from a place of understanding that each party in the relationship have ups and downs. Sometimes we perform and behave better than the other and then at other times the reverse applies. A spouse ought to be in support of their partner and accept their vulnerabilities and not apportion blame when things go bad. Each party needs to come from an attitude of “How shall we make this work – together?”

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4. EMOTIONAL STUFF

ANDY

My ex-wife and I had a pub we owned together. It wasn’t the best of outcomes; she eventually got the pub and I got nothing! The challenge in the business of running the pub after we separated was that she was running the pub but she had never worked in a commercial, business environment. She delegated the work to Andy who, in turn had his brother working in the pub while my ex went off and played bowls.The brother was a nice enough bloke – in fact he got in the habit of giving free beers to his mates. No surprises therefore, that the pub was struggling to keep afloat.When the pub finally went broke Andy would say,“It’s not my fault, I wasn’t in charge.” Its true he wasn’t and maybe she shouldn’t have employed him but what did he do to help he was part of the reason she didn’t make any money. Andy was not accountable for his actions and when an employee didn’t do their job, he responded by saying that it was not his role to watch over them. In fact at the end of the day no one was accountable. The biggest danger you have as an employer is to hire people who you can trust but ultimately taking responsibility too for how they behave and perform. It’s about leadership and setting an example for others to follow. RESTAURANT STAFF EXPECT TO BE PAID

In a restaurant business I was involved in, we had a manager who was responsible for managing the business, that is, managing the staff and growing revenues. We had many casual staff and as anybody in the hospitality industry knows we had to pay double time in penalty rates on Sundays and public holidays. The manager did not appear to have any concern about using casual staff and, yet when revenue was low on some weeks, staff were not being paid. His response was “There was not enough money to pay them.” I said “But it is your responsibility who manages the business, so to keep casual staff going you need to generate more revenue.” I mean to say: if you have $5,000 coming in and your expenses are $7,000 you can’t expect the staff to go unpaid. Once we looked under the bonnet we noted much inefficiency: too many casual staff on penalty rates; the chef didn’t seem to mind taking home fish for his family.Yet the business was not sustainable.

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Managers, owners, staff – we all have a responsibility for the business to be profitable. It’s about action and accountability. If revenues are down action needs to be taken. It’s no use to anybody for a manager to shrug his shoulders or a chef to look after himself at the expense of the business or an employee to take home some of the profits and then blame the owners for not being paid. SELF-RELIANCE IS TAUGHT AS A NOBLE VALUE.

The author Margaret Heffernan spoke at a TedX talk on the topic ‘Dare to Disagree’. In the few weeks since it was posted 250,000 people have thought it worth a look. The basic premise of her talk is that respectful conflict is a good thing inside businesses. “If you love someone, argue with them,” she claims; challenge them to greatness. On listening to Margaret speak it struck me how fortunate to have learned that each of us is born with a gift is it artistic, creative, logic, technical or whatever but none of us is born perfect and each of us needs help especially in business. Quite frankly without someone rigorously asking the questions, watching the finances, challenging processes, looking at the details; – any great entrepreneur’s vision can come to a grinding and embarrassing end without such skills. Every business needs someone asks the very challenging questions not just of me, but all the leaders in the business. Every business needs someone who does not take things at face value, who sees the world differently and is very commercial. I don’t know if you can manufacture this level of challenge – but what I do know is that you do not want a boardroom table filled with yes people or people just like you. We all need someone to challenge us to be bigger than we know ourselves to be. Learn from experience not just who can you blame and what went wrong but also what went right because that is where you will find your future not in avoiding what you did wrong because you will most probably never face the exactly same circumstances again but in what you can do right in the future based on you experience of what went right in the past.

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Chapter 5

MENTAL STRENGTH

We can define mental strength as identifying the things mentally strong individuals don’t do. I found this list some time ago written by someone who had “been there, done that”’ I’d like to share her list here along with my thoughts on how each of these items is particularly applicable to entrepreneurs. Mentally, we are considered strong because we have gone into business. However like most business owners, we have not planned any contingencies around any type of failure. We believe and continue to believe that as long as we work hard, increase our sales, get more clients, have cost effective strategies in place, nothing will go wrong. Then something does go wrong. Through no fault of our own - a debtor doesn’t pay, a government contract is revoked, an unexpected turn of events and something we never planned for happens, but we still believe we will make it, so we refinance our property. We put our personal assets on the line, which we have spent a lifetime accumulating, we maximise our credit cards, which we are personally liable for, and continue to work hard, try cutting costs and believe that somehow we are still going to make it. Pretty soon, we find ourselves burnt out and exhausted.

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Our inspiration for our business has gone, and we start to feel like a complete failure. We never anticipated that we would fail in our business. In fact, we never planned for it. Drawing a line in the sand early when something happens in our business can be life-saving. Don’t put your personal assets at risk. Draw a line in the sand and take the lessons learnt and reapply them to your new venture. The reality is that you will get gloomy window faced envelopes in the mail. There will be words shouting at you “Default”, “This account is overdue”, “Payment required immediately” and debt collectors will threaten legal action. You will panic and have sleepless nights, your family will wonder who you are, and you may even turn to alcohol or drugs. The reality is that the best thing that can happen is that the matter goes to court. Once it goes to court, your creditors will cease to harass you. So, if you have experienced a financial setback and your creditors are harassing you and threatening legal action, then tell them to take you to court. That can give you at least 12 months to sort out your situation, protect your assets and move forward with your life.You will find relief and will be empowered to maintain your spirit to start over again.Your family will be happier, you will enjoy your life more, putting all your energy into starting again; this time with a lot of experience behind you. BROCK MCLEAN’S STORY

Brock McLean story It’s of great credit to McLean that he’s managed to call on those same “hang-tough” traits at Carlton in the long weeks leading up to his most recent senior selection. “Perspective is a word I use quite a bit. It’s a big word for me,” McLean said. “In the past I’ve seen blokes who’ve been in good form, who haven’t got games and have gone away and sulked.That does nothing for the team, nothing for that person. “The true test of a person’s character is when things aren’t going well and they’re against you a bit.The best way to be is to stay positive and hang in there because you never know when an opportunity presents itself. “When it’s all said and done, things are never as bad as they seem. There’s always someone worse off. My advice to any players who are down is to get their focus outside the footy bubble.That way they come to realise things are not that grim and they get back to remembering why they play footy in the first place - because they love it so much.”

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Why does failure, rejection hurt so much? Is it because it makes you feel like a failure? Is it because you feel as if you are not good enough and that no matter what you try you aren’t going to appease the customer? No. Failure hurts because you focus your mind on the pain. By refocusing your mind away from the painful and negative aspects of the failure, you will move forward faster. Toughen up! Get over your setbacks and focus on what you want to achieve instead of complaining. Self-pity is a waste of time. And don’t indulge in complaining about ‘tough times’ with colleagues or clients. Note the following ‘lessons’: 1. WASTE TIME FEELING SORRY FOR THEMSELVES. You don’t see mentally strong people feeling sorry for their circumstances or dwelling on the way they’ve been mistreated. They have learned to take responsibility for their actions and outcomes, and they have an inherent understanding of the fact that frequently life is not fair. They are able to emerge from trying circumstances with self-awareness and gratitude for the lessons learned.When a situation turns out badly, they respond with phrases such as “Oh, well.” Or perhaps simply “Next!” 2. GIVE AWAY THEIR POWER. Mentally strong people avoid giving others the power to make them feel inferior or bad. They understand they are in control of their actions and emotions. They know their strength is in their ability to manage the way they respond. 3. SHY AWAY FROM CHANGE. Mentally strong people embrace change and they welcome challenge. Their biggest “fear,” if they have one, is not of the unknown, but of becoming complacent and stagnant. An environment of change and even uncertainty can energize a mentally strong person and bring out their best. 4. WASTE ENERGY ON THINGS THEY CAN’T CONTROL. Mentally tough people don’t complain (much) about bad traffic, lost luggage, or especially about other people, as they recognize that all of these factors are generally

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beyond their control. In a bad situation, they recognize that the one thing they can always control is their own response and attitude, and they use these attributes well. 5. WORRY ABOUT PLEASING OTHERS. Know any people pleasers? Or, conversely, people who go out of their way to dis-please others as a way of reinforcing an image of strength? Neither position is a good one. A mentally strong person strives to be kind and fair and to please others where appropriate, but is unafraid to speak up. They are able to withstand the possibility that someone will get upset and will navigate the situation, wherever possible, with grace. 6. FEAR TAKING CALCULATED RISKS. A mentally strong person is willing to take calculated risks. This is a different thing entirely than jumping headlong into foolish risks. But with mental strength, an individual can weigh the risks and benefits thoroughly, and will fully assess the potential downsides and even the worst-case scenarios before they take action. 7. DWELL ON THE PAST. There is strength in acknowledging the past and especially in acknowledging the things learned from past experiences—but a mentally strong person is able to avoid miring their mental energy in past disappointments or in fantasies of the “glory days” gone by. They invest the majority of their energy in creating an optimal present and future. 8. MAKE THE SAME MISTAKES OVER AND OVER. We all know the definition of insanity, right? It’s when we take the same actions again and again while hoping for a different and better outcome than we’ve gotten before. A mentally strong person accepts full responsibility for past behaviour and is willing to learn from mistakes. An ability to be self-reflective in an accurate and productive way is one of the greatest strengths of spectacularly successful executives and entrepreneurs. 9. RESENT OTHER PEOPLE’S SUCCESS. It takes strength of character to feel genuine joy and excitement for other people’s success. Mentally strong people have this ability. They don’t become jealous or resentful when others

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succeed (although they may take close notes on what the individual did well). They are willing to work hard for their own chances at success, without relying on shortcuts. 10. GIVE UP AFTER FAILURE. Every failure is a chance to improve. Even the greatest entrepreneurs are willing to admit that their early efforts invariably brought many failures. Mentally strong people are willing to fail again and again, if necessary, as long as the learning experience from every “failure” can bring them closer to their ultimate goals. 11. FEAR ALONE TIME. Mentally strong people enjoy and even treasure the time they spend alone. They use their downtime to reflect, to plan, and to be productive. Most importantly, they don’t depend on others to shore up their happiness and moods. They can be happy with others, and they can also be happy alone. 12. FEEL THE WORLD OWES THEM ANYTHING. Particularly in the current economy, executives and employees at every level are gaining the realization that the world does not owe them a salary, a benefits package and a comfortable life, regardless of their preparation and schooling. Mentally strong people enter the world prepared to work and succeed on their merits, at every stage of the game. 13. EXPECT IMMEDIATE RESULTS. Whether it’s a workout plan, a nutritional regimen, or starting a business, mentally strong people are “in it for the long haul”. They know better than to expect immediate results. They apply their energy and time in measured doses and they celebrate each milestone and increment of success on the way. They have “staying power.” And they understand that genuine changes take time. Do you have mental strength? Are there elements on this list you need more of? It takes much practice to hone mental strength but the rewards are worth it we don’t need to make massive changes we just need to use the principal of the slight edge

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Chapter 6

THE LINE IN THE SAND

The reason to make the decision to change your life – there’s a saying that if you keep doing what you are doing, you will keep getting the same results you have previously gotten. If you want to change the result, you need to change your attitude. In business, people believe that they need to hang in there, but you only survive that day. The car industry in Australia is a typical example. They stopped took stock of the situation. Then restructured, retrenched, and revisited. Trying to block gaps and the band aid effect doesn’t work. The hole is never repaired. What we need to do is draw a line in the sand. Unless enough people brought Australian made cars it wasn’t sustainable why would any business stay in production running at a loss. The biggest reason to stop and take stock is that all of the stress associated with trying to keep your head above water, if at all, pulls your attitude down. Instead of focusing on building a business, you lose inspiration. The biggest reason to assess your situation and draw a line in the sand, may seem like you’re losing, but it’s better than being beaten into submission and losing your inspiration to start over again with the lessons learnt.

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As we talked about earlier in the book, one of the debilitating features of being in debt is the harassment by debt collectors. It’s not restricted to commercial firms alone Why drawing a line in the sand is important to your attitude learning how to deal with people who would destroy your attitude. And there is a potentially heavy cost in waiting. THE COST OF WAITING

So often our clients come to us in the middle of a financial struggle or crisis. Too often they present their story, listen to our advice and go back to getting on with their day to day lives. Usually some weeks or months down the track they return. More often than not the situation hasn’t improved and mostly it has got worse. Sometimes it’s too late to put into effect the best plan to salvage their financial situation with the advantage of time and planning. Instead we have to move to Plan B. Often the cost of waiting is high, and the plan we are required to assist with is more damage control and often involves minimising the damage which is already happening or about to happen, rather than preparing for or preventing damage to their financial affairs. Plan B is usually more expensive, less effective and the panic to act creates more stress than would have been caused had you acted earlier. If you think that your financial circumstances are out of your control, they probably are. If you think you need to put a plan in place, now is the time to do it. Take the first steps as early as possible and take advantage of the time you have to take back the control over these aspects of your life. MOVE EARLY IN BANKRUPTCY

Take bankruptcy for example. If you enter Bankruptcy before your creditors place defaults against you, once you are Bankrupt they no longer need to default you. This does matter - if down the track your plan allows you to make an offer to your creditors, and the offer is accepted, your bankruptcy can be annulled. This will remove your bankruptcy from your credit file and show your debts as settled. Your credit file will have remained clean, and this provides you with the advantage of being able to apply for credit in the future with a clean slate.

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6. THE LINE IN THE SAND

If however, you choose to drag out the inevitable and your creditors place defaults against your name whilst you are still procrastinating over your bankruptcy, if you do have the fortune to have your Bankruptcy annulled further down the track, the defaults will still remain on your file even though you have settled the debts. Often in the case of company insolvency, the waiting not only creates a bad credit rating but it usually also ensures that more damage than necessary is done to the professional and commercial relationships you have created for your business. Most people in business know that things happen. Creditors will be more understanding if you are upfront with them as early as possible about the difficulties you are having. Dragging them out, leading them on and telling them stories whilst delaying the inevitable, causes bad will and destroys relationships you have likely spent years building, and if you handle your plan properly may need again in the future. You also run the risk of leading your creditors along for so long that they report you for insolvent trading. You may find yourself in the position of having to defend yourself. Insolvent trading carries harsh penalties for directors. You can avoid this scrutiny by moving quickly, avoiding the costs of waiting and taking advantage of the time you have to put a proper plan in place. Waiting too long can take this advantage out of your hands and cost you dearly. If you think you need to put a plan in place, act now.

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part 3

COLLECTING MONEY

OVERVIEW OF HOW IT ACTUALLY WORKS

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Chapter 7

DEALING WITH GOVERNMENT DEBT COLLECTORS AND BULLIES

I have had the experience of being harassed by government creditors. I was a partner in a child minding centre that was wrought with financial issues stemming from a husband and wife partnership. The government body for WorkCover, QBE, were owed money and proceeded to threaten me with a summons to court and the winding up of the business.This was some time ago now, and even though I no longer am partner in the business and the business has been sold, this government creditor continue to call and threaten me. To date I have not seen a summons. I have a client who couldn’t pay his GST. It wasn’t that he didn’t want to pay GST, it was that his business was on shaky grounds and he couldn’t free up any cash. The ATO caught up with him and, rather than hitting him with a demand for $25,000 which was the GST owed, they hit him with a fine of $22,000 and a total bill for $47,000. If this chap was already struggling then this additional impost was guaranteed to force him out the back door! In the end he had to sell his house for $360,000, a forced sale which surely devalued the amount received. The bank paid out its mortgage of $280,000 and the balance was split between the liquidators and the trustees. The ATO got a fraction

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of what it was owed. All the equity in the house went in fees that arose because the ATO proceed with its legal rights.

BULLYING AND INTIMIDATION BY CREDITORS In reality, when you owe money, people will threaten you with all sorts of things. The fact is that most business owners don’t go into business to not pay their bills. Stupid threats are not going to change the situation that you simply don’t have the money to pay. It makes absolutely no sense that a person who puts everything on the line to start a business is intimidated when they experience a financial setback, sometimes through no fault of their own. Should we perhaps also intimidate and threaten those on welfare because they are unable to get a job. Where does the bullying and intimidation start and stop? One of the interesting things I found in my experience in business and with other business owners is the common misconception of “If you don’t pay, I’ll send someone over to break your legs” or similar intimidation tactics. How often this happens in reality is questionable. When it comes to creditors wanting their money, there are two types of intimidating debt collectors that could be sent around. Scary looking people that try to intimidate you, but won’t really do anything, and people who are influenced by drugs and will do just about anything to get their next fix. Unless you operate in shady circles, it is unlikely that you’ll receive a visit from either of these shady, questionable debt collectors. Common sense prevails that it really doesn’t make sense to break your legs if you owe creditor money. That’s just going to make it more difficult for the creditor to collect his money from you. In my experience, there was ever only one creditor that I encountered that had the ability to apply common sense and logic to an otherwise doomed situation. A steel company that had got into financial trouble contacted me for assistance. They were unable to pay their creditors and the best solutions were to liquidate the company, recover and start again. When we attended the creditor’s meeting, one of the creditors, who was a major supplier for the company, was at the meeting along with several smaller creditors. It was like music to my ears, on hearing the words from this creditor to my client: “Tell me how I can help”. A few days later, my client received calls from a number of new clients referred to him by the major creditor.

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With the help of the creditor he owed a large sum of money to, my client was able to get back on his feet and pay all the money outstanding to his creditor. If you are a creditor, and your client has got themselves into trouble, consider how you can help. Remember, you have more chance of getting your money if you use your common sense and logic, rather than threatening to hurt them or their families, or send them into bankruptcy. THE SUPPLIER SHOULD NOT BE A MENTAL OBSTACLE

What invariably happens in business is that people try and keep juggling the cash flow: chasing debtors and squeezing their suppliers; or worse, borrowing on the credit card (which I’ll talk about in a moment). You are always better off negotiating with a supplier. It’s when you develop a kind of mental obstacle and keep a lid on things that suppliers will become adversarial.When we go on too long we feel that we cannot deal with a supplier. But I have found that if say to a supplier something like “I can’t pay you right now but will pay this off over the next, say six weeks. In future I can pay you cash.” Or you could say that you would pay weekly with say 10% off the outstanding bill. That supplier then becomes a lender. In these terms if it is a company and if insolvency is being experienced then it no longer has the liquidator taking the debt into account if insolvent trading becomes an issue. THE REVOLVING CREDIT CARD

The credit card cycle is vicious. Why would you borrow money on your credit card to pay suppliers when the suppliers have lent you the money? It’s like taking out a cash advance on one credit card to pay off another credit card balance. You have already borrowed from the ATO (collecting gst on their behalf and you have already borrowed from your suppliers because they have supplied you with goods and services so why borrow money at high interest rates to pay off other debts. It’s a revolving line of credit that will always go up but never down – at least for a very, very long time, you need to draw that line in the sand, establish why you are in that situation and decide what is the best strategy for you and your family.

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THE DANGER OF DEBT CONSOLIDATION

I understand why people borrow money against their homes to pay tax. But think of other debts this way: you’ve already, in effect borrowed money from the creditor so why would you then risk your home to pay back money you have already borrowed? Another way to look at it, is to do the sums: if you have a $20,000 credit card debt and you are looking to consolidate that debt with your home loan, is this really a smart move? You may save on the monthly repayments on the credit card but a line of credit against your equity in the home will means paying interest over the full terms of the mortgage – usually 20 years or more. Moreover, you then risk mixing your credit card debt (which could be for both personal and business expenses) with your business liabilities and hence risk your major asset – your home – in the case of insolvency where a liquidator can seize your assets. It may be delaying the inevitable but under the Bankruptcy Act failure to pay your debts is not an act of Bankruptcy. A creditor however can make you bankrupt if your debt is provable (more on this later) and over $5000 and they feel you are deliberately avoiding paying them when you are able. In most cases they will take you to court first in an attempt to recover their funds by court order - if they can prove you have the means and are simply avoiding payment, or they may serve you with a Creditors Petition and attempt to have the courts declare you bankrupt. Their goal with the later method would be to have the court declare you bankrupt and then they would recover their debt from the proceeds of the sale of your assets. The risk for creditors in asking the courts to declare you bankrupt is they would then be required to share the proceeds of the sale of your assets with any other creditors.

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DEALING WITH ISSUES

The continuing lesson remains the importance of facing the situation quickly and with vigour, with a mindset that it is not the end of the world. Think of a typical business in trouble where the business owner may be juggle multiple debts and have staff and the tax office to deal with: if you believe that there is some shame or embarrassment in liquidation or bankruptcy consider how more embarrassing it would be to try and trade out and go through the motions of attempting to conduct ‘business as usual’. Creditors will make demands and indeed, may have debt collectors turning up at the business premises. Some suppliers may even get vocal with staff if they have sufficiently been ‘jerked’ around with promises of payment. On the other hand, a well-orchestrated debt consolidation or agreement it may not even be noticed by staff and through a scheme of arrangement, creditors will be satisfied (if not satiated!). BANKRUPTCY, INSOLVENCY IS NOT THE END OF THE ROAD

Although declaring yourself bankrupt might not be what you dream of doing when you grow up, it’s become an acceptable way of getting yourself out of a hard place. A profile of bankrupts in Australia in the 2003: • • • • •

One in every 911 people in Australia goes bankrupt. Around 20 percent of all bankruptcies are business related (not personal). 50% of bankruptees owe less than $20,000, and 12% have been bankrupt before. People under the age of 40 are the most likely to be declared bankrupt. Personal reasons (like illness) and economic conditions are the two biggest contributors to business filing for bankruptcy.

Bankruptcy is designed to give people a fresh start, If you’re losing sleep, your health is failing, your relationships are negatively affected, or you find yourself looking for a way out – including harming yourself or doing something illegal – then claiming bankruptcy may be the best option for surviving the overwhelming financial stress.

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PERSONAL BANKRUPTCY

There are ramifications of bankruptcy; many are known but many too are unknown – even by professionals such as lawyers and accountants. One of the real risks of bankruptcy is the bankrupt’s credit rating, but it need not be the case if the right process is followed. Even if you have a credit impaired record, you can still build up a positive and responsible credit relationships with any number of creditors and that is important for getting bank loans as well as being able to conduct business. Bankruptcy is not the end of the world: if you have to face it, take smart, responsible steps and you will make it back to the land of financial opportunity. When I see a new client, I first establish what their difficulties are. How imminent is bankruptcy? Is there a court order received? Has there been a “knock on the door” (usually from a debt collector or a solicitor delivering a writ (for example for receivership). I would then have one of assistants arrange to have a Statement of Affairs documented. In actual fact we do all the stuff that a liquidator would do including the statement and then the searches that establish assets owned in the name of the person or his or her company. People forget or don’t want to disclose but be sure that in this age of the internet just about everything owned in this country can be sourced. There is also accuracy.This is important not just for the sake of accuracy but because if there too many discrepancies then this will sully the credibility of the character. It’s very easy for example for a person to say “I owe the electrician $3, 000,” when in fact it is the company that owes the electrician the money. After the process is completed, we have the client sign the Statement and we then submit this to the Trustee. TIME IN BANKRUPTCY

The time in bankruptcy is normally three years but it can be extended up to 8 years but it can be much shorter especially if the bankrupt person gets some money in. What we refer to as a “Section 73” or an “Annulment” can be the mechanism for an early release.

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MISS PAYMENT

PAY

DON’T PAY

DEFAULT/S80

PAY

DON’T PAY MAY DEFAULT CREDIT HISTORY LETTER OF DEMAND

PAY

DON’T PAY CREDIT HISTORY DEFAULTED STATEMENT OF CLAIM

PAY

IGNORE

CONFESS

DEFEND

LOOSE JUDGEMENT PAY

DON’T PAY

EXAMINATION NOTICE

GARNISHEE ENFORCEMENT WRIT OF LEVY OF PROPERTY BANKRUPTCY

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7. DEALING WITH GOVERNMENT DEBT COLLECTORS AND BULLIES

There are several options open: 1. Do a ‘Part 9’ which is an informal arrangement that is a based on a payment schedule worked around the person’s income and debts. 2. There is the ‘Part 10’ which in simple terms offer the person the ability to settle with his creditors. So for example, the person may have debts of $100,000 and offers to settle the lot for $30,000, thus 30cents in every dollar owned to a creditor. This set up through a DEED which is in place until it’s paid. The fact that it is only part payment does not prevent the person having a time to pay it – could be weeks or even months. There is usually a limited amount of time before actual Part X bankruptcy meeting and everything is raw and fresh in people’s minds 3. The Annulment. Generally speaking an Annulment is relatively easy to get. The advantages of you using this over the part x option to your benefit are A. Time has elapsed so the aggressive creditors have moved on the time elapsed is often months – sometimes 6-10 months and people’s memories and feelings fade. B. The creditors know the trustee has been able to investigate your affairs fully so they can feel confident in knowing exactly what the likely hood of a return will be Maybe the biggest advantage is the word annulment it means an•nul (ə-nŭl′) tr.v. an•nulled, an•nul•ling, an•nuls 1. To make or declare void or invalid, as a marriage or a law; nullify. 2. To obliterate the effect or existence of: “The significance of the past . . . is annulled in idle gusts of electronic massacre” (Alexander Cockburn). This is great news for you especially for future employment and borrowing money in the future A discharge from bankruptcy occurs when your minimum three year period of bankruptcy ends.Your period of bankruptcy will be considered to be over and you will be discharged from the responsibilities and restrictions you have been under during this period. If you have not complied with your obligations the time may be extended. However, you can negotiate an early release from bankruptcy through an arrangement with your trustee, who will present it to your creditors. The arrangement

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is called a Composition. An annulment occurs when a composition is presented by your trustee to your creditors, who have subsequently voted to accept the offer you are making. Should the annulment occur, you are able to say that you have never been a bankrupt.

What is a Composition? Compositions are offers made by a bankrupt through his trustee to reach a settlement with his creditors. The creditors vote on whether or not to accept such offers.

An offer: Generally must be more advantageous to creditors than that would be achieved in the bankruptcy. The offer may include money or assets that would not normally be available to creditors, such as money provided by a relative. These offer benefit creditors as they receive a dividend that they would not receive from the bankruptcy. All creditors will receive an equal rate of dividend, unless your offer provides otherwise.

Your written and signed offer must be lodged with the trustee: Setting out the terms of the offer and must also provide for the payment of the trustee’s fees and expenses. Before finalising your offer and asking your trustee to call a creditors’ meeting to formally consider it, a discussion with the trustee of the merits of making an offer would be recommended. The trustee may also consult your major creditors to determine whether the offer is acceptable.

Your trustee may: Require a deposit to cover the expenses and fees of the meeting, or refuse to call a meeting if the offer does not make adequate provision for the payment of trustee’s fees that have been approved by creditors and cannot be recovered from the bankrupt estate.

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Advantages for you: Although a composition requires you to make a financial offer, which may be required up-front or spread over a time frame of 1 – 3 years, there are also significant benefits to you: •



You will no longer be registered as a bankrupt.You can arrange for your credit file to be amended as if the bankruptcy never happened. A search of your credit file will reveal no mention of the bankruptcy and that you have settled your debts. You can now move on with your life and return to a path of financial prosperity.

Bankruptcy Annulment occurs when your creditors agree to accept an offer of payment from you. Once your offer is accepted by more than 75% of the dollar value of your creditors and 50% of the creditors that are eligible to vote, then your Bankruptcy is annulled and you can go back to building for your future knowing that your record is now clear of a Bankruptcy listing. There are a number of ways you can increase your chances of an Annulment and expedite the process towards release from Bankruptcy. Despite claims by some firms that they can have your bankruptcy annulled after as little as two months, we believe that allowing six months significantly increases your chances of a favourable voting by your creditors. It’s important to understand that the position of your Trustee holds a significant weight with your creditors as to whether they should vote in favour or against your Annulment proposal. It is therefore necessary to appreciate that the more you have been seen to cooperate with your Trustee in their investigations the more favourably their report to your creditors is likely to be. The Trustee’s responsibility is to investigate your affairs on behalf of your creditors. They are required under the terms of their appointment by the Government to be thorough in their investigation and impartial to the emotional and financial needs of a Bankrupt. In short – The Trustee’s job is to find as much money for the creditors (and their own fees) from your financial affairs. Whilst there are income and asset thresholds provided by the Government, in most instances we find that these limits are significantly lower than the limits most of our clients are used to living under.

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personal insolvency arrangements DEBTOR SUBMITS TO TRUSTEE: • statement of affairs • draft pia proposal • proposal checklist

commencement of administration

SECTION 188 AUTHORITY EXECUTED

COPY OF DOCUMENTS LODGED WITH THE INSOLVENCY & TRUSTEE SERVICE AUST.

at least 10 days prior to the meeting

CONTROLLING TRUSTEE INVESTIGATES DEBTORS’ AFFAIRS AND REPORTS TO CREDITORS WITH RECOMMENDATIONS

within 25 to 30 Business Days

CREDITORS MEETING

DEBTORS AFFAIRS NO LONGER SUBJECT TO CONTROL

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PERSONAL INSOLVENCY ARRANGMENT ACCEPTED

STALEMATE

AUTHORITY LAPSES ( after 4 months from execution of S188 Authority )

7. DEALING WITH GOVERNMENT DEBT COLLECTORS AND BULLIES

FOCUS ON THE SAVINGS

Too often we find that clients focus on the costs of Bankruptcy instead of recognizing the significant financial savings that they are likely to have made. It really does come down to mindset and an understanding of the calculations involved. Take for example the circumstances of a Bankrupt who owed $300,000. Once Bankruptcy and assuming they are making nominal income contributions of say $500 per month. Over the three years of their Bankruptcy this equals contributions of $18,000. They have the option of waiting out the three years and making these contributions. At the end of the three years they will be discharged from their Bankruptcy and no longer required to make any contributions but the Bankruptcy will remain on their credit record for a further four years. If however some months into their bankruptcy they decide to make an offer to their creditors of say 10 cents in the dollar, they would need to make an offer of $30,000 payable over say a three year period. If successful, the bankruptcy will be annulled and the client is no longer bankrupt and the records will show that their debts were settled. Some clients still see this as a $30,000 cost. The reality is that assuming their debts totalled $300,000 this is actually a saving of over $260,000 (allowing for fees and costs). They’ve settled their debts, made an offer over three years some of which they would have been required to make any way through income contributions. This is quite a significant financial saving. Bankruptcy and Bankruptcy Annulment could be the best financial move you ever make TOP MYTHS OF BANKRUPTCY AND DEBT MANAGEMENT BASICS - A MUST READ!

Pardon me for asking, but is there a social stigma associated with declaring bankruptcy, or do we just feel there is? After finding myself staring down the barrel of a shotgun loaded with financial ruin, litigation, and the liquidation of my company, I found myself completely alone and emotionally distressed.

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Struggling to get out of bed, and stay inspired about life, I put on my war paint (make-up); and on occasion having to redo my eyes due to uncontrollable tears, and marched off to business as usual. Thoughts of how much of a “loser” I was compared to anyone else overran any entrepreneurial inspiration I had in the past. I was soon to be bankrupt and in the history of my life, not one of my friends or family members had ever declared bankruptcy. Outside of my financially stricken business, I spent time locked away in my apartment, stuck my head under the doona, and stopped taking calls from my friends and family. My apartment was surrounded by glass and it wasn’t long before I felt like a lone goldfish swimming around and around in my goldfish bowl; except I was drowning in default notices, bills and my mobile rang incessantly with blocked numbers. So, why are we doing this to ourselves, when a perfectly legal alternative exists? In my opinion, a society that still has a belief that bankruptcy is something to be viewed as bad, doesn’t understand enough about it or the monetary system we are born into and then chained to. The industry itself, doesn’t market itself in a way that people can connect with it. It’s emotionally disconnected, therefore unable to relate to our distress. By the time, we seek bankruptcy, most of us have exhausted all avenues, including ourselves. In the meantime, we age as fast as we worry, we suffer overwhelming anxiety and fear, our health deteriorates, our family unit can break down, and we feel hopelessly trapped. DEBUNKING THE MYTHS SURROUNDING BANKRUPTCY

It’s a common held belief debunked by financial counsellors, financial advisors, accountants, solicitors and other professional services that Bankruptcy is a really bad thing. This baffles me no end. I find it difficult to comprehend how financially educated professionals still maintain that Bankruptcy is a last resort and the worst possible outcome for an individual facing financial stress. I strongly disagree - and this is why. Quite simply if you are in financial distress and can see no clear way to paying your debts Bankruptcy is a fantastic solution. It allows an individual to press pause on their financial situation, it clears the unsecured debts you are struggling to pay in most instances, and allows you time to take a deep breath and

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start again. How can that be a last resort? Surely any logical, educated person can see that it makes sense? Financial stresses can happen to the best intentioned and hardest working people. Things happen and often they are beyond an individual’s control. Marriages break down, businesses fail, debtors fail to pay their bills and so on and so on. Ultimately things happen and individuals find themselves drowning in debts they are unable to pay. The basis of the Bankruptcy Laws is to define and defend the principle that people are more valuable than debts.

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Chapter 8

BANKRUPTCY GENERAL PRINCIPLES

The law of bankruptcy is contained in the Bankruptcy Act 1966, [“the Act”] which applies throughout Australia. Only natural persons can be made bankrupt. When a person becomes bankrupt, most of their property is taken over by either a registered trustee or the Official Trustee. A trustee can take most of a bankrupt’s real estate and personal property situated in Australia or elsewhere, with some exceptions. A person will usually remain bankrupt for 3 years. Bankruptcy continues until discharge or annulment takes place. For some people, bankruptcy may be the best way to handle their debts. When considering bankruptcy, the advantages and disadvantages should be considered as well as all other options. A BANKRUPT’S RESPONSIBILITIES

All bankrupts have certain responsibilities to their trustee during their bankruptcy. These include: supplying all relevant information to their trustee; informing their trustee of any change of name, address, employment or income; making contributions from their income when a trustee issues an assessment; handing over their passport

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to their trustee and obtaining the permission of the Federal Court to travel overseas; disclosing their undischarged bankrupt status if applying for credit in excess of $5,155.00; (as at 20th March 2013); handing over all relevant books and documents if a business is bankrupt; ceasing to continue to be a director of a company or involved in the management unless first obtaining the court’s permission; not trading under a business or assumed name without disclosing their undischarged bankrupt status. ACTION AVAILABLE TO CREDITORS

If a person is declared bankrupt, the trustee will send a letter to each of the creditors. Unsecured creditors can take no further action to recover their debts other than to lodge a claim with the bankrupt’s trustee. Secured creditors, mortgagees and bill of sale holders are often entitled to enter into possession and sell the secured property if a debtor fails to make the required repayments. Any debts which a bankrupt incurs after he or she becomes bankrupt cannot be claimed in their bankruptcy. Creditors are able to take the usual legal actions to recover these debts. MORE MYTHS SURROUNDING BANKRUPTCY

Some commonly held beliefs about bankruptcy that contribute to the unfortunate reputation of the term: Bankruptcy holds in our society. It’s an outdated reputation and is surrounded by urban myths and old wives tales. So let’s clear up some of the more outlandish myths.

1. Only Losers go bankrupt Some of the smartest people I know how been bankrupt. If I ask them about it and I have no doubt they will tell me that it was one of the best financial decisions they have ever made. No one plans for financial issues to get out of control and often things are beyond your control. Drawing a line in the sand which enables you to take a deep breath and get back on your feet isn’t a ‘loser act’. It’s a smart decision if you handle the process correctly.

2. I’ll be Bankrupt forever and never be able to buy a house. Bankruptcy doesn’t mean you can never buy a house. If you do own a house now it’s entirely possible that you’ll be able to keep your house and retain your loan even when you are bankrupt. If you don’t own a house now I’m guessing that you’re financial

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stresses are making it pretty hard to save and qualify for a mortgage anyway. Bankruptcy could actually be the solution that helps you buy your own home sooner by providing you with the opportunity to clear your debts and start building. The reverse however is possibly true. If you are struggling to pay your debts and continue to struggle, it’s more than likely that you will never be able to save a deposit for a house if you don’t go bankrupt and press the pause button. And just on the ‘forever’ part of the myth. Bankruptcy isn’t forever. Being a bankrupt doesn’t stay on your record forever either. As long as you comply with your trustee’s requests for information and accurately fill in your income statements each year you will be discharged after three years in most instances. It is also possible to negotiate an ‘annulment’ with your creditors after you have become bankrupt and in these circumstances your bankruptcy could last as little as six months and then be removed completely from your record. That’s hardly forever is it? Consider this - An unpaid bill judgement can stay on your credit rating for up to 12 years.Your Bankruptcy file could be on record for 7 years - much less if you achieve an annulment. That’s not hard maths to work out which option is better is it?

3. I will have to make payments to my creditors even if I do go bankrupt and I only earn enough to live on now. Believe it or not no one expects you to live on baked beans or rifle through garbage bins to survive. The point of bankruptcy is to take the pressure off your financial situation and calm your creditors down. Most people don’t have to make contributions after they become bankrupt. There are clear guidelines provided by the government outlining how much you can earn before you have to make contributions. A person with two dependants for example can earn up to $1283 per week before they have to make any additional payments. Most of my clients actually end up living on more after Bankruptcy than they did in the months leading up to becoming Bankrupt.

4. Even if I’m bankrupt my creditors can still hassle me. They can’t. That’s the point. There are laws protecting you from your creditors being able to hassle you once you have declared bankruptcy and provided your creditors with that information. It’s important to list all of your creditors on your Statement of Affairs so that your Trustee can make sure all of your creditors are informed of your bankruptcy.You’d be

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surprised how quickly creditors back off when they realise they are wasting their time and there is no money to gain.

5. If I become bankrupt I won’t be able to travel overseas. Yes it’s true that the Government Trustee website does list under the implications of bankruptcy that you cannot leave the country without written permission. This doesn’t mean that you are denied the right to travel overseas. It simply means what it says - you need written permission. I’m yet to have a travel request denied to a client.

6. If I become bankrupt everyone I know will know about it. I suspect you’d be surprised at how many people you do know or associate with, who have been bankrupt. It’s fair to say it’s not something people discuss freely.You are however correct in assuming that the bankruptcy record is a matter of public record. Your name is listed on a Government archive called the National Personal Insolvency Index. Your friends and neighbours probably search this index as frequently as you do? Not often or at all I imagine. The only people your trustee is required to notify about your bankruptcy are your creditors. I advise my clients to only tell the people they have to there is no need to wear your heart on your sleeve

7. If I go bankrupt I’ll feel like I ripped my creditors off. I’ve had clients who thought that the right thing to do by their creditors was to pay off their debts even if that meant little payments over a very long period of time. The truth is that this helps nobody. It doesn’t help you - it simply prolongs your financial stress and delays the time when you can start rebuilding your future. It doesn’t help your creditors much either. From your creditors’ point of view, believe it or not your decision to become bankrupt may actually help them to recover your debt faster. A lot of creditors have insurance which covers these circumstances and allows them to claim your debt with their insurer, or at the very least they will be able to claim your debts in their own company tax return. I would wager that you never considered that by going bankrupt you’d be doing your creditors a favour?You may feel bad for not being able to pay but at least every one can move on

8. If I’m bankrupt I won’t be able to work Not true. Being Bankrupt does not prevents you from having a job. There are restrictions on being a director of a company, but not on having a job.You can continue to 67

8. BANKRUPTCY GENERAL PRINCIPLES

be employed and can gain new employment much as a non-bankrupt person can. There are as mentioned before clear guidelines as to how much you can earn before you have to provide contributions to your creditors as well. In most cases there is no need for your new employer to know you are bankrupt

9. If I become Bankrupt I’ll lose my family home. It is more likely that you will lose your family home if you default on your mortgage payments and your bank repossesses your house. It is possible that becoming bankrupt could actually save your family home. This will depend on individual circumstances but most of my clients actually saved the family home by becoming bankrupt. It’s a total myth that bankruptcy is an ‘en end of world’ experience. I get angry when people talk in this way. In the USA there is none of the stigma that we find here. Over in the USA, going into “Chapter 11’ or bankruptcy is just another phase in an entrepreneur’s journey. Many entrepreneurs when presenting a business case to investors after bankruptcy will openly and honestly refer to the bankruptcy as a ‘learning curve’ a ‘life experience.’ To me, it’s not as important whether a business succeeds or fails; it’s about keeping the entrepreneurial spirit alive. Sometimes however, society can conspire to snuff out the spirit. How often have you hear it said after a person, say a contractor or a retailer or a restaurateur go bankrupt or insolvent and then people say “Do you know he’s bankrupt and he’s going back into another business!’ Shock, horror! I say “what do you expect him to do; sit in the corner like a naughty child?’ He has years of experience and knowledge that can be used to run a successful business. It amuses me how the best way for Alan Bond to repay his debt to society was to put him in jail to make number plates when all that knowledge and experience of how a sign writer could become the person who orchestrated the winning of the America’s cup and could actually buy a painting worth millions he could have warned others of the mistakes he made many a student would love to hear his story. It never ceases to amaze me how many times I am called in to help untangle business and family assets which are entwined; matters which had very simple steps been taken at the beginning are completely avoidable. We spend hours blaming each other and our partners. Here is the flow chart:

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bankruptcy DEBTOR’S PETITION (voluntary)

CREDITOR’S PETITION (involuntary)

STATEMENT OF AFFAIRS SUBMITTED WITH PETITION

SEQUESTRATION ORDER

BANKRUPTCY

TRUSTEE APPOINTED - TAKES CONTROL OF ASSETS AND AFFAIRS

TRUSTEE INVESTIGATES - STATEMENT OF AFFAIRS TO BE RECEIVED - ASSESS INCOME

TRUSTEE TO PAY DIVIDEND

BANKRUPTCY ENDS

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COMPOSITION WITH CREDITORS

8. BANKRUPTCY GENERAL PRINCIPLES

MAKING YOUR BANKRUPTCY AN EASIER JOURNEY

As I outlined earlier, becoming bankrupt may be the best and not the worse action you can take to secure your financial security for the future. Believe it or not I have many clients who will tell you exactly that. They will tell you that Bankruptcy saved their life, their marriage and their business. I realise that it’s hard to believe and if you’re currently considering what your options are to remove the stress caused by the debts hanging over you that’s probably very hard to believe at the moment. Determining whether your bankruptcy journey is a smooth ride (and potentially profitable) depends on something I touched on very early on in this book. It all comes down to planning, to having a strategy and following the strategy through. GETTING HELP

My second piece of advice (apart from having a strategy) is to engage someone like myself to help you develop this strategy. It’s always better to have a fresh and unemotional party involved in planning the strategy and assisting you on your travels along the Bankruptcy journey. I won’t deny that I get immense satisfaction out of playing this role. Here is one letter I received that demonstrates the emotional benefits of using someone like me to unravel some of the stresses that could prevail. I would never have thought that after 7 years of operating a well-branded and reputable business, I was now sitting opposite this white haired, lively gentleman, who was suggesting I declare bankruptcy. I had over $200K in personal credit card debt used for business, and the company was in over $1M of debt.To make matters worse, my business partner had locked me out of the premises, remote access to the company was denied, all while I was being treated for a serious illness. As I relayed my story to Doug, my bankruptcy adviser, I felt a lump rise in my throat and tears flooding my eyes. At 49 years of age, I was about to go bankrupt. I had so many questions. I’d spent days trawling through the ASIC website, trying to find a way to save myself from financial ruin. Even in my haze of despair, I understood the true meaning of the metaphor “ the road to hell, is paved with good intentions.” I had consulted with lawyers, but I was already in the hole.Where was I going to find the money to climb out? Lawyers couldn’t guarantee a favorable outcome. Maybe a more promising result would’ve been the Roulette wheel at the Casino. Sleepless nights were the

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norm. I didn’t have a job, had been seriously ill and the money was being siphoned out of the company bank account by my partner. I didn’t even know how I was going to pay the rent. I had so many questions. The first thing I noticed about Doug was his empathy. Not sympathy, but genuine empathy. He made you feel like he could feel all the pain and suffering of trying to squeeze his size eleven man feet into my size eight petite heels. He related to my despair. A good part of the $1200 an hour fee my lawyer charged, was used to coerce me to leave emotion out of the situation. “Where exactly was he suggesting I leave my emotion?” Did it not occur to him that if it was that easy to leave my emotions somewhere, I would? As an unashamed “naturally emotional” female, I consider emotion a fact. People do all sorts of things based on emotion. Financial distress can lead to nervous breakdowns, radical & impulsive behavior, depression, drinking and drug addiction; loss of family, self-esteem, sometimes even suicide. A flight or fright basic human condition, as a consequence of our emotional perspective. All the thoughts that I had in my mind, Doug voiced during our discussion. Bankruptcy was a way to wipe the slate clean and start again. It could give you new inspiration for life and your next venture. A better understanding, with more energy and the freedom to apply all I had learnt from the experience.The more he explained the facts of bankruptcy in a compassionate manner; the more it was appearing as a very exciting option. It was exactly what I needed to hear.There was life after bankruptcy. As an entrepreneur, who had failed for the first time and at a mature age, it was difficult to maintain the inspiration to believe that I could do it all over again How was I expected to be motivated, when I was going bankrupt? I was physically, emotionally and mentally exhausted. It seemed that bankruptcy could free the shackles of this crippling debt and breathe life into me again. Surprised of how little I knew about bankruptcy, I bombarded Doug with questions. Did this bankruptcy stay on my credit file for seven years? How would I buy my own house? I was 49, and had invested everything into my business. Doug explained the bankruptcy annulment process, where your bankruptcy was removed, as if it never occurred.This involved the Trustee calling a creditor’s meeting to negotiate a payout based on a percentage of the total dollar value of the debt.The reality for creditors is that not accepting the offer, the likelihood of recovering their debt was nil. Agreeing to a payout figure and the annulment of your bankruptcy meant creditors would get something, rather than nothing. I also had the option of remaining bankrupt and not paying my debts and after three years my debts were cancelled.The only downside was that it would remain on my credit file for an additional four years on top of my already three years of bankruptcy. A total of seven years making it difficult obtain finance.

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My gaze wandered from my notes and scanned the apartment. Doug sat relaxed and at peace stroking my little white dog. A pile of overdue accounts, default notices & credit card statements were neatly piled at one end of the dining table. How much work did I need to do to end this financial insanity that was hindering my progress to a better life? Panic stricken, I asked him the question. He responded calmly. It would take 14 days to complete the statement of affairs and one of his team would do this with me over the phone. The statement was basically a report of where you sit financially right now. How long would I need to wait till annulment? Generally, six months, although in some cases annulment can occur earlier. There was no plan for a holiday in the near future, but what if I managed to get myself on my feet and needed a well deserved holiday? Could I leave the country? We all remember the Christopher Skase saga. Doug explained in his cheerful manner, that Trustees may request your passport, and that I needed to apply to the Trustee for permission to leave the country. Most people were allowed permission and this law was put in place to stop high flyers from skipping the country, e.g. Christopher Skase. I looked down at my questions, and felt a sense of excitement and relief, as I thought about how amazing my next business venture would be. Hang on, what about running a business? If I was going to start over, I needed to know that I could own and operate a business. Is this possible when I am bankrupt? “Bankruptcy” Doug said,“Does not stop you from running a business.You can run a business under your own ABN registration.” After answering all of the questions I had written across three sheets of paper (To be shared with you on another day), Doug stood up to leave. He hugged me warmly, patted my dog and asked me to call him anytime with any questions. I contacted him at least four times before I made a decision to declare bankruptcy. That late afternoon after Doug left, I decided to visit my mailbox, which I had neglected for over a week. It was an out of sight, out of mind strategy that I employed to avoid the screaming credit card statements and overdue bills. As I tucked the thirty or so grim looking envelopes under my arm, I took note of my feelings.The anxiety I felt when visiting the mailbox, the overwhelming fear that almost suffocated me when blocked numbers called, and the intense feeling of hopelessness & despair, was all gone. Another affirmation that knowledge is power and what I’d gained from sitting down with a bankruptcy adviser like Doug was the knowledge that bankruptcy was a way to remove all the financial distress and almost all of my debts. Even though, Doug didn’t speak of it, our consultation had opened up my thinking. I had an understanding of the financial system and its way of controlling the masses. No different to religion.The only difference was that the monetary

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system affects everyone.You don’t have a choice in whether you follow it. It’s the system that controls the entire planet. Bankruptcy is available as a legal way of not paying your debts. Not because you don’t want to, but simply because you can’t. That night, I slept like a baby, and since my first meeting with Doug, I was able to remove that fear of financial and life threatening disaster from my mindset. Rather than an overwhelming sense of fear & despair, I was experiencing an incredible sense of freedom and for the first time in my life.There is no doubt immense professional satisfaction watching the emotional transformation of the usually distraught individual who first arrives in my office in a cloud of stress and debt, to seeing them emerge throughout the journey as the person I imagine they were before the debts became unsurmountable. Watching families rebuild their future and individuals regain their professional success is ultimately the best reward for my efforts that I could ask for. Don’t get me wrong, I’m not suggesting that it’s an easy road. It can be confronting and emotional, have its ups and downs but if you follow a clear strategy it’s highly likely that you’ll come out the other end (in a shorter period of time than you imagined) with a clear financial record, a clean slate and the regained personal energy to tackle the world head on. There are, however, a few truths and lessons I would like you to absorb before we get to the planning of the strategy though. Indulge me for a moment if you will, but I feel these observations are important at this stage of the book SOME OF YOUR OBLIGATIONS UNDER BANKRUPTCY

• CHANGE OF NAME OR ADDRESS You are required to notify your trustee of all changes of name and/or address during this period. We can do this for this or you can provide the details directly to the trustee. • OVERSEAS TRAVEL If you wish to travel overseas you must obtain the written permission of the trustee administering your estate who may impose conditions of travel.You may have to surrender your passport to your trustee. • CHANGE IN INCOME DURING BANKRUPTCY You must notify your trustee of any change in your income especially if your new income is close to certain income threshold limits.

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• CHANGES IN ASSETS DURING BANKRUPTCY You must notify your trustee if you inherit any property, win money or otherwise receive any assets while you are bankrupt. • COOPERATING WITH YOUR TRUSTEE You must cooperate with your trustee and provide information when requested. You may also be asked to attend meetings, or answer questions at an examination under oath. If you fail to cooperate with your trustee, your period of bankruptcy can be extended under certain circumstances. SOME OF THE RESTRICTIONS ON YOUR CONDUCT DURING BANKRUPTCY

Although filing for bankruptcy is the first step to financial freedom there are still restrictions placed on you during this period. • BORROWING MONEY When you borrow money, purchasing goods of on credit or incurring credit in any way, you must inform the person you are dealing with of your circumstances. Some limits apply • DIRECTORSHIPS You cannot be a director of a company or be involved in it’s management without the permission of the court. • CONDUCTING A BUSINESS You may be able to continue to operate a business while bankrupt. However, if you trade under an assumed name or (whether alone or in partnership) a firm name, you must disclose that you are a bankrupt to everyone that you (or the partnership) deal with. • STATUTORY POSITIONS You may be prevented from holding certain statutory positions. • RESTRICTED TRADES AND PROFESSIONS While generally bankruptcy does not prevent you from earning a living, you may not be able to remain employed in particular trades and professions. • COURT ACTIONS You may be prevented from continuing any court action that you have started.
 Decide to use AFSA or Private trustee If AFSA download Statement of affairs (SOA) – A statement explaining about company and personal intertwined.

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Chapter 9

CHOOSING WHO YOU WORK WITH LAWYERS, ACCOUNTANTS, TRUSTEES & LIQUIDATORS

USING THE PROFESSIONALS APPROPRIATELY

Consider the case of a young couple who came to see me. The couple came over from Fiji and had a couple of children. He started importing used car parts and re-selling them on eBay. Eventually this trading provided him with full time employment. He had a friend who was a BAS agent and helped him organize his tax and gst affairs.The agent had said to him “I’ll handle all that.” So my client sent all his statements and the like to the agent. In the end he did not pay any tax.The ATO did an audit; not necessarily because they were suspicious about his trading but because they had some concerns about the agent from previous dealings. My client actually never received any money but in the end the ATO assessed that he owed the ATO a small amount. But, because his returns were falsified they imposed a penalty and interest and he needed up owing over $60,000. He attempted to talk himself out of it with the ATO on the grounds that this was the entire agent’s doings but, as would b obvious to any sensible person, the business owner is responsible.The risk in using agents or advisers without understanding what they are doing on your behalf is that you as the business owner remain personally responsible and liable.

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CAN I AFFORD AN ADVISER?

If you think a professional advice is expensive try using an amateur. Let me illustrate what I call the “lockout tactic”. It’s interesting how many businesses I have come across, where partnerships have seen one director lock out another. Ironically for all the times this happens, there is nowhere a business owner can turn when he finds himself in a lock out situation.

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One particular client was a restaurant/bar owner who owned the business with a number of shareholders. The business was insolvent, mainly as a result of shareholder’s taking their friends, families and business associates to long, boozy $2000 lunches and dinners on a never ending tab. Not only was food and beverage consumed by shareholders as free for all, shareholders were dipping their hands in the till and pulling out $500 at a time. When you have five shareholders this is a hell of a lot of cash walking out the door. Common sense would tell you that this situation was not sustainable, and eventually the business would go under. The owner contacted me in despair. I got involved and called in the tab, stopped the shareholder’s wining and dining, and restructured the business. One afternoon, the owner arrived at his premises, slipped the key into the lock, and found himself unable to get in. He called me in a panic. Why couldn’t he get into the premises? I’d experienced this with clients before. He’d been locked out. The locks had been changed. We did a search on the company and discovered that the directorship had changed to one of the shareholders, and my client was no longer a director. He was completely shocked and contacted The Australian Securities & Investments Commission (ASIC), the Australian government corporate regulator, whose role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors. The owner explained the circumstances to the public servant on the other end of the phone. While she seemed empathise, she was bewildered about the circumstances and had no answers or advice to give my client. She told him that she would arrange for someone to call him urgently. The business owner hung up and felt hopeful. Time ticked along, and at 5:45 pm there was still no return call, and likely to be no call. No call ever came. Not that day, or the next or ever. My point is, don’t expect the legal system to be your friend. In the example of my client, he believed that ASIC as corporate regulators would be able to help him. The reality is vastly different. The public servant on the other end of the phone, with all her empathy, firstly had not come across this situation, so had no knowledge on dealing with it, and possibly, after hanging up that phone, she didn’t care. It was probably all too hard, and it was nearly time to go home. In any case, by the time action was taken the new director could have sold everything and grabbed the cash.

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HIRING THE RIGHT EXPERT

Hiring an expert may seem farfetched. You are in this position because you don’t have enough money to pay off your debts, but an adviser is not only essential, it is crucial to getting your life back on track, and that is exactly what a successful bankruptcy will do. If you delay the inevitable, you are only hurting yourself and, potentially, your family. The number one source of marital advice in Australia are hairdressers. If you’ve ever sat in a hairdressing salon and listened to the conversations, you will notice that hairdressers have a propensity to agree with their clients about everything. Many of the conversations in a hairdressing salon revolve around marital discussions. Hairdressers are like counsellors, you can spill your guts to them and by the time you leave, your partner/husband is just as you suspected or worse, cheating on you. You leave the salon, and you are all wound up.Your hair stylist agrees, and you are convinced of your partners’ infidelity. People can wind you up. It’s very rare to come across a lawyer, accountant or financial advisor who really and truly understands the ins and outs of Bankruptcy. It’s even rarer to find one who is capable of helping you create a strategy which takes into accounts all of the different angles you need to be able to see to make your bankruptcy journey a beneficial experience. • •



Lawyers (mostly) are fantastic at providing you with legal advice and advising you to follow the legal requirements outlined by the Bankruptcy Act. Accountants (mostly) are fantastic are looking at your affairs from the perspective of the ATO and adhering to the reporting requirements of the Bankruptcy Act Financial advisers (sometimes) are fantastic at helping you plan your financial and business money matters.

What is unlikely is that you will find anyone in this group of professionals who has the experience and expertise to look at your circumstances from all three of those angles and make one clear strategic plan taking into consideration all of the angles you need for a successful outcome. Even if you can find astute professional services which are happy to collaborate on

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a strategy together for you, there is always the risk of what gets lost in communication along the way. Not convinced? Consider this: LAWYERS

I accept that lawyers play an important role in the insolvency process (although I don’t believe as pivotal as they would have you believe), but you do need to consider their weakness from three different perspectives. 1. Lawyers are running a business. They more often than not have expensive offices to pay for, holidays to fund, expensive cars to maintain etc. Most will insist on a lump sum up front; they’ll try this with some duress and make statements such as “You need to attend to this; you have a court mention tomorrow!” To some lawyers you may look like a gold mine. Few lawyers despite their personal characters are in the business of altruism. A successful outcome for them = large fees for you.Your goal may be in escaping insolvency and not having to pay any more large bills. I’m convinced that the first week of law school lawyers are taught how to charge exorbitant fees and then extort the fees from their unsuspecting client victims.Why do I think this way? In my experience with lawyers, I realized that they charge their exorbitant fees without batting an eyelid and then when the client needs them the most – like an impending court event, you could be held to ransom for the fees before they show up to defend you. In many cases, if you don’t pay the fees, they simply threaten not appear at court. Already you are in a situation where you need the help of a lawyer. In my experience with this profession the law is only for those who can afford it, not for victims. 2. I can inform you from my own personal experience that few lawyers are insolvency experts.You’re unlikely to visit your family GP to treat you for major surgery, so don’t just visit your family lawyer - find an expert Insolvency lawyer. I believe that this is the ‘Achilles Heel’ of lawyers (those acting in an insolvency advisory role) is that they really aren’t allowed to advise you properly. Their legal oath requires them to never advise you to do something legally wrong even if it’s morally the right thing to do. Would you take pre-emptive action against somebody whom you knew was going to harm your family? Legally it would be wrong, but morally it could be the right thing to do? 3. A lawyer can’t advise you to do something that is pre-emptive. It’s a quandary I believe

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they face every day. For example they can’t advise you to find a way to keep something up your sleeve so that you have something to offer your creditors. Having something up your sleeve gives you the opportunity to turn the tables and take back control of your situation.There are many things we can do that are not illegal but may not fall within the lawyer’s ambit. If you are a retailer and you have a personal guarantee to support the business’s lease with the landlords. When insolvency is looking, the lawyer says you have to pay it because you are personally legally liable. We say that by negotiating with the landlords and making him aware that the business is no longer commercially viable but that we can make an arrangement to pay a proportion of any outstanding lease then we can get the guarantee away. One of the biggest disadvantages of getting a lawyer involved to early is the other side feels compelled to engage a lawyer and then the costs just mount up. Before engaging a lawyer find out his success rate and even just go and sit in court to listen to how he performs don’t just accept that he is a nice bloke or that your cousin Mary used them for settling on a house she purchased that doesn’t mean he can help you protect your assets. THE ACCOUNTANT

I will never forget one of my first experiences in making a decision to get advice from the right people. Tom an accountant I was using in 1978 for a business which was turning over $500K. Tom had a car accident and ended up in hospital with serious injuries. During his rehabilitation, I visited him on quite a number of occasions and we got quite friendly beyond him providing me with his services. Much of his advice was on how I should run my business, and I really had no reason to suspect he didn’t know what he was talking about. I had been in business many years prior to meeting him and was sometimes amused at his suggestions. At the time, I was taking home $70K which was a huge sum of money in those days. One afternoon, and afterTom’s return home from hospital, I visited him at his home. I’d never been to his home before, so when I turned up to an ex housing commission property made of fibro cement sheeting, I had to do a double take. Surely, I had the wrong address? I checked the piece of paper I wrote the address on and confirmed that this was the right address. I was shocked. The house was dishevelled. There was meter

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high grass in the middle of the driveway that looked as if it had never been mowed. The state of the exterior of Tom’s home was neglected and rundown, and the interior was no better. It really made me think about who I paid to advise me in the future. How could I accept advice from someone who had not mastered the basics. I don’t think Tom ever considered the impression that this left with me. When seeking advice, ask all the questions, present and past. Ask the ‘what if’ questions, and realise that those we seek advice from are only human like us. They are not the oracles. Accountants are not always business people sometimes they are just tax agents. Some of them have never had a business. They are not business planners either. We often feel intimidated by accountants, lawyers, bank managers and the like. You need to remember that they are human, just like us, and they don’t always have all the answers, just like us. As much as I respect the many accountants I work with on behalf of my clients, it’s true that they suffer from some of the same shortcomings that lawyers do. •





Accountants are also running a business and in the business of making money. Let’s face it if you’re running a business (and hope for it to be successful) at the forefront of your mind needs to be a focus on raising revenue. Accountants are perhaps better at this than other professions in my opinion, as they spend their entire day with money issues at the forefront of their daily tasks. Just like many lawyers, there are few accountants qualified and knowledgeable in all areas of financial matters – not the accounts of course, but rather in the gritty management of a business’s finances; assessing risk-reward scenarios, making outright purchase decisions etc. It’s not necessarily a shortcoming of accountants, but like other professional disciplines it’s almost impossible to be an expert at everything!

Thus, choosing the right accountant is as equally important as choosing the right lawyer when exploring the options open to you to resolve your financial crisis. The first step is to decide what information you want from an accountant and can he provide it at a price you can afford then you need to understand he is there to help you run your business not run it for you The number of times I hear that “the accountant should have

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told me” maybe he should have but it’s your business to know what you are getting for your dollar from the accountant. Like lawyers, accountants are loath to give you morally correct advice if they consider that it may compromise their professional reputation. FINANCIAL ADVISORS (AS DISTINCT FROM FINANCIAL PLANNERS)

Financial advisors are most often engaged to assist you when you are experiencing financial stress. A significant proportion of these advisors are community or council based and will help you work out a plan to minimise your expenses and help you find a way to pay your creditors and live within your means. “Living within your means” is a term frequently bandied by financial advisors. In all seriousness, what I find is that if you were already capable of living within your means you wouldn’t need any help from a financial advisor. The reality is that by the time debts have grown to an unsurmountable level there isn’t much hope of creating a budget which achieves any quality of life for an individual. Many financial advisors will proclaim that their service is designed to save you from bankruptcy. The reality is if you had the extra money to pay your debts you’d probably be doing so now. Financial advisors seem to view bankruptcy as a last resort. They may be experienced in helping you make a budget, but find one experienced with negotiating with creditors or indeed helping you form a plan for financial prosperity which includes bankruptcy. FINANCIAL PLANNERS

A financial planner or personal financial planner is a practising professional who prepares financial planning for people covering various aspects of personal finance which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners). One of the key objectives with which a financial planner works is to provide inflation and risk adjusted returns for its clients The work engaged in by this professional is commonly known as personal financial planning. In carrying out the planning function, he is guided by the financial planning

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process to create a financial plan; a detailed strategy tailored to a client’s specific situation, for meeting a client’s specific goals. In my experience financial planners are very good at helping you plan for retirement. They are adept at creating long term strategies for growing your wealth in most (but not all) circumstances and they have a broad knowledge of financial product such as equity funds, property trusts, annuities, SMSFs and the like. Their experience with personal insolvency (bankruptcy) and their understanding of the mechanism is very limited. I doubt you’ll find their services helpful if you have gone to them already in financial distress. This isn’t a slur on the profession. The truth is it’s just not what they specialise in. PUBLIC TRUSTEES AND PRIVATE TRUSTEES

The other key players in the battle are the trustees. The Government Trustee as mentioned earlier was the Insolvency and Trustee Service Australia now known as Australian Financial Security Authority (AFSA). Their role is to oversee the dealings with creditors and debtors. They operate on two different levels. They can serve as your appointed trustee, they can assign your file to a private trustee and ultimately they are the governing body of the recognised trustee’s on their panel. Even if you submit your Debtors Petition and Statement of Affairs to a private trustee they must still lodge it with AFSA who hold all of the records of registered Bankrupts on file. AFSA provide support for both debtors and creditors. Don’t however be fooled into thinking that they are your friend. In my experience it is still culturally ingrained that bankrupts are bad, bad people and Creditors are victims. It’s not necessarily a deliberate or conscious decision on the part of the Public Trustee but somehow is just the nature of the game. I’m constantly amazed at the contrasting reception I receive when I contact AFSA on behalf of a creditor or a bankrupt client and the period ensuing. Typically, when a bankrupt person makes contact with AFSA they are treated like second class citizens. Yet if I phone them up and speak with the exact, same person, they are cooperative.Yet the bankrupt person will be told that there is little they can do and they would have to wait and so on.

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There is an attitude prevailing that because people are bankrupt that somehow they are dishonest or deceitful, it’s as if “there was a commie under every roof!” It’s important to paint a picture to the party you are dealing with. To personalise yourself to them up until you talk to them your life is on a piece of paper known as your Statement of Affairs (SOA) if you have been wise in filling out your statement you will have given the trustee every piece of information required and show them your willingness to deal with your situation. You need to paint a mental picture and that can be done regardless of how deep you have dug your hole.You are still very much alive and have every right to be treated with dignity and fairly. This is why I believe it is important to use a third party remember that saying a lawyer that defends himself has a fool for a client. PUT QUESTIONS IN WRITING

It is correct that you must answer the questions raised by your Trustee. It is also however fair and reasonable to ask your trustee to put the questions in writing so that you can appropriately respond. Even innocent people can talk themselves into trouble. I heard of a police commissioner in the US. He was doing an interview on TV on a tonight show format. He said that half the people in the US prisons talk themselves into jail. The big thing to consider in bankruptcy is to take a considered approach to questions.We lose track when under interview, like the time the chap being asked to list his personal assets omitted to tell the liquidator about a car he had in his name. It’s very easy today with the internet and computers to access assets of all kinds –property, cars, bank accounts, and shares from lists. So when his name came up in a search as owning a car he said “Oh yes, I gave that to my son.”Yet, it’s still in his name and will be seized by the trustee or liquidator unless it can be shown that it was paid for Write everything down when questioned. It’s okay to ask for questions to be put in writing. I find when I am being interview or quizzed quite often the answer I give isn’t the same answer I would have given if I had time to think about it often I will say I should have said or why didn’t I say. If you put it in writing you have the opportunity to give an accurate answer after considering all the circumstances and after all your trustee or liquidator deserves the correct response not the one of the top of your head.

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JAMES AND AMELIA’S STORY

James ran a family business selling second hand car parts.Through a series of bad transactions and business mismanagement James ran up debts with creditors and found himself in a position where he was unable to pay them. After much soul searching James accepted that he could no longer continue to trade and filed for insolvency. His business was placed into liquidation and James and Amelia drew a line in the sand and got on with rebuilding their lives. A particularly disgruntled creditor requested a transfer of trustee from the official trustee to a private trustee.The disgruntled creditor knew that James ran a business doing up and selling second hand vintage cars he only ran the business his wife had always owned the business.The second hand car business was registered in wife’s name. This in itself wasn’t a problem it was what transpired next that caused the problem. The creditor tipped the trustee off to a series of advertisements in a vintage car sales magazine which had James’s name and mobile number as the contact number. The trustee paid a visit to James’s home and asked him a series of questions about the second hand car business. James believing that it was important to comply with trustee requests eagerly answered the questions. He thought that his wife’s business was protected from the creditors chasing him. He also had no interest in the business but thought by answering the questions the trustee would consider that he was a cooperative Bankrupt and that this may go some way to helping his own case. As a result of the answers James gave, the Trustee was able to establish that James had intimate knowledge of the business dealings. Amongst other things, he knew how many cars his wife’s business owned, what regular payments the business account was responsible for and seemed to have a pretty clear understanding of the business’s operation. The trustee determined that James was clearly involved in the business and in fact was a shadow director.They determined that the business was clearly his and that it was only in his wife’s name in an attempt to protect the assets and income from the creditors. What could James have done to prevent the trustee taking action against him for false representation? James was under no obligation to immediately answer the trustee’s questions. No one is suggesting that he be dishonest with the trustee, but the law also provides protection for individuals from intimidation from investigators.

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If James had asked my advice I would have advised him to tell the trustee that he was happy to answer all and any questions that the trustee had but would like to receive them in writing. James was entitled to this courtesy. Although he helped his wife with her business as husbands do, he was also under no obligation to answer questions on his wife’s behalf about a business clearly and legally in her name. Simply he should have told the Trustee - it’s my wife’s business, please ask her. CALLING IN THE TROOPS

How do you know if your lawyer or accountant or financial adviser can help you if you are facing bankruptcy? How do you expect to be in a position to negotiate an annulment when legally you can own very little when you are Bankrupt? Who is best suited to help you? Consider the circumstances of a client I came across a few years ago. PAUL AND LINDA’S STORY

Paul and Linda’s story is a perfect illustration of how well-intentioned solicitors can create difficult circumstances by giving poor advice at the beginning of the Bankruptcy process. Paul was facing bankruptcy. Knowing that this was inevitable Paul wanted to protect the family home. He ascertained that a sensible step (and he was correct) was to transfer his half of the family home over to his wife. His lawyer suggested that under the legal ruling in Victoria of “love and affection” he could transfer his half share to his wife and not be required to pay Stamp Duty. No money would need to change hands and therefore the value of the property being transferred would be zero. Sounds pretty straight forward and sensible from the outside doesn’t it? Unfortunately his lawyer was not an expert in the areas of Insolvency Law and this saving was short lived. When you declare bankruptcy one of the questions the trustee will ask if you have sold or transferred any assets or shares in assets over the last five years. Any non-market value transactions (as this one was under the ‘love and affection” ruling), can be seen as attempting to defraud your creditors.

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So although Paul had saved on the stamp duty, his trustee who was rather aggressive (remember trustees are on the side of the creditors and their own pockets) was able to force a sale of the property and collect Paul’s share and distribute it to the creditors. Paul and Linda learnt the hard way that sometimes lawyers aren’t always the best people to get advice from. So what should they have done? Kane and Nicola’s story is an example of a better way to approach saving your family home. KANE AND NICOLA’S STORY

Like Paul, Kane was facing bankruptcy. Like Paul, Kane wanted to protect the family home. Kane took advice from a lawyer who was an expert in insolvency. Although it was perfectly legal to transfer his share of the property to Nicola under the “love and affection” ruling, Kane’s lawyer also knew from experience that sometimes the cheapest option isn’t always the best option. Instead, Kane sold his share of the family home to Nicola and as a fair market value purchase and paid the required stamp duty and money to Kane for the purchase. Once he was Bankrupt and his Trustee investigated the transfer the Trustee could clearly see that the transfer was for fair market value and there was no case for Kane to answer. It’s a pity that Paul and Linda’s story didn’t have the same happy ending. Kane and Paul’s stories are a perfect illustration of the dangers of assuming that all Lawyers are experienced in all fields. ANDREW AND LISA’S STORY

Andrew and Lisa owed combined debts of $150,000.When they filed for bankruptcy they had $100,000 in the bank. A friend told them a story he’d heard which was similar to their situation. In listening to their friend they withdrew the $100,000 from the bank and let’s just say they disposed of it.When the trustee investigated there was no such lump sum in the bank. Had there been the Trustee would have been entitled to seize these funds and use them to pay Andrew and Lisa’s creditors.When the Trustee asked where the money had gone, Andrew confessed that he had a gambling problem and had lost it at the casino. Losing your own money at a casino may be foolhardy, but it’s not illegal. I recall the conversation I had with Andrew sometime later and he asked me why his Lawyer hadn’t told him this was something that people do. Quite simply, a lawyer

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has taken an oath to uphold the laws of the country they practice in, and although what Andrew did wasn’t illegal a licensed professional providing this advice may not be viewed favourably by the authorities if it did result in an investigation. Remember lawyers are in the business of predicting and preparing to protect against the worst possible future outcome. It’s the basis of their profession. Be sure that your Lawyer has for - most in his own mind the need to protect himself first. MORE MENTAL OBSTACLES

Its right to call in the ‘troops’ but there’s a mental obstacle in the way. People are always saying “You don’t want to go bankrupt!” We know how debilitating both sides of the situation are: on the one hand you’re running around trying to save the business; on the other hand you have to admit failure’ - there’s that word again! This is so different from the time you started out in business. As a start-up, you’re excited, full of hope and the adrenaline is pumping. Big things are going to come your way. You desperately want to save yourself from losing all of that and the money and sweat equity you have put into the business.Yet, the longer it drags on, the worse the outcome. How do you know when you’ve gone too far? It all depends of course on the scale of investment and debt. I have a rough rule-of-thumb for individuals: I say that if you’ve got unsecured debt of more than $50,000 then you’re not likely to be able to pay it off you are in trouble. That’s based on the assumption that you need to pay $100 a week to pay off the interest alone. But if you have that debt why haven’t you been paying it down? Why are not you doing it? For businesses if you have unpaid GST and super, you have real battle on your hands to stave off liquidation. What people do in this state of mind is get a line of credit.They might use the equity in their house to get rid of the problem. But although it may get rid of the problem at hand, it’s no solution. The circumstances that led to the excessive indebtedness of the business till remain unresolved. The worst thing you can do is not pay down existing debt. It’s attempting to resolve an ego problem: you may not wish to face the reality of the situation. Your mindset is such that it is in denial.

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I have another rule: I say people, ask yourself this “If I was employing me, would I still keep me on the payroll?” If you’re not looking after the fundamentals; doing the bank reconciliations, paying the GST on time, meeting super contributions for yourself and the staff then you’re not being an effective manager.You need to take action, to change something to get the business in a right state.

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part 4

MOVING FORWARD;

WHERE TO FROM HERE?

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Chapter 10

FAIL FAST

In my case here I was separated, divorced, had virtually nothing, driving my daughter’s car which just a few years ago had given her for her 18th birthday and sitting around waiting and then happen to have a conversation with a solicitor friend of mine who said to me “Doug you’ve got to get back in helping businesses and I said. “Yes, you’re probably right.’ But then I thought “But how do I do that?” So I phoned a colleague who helped me out with some interim work, nothing much. But then I was introduced to a client of an accountant friend of mine and helped him out. Pretty sooner I was on the way. I went from earning just $200-$300 a week to earning many times that.There was a point in time in this stage of my life where I said to myself “Enough is enough”. I needed just one bit of inspiration to get myself going again. The point about moving forward is to change your mind set. That is what worked for me and that is all there is in moving forward.We all have the ability – we have the experience, the know-how. Being in business, we undoubtedly have made a lot of money and too often we end up in financial trouble and throw the baby out with the bathwater. I have a situation at the moment a medical specialist who went through bankruptcy, happened to be doing a radio interview on medical matter when a listener [honed in saying “What a cheek that doctor is

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speaking in public. He’s a bankrupt.” But what do people expect him to do? You have all this experience.You need to draw on it. Just because you’re bankrupt does not mean you have to sit back for three years and do nothing. There’s lesson that people treat us in a way that they are saying to them “I would be ashamed if I were in your situation.” There’s also a significant community benefit in supporting people get back into a work or entrepreneurship mode after bankruptcy. Think of the total impact of supporting (moral support; not financial) of entrepreneurs find new meaning and energy from getting back into business, perhaps to pursue a lifelong passion that was dulled by the bankruptcy experience , or to re-experience the joy of being your own boss, after time spend working for knuckleheads. Fortitude comes into play. Someone else’s opinion about you doesn’t need to be your reality. Because you haven’t been able to pay the tax office or another creditor does not define you as a person and so what happens with debt collectors ringing up is in a fashion akin to them trying to destroy you. That’s a very compelling reason to do some serious planning early I the piece on the question of what you’re going to do with this debt. Because all that happens is that you get inundated with these c alls, you talk to your spouse, your friends and all they are doing is sinking your self-confidence and your ability to make money. THINK ABOUT WEIGHT LOSS AS A KIND OF COMPARISON

Here you are told that being obese can bring on diabetes-2 and other life-threatening conditions. It becomes such a load on your mind.The last thing you want to be doing is to focus just on your weight – the same with money. That’s all you look. All you do is worrying about how much money you’ve lost. That’s the reason and the main reason to go bankrupt quickly. If your debts are greater than the money you have, then don’t waste your future by paying back past debts. Here’s another analogy: you hop in the car and your drive down the road; you are looking at where you are going. All you do is glancing in the rear vision mirror and every now and then, to check the things behind you – the things in the past. But it’s just a glance. If you keep looking in the rear vision mirror what is going to happen.We should look in the past – nut only every now and then to make sure no one is coming up too close behind us. It’s like checking back with your past experience.

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When people dwell too long on their circumstances or what they have lost it can damage their future. The very reason they went into a venture is because there was a fire in the belly. Dwell too long and the fire burns out. Once again: go bankrupt quickly before you lose that fire in your belly; before you lose that passion. FAIL FAST AND GET OVER IT FAST TOO

There’s a story about an athlete Jeremy Bloom which is informative. Bloom, a business owner and a former U.S.A. Olympic-level skier, competed at the 2006 Winter Games but despite being a favourite to win, he ended up placing sixth in his event.The way he handled this massive disappointment has served as a model for others. He gave himself 24 hours to be angry, depressed, upset, furious, frustrated, confused, and despondent. One minute after 24 hours, he was on to the next thing, with the failure solidly in his rear view mirror.This 24-hours-andyou’re-done approach has also been endorsed by no less an entrepreneurial icon than Richard Branson. Of course, not all of us have Olympic (or Branson) level determination, so for many mere mortals, 24-hours will be too short a time to digest a failure. But the principle still holds even if you allow yourself a bit more than a day to sulk. “24 hours is a short amount of time. I’ve often carried my failures around for longer, but never much longer than a couple of days. It’s a lesson I endorse: I separate how I feel from failure from how I feel about life and what I’m doing. As we discussed earlier in the book in “Emotions”, you do need to give yourself a short period of time to really experience your negative emotions following failure and to examine your fears and missteps has also been recommended by psychotherapists. Crying over spilled milk, it turns out, isn’t useless after all but a natural part of the healing and learning process. We earn money according to our attitude.Too often RESULT ACTION THINK ATTITUDE END RESULT

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We look at the end result of what we want and we think by changing our actions will change our result; like weight loss. Saying “I want to be thin; therefore I am going to use determination > But determination is only a short term fix. We go back to changing the way we think. We learn all about weight loss and what happens is people are talking about weight loss all around you and all that happens is that we accumulate knowledge. Our attitude really determines how we think. If we want to change our end result really what we have to do is change our attitude. And everything else will follow. If you take that to a person who might be saying ‘You owe me money.” What I fact they are doing is destroying our attitude. The smart person would say “I know you can make a thousand dollars or even a million dollars because you’ve done it in the past.You can do it again.” And that’s exactly what my solicitor friend said to me when I was moping around, not moving forward. What had to shift was my attitude and that’s powerful because it is the more direct way to the end result.

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Chapter 11

REBUILDING

We need to eliminate ‘failure’ from our lexicon. Failure is when you give up. If you have a mindset of openness and a preparedness to deal with all the difficulties then you have not failed; you are still in the game. It is the mindset that is your leverage. As you rebuild your financial life after bankruptcy, remember the hard lessons learned. You don’t want to become a serial offender; you DO want to rebuild, that’s natural, once you strip the emotional detritus that is currently around you, out of the way. Be diligent with your finances and be careful not to over extend yourself again.Take good care of your credit and your financial health after filing for bankruptcy. The whole reason for filing for bankruptcy is protection.You want to be able to protect yourself, your family, or your business from creditors. What kind of protection you get really depends on who you call for advice. Remember, businesses and individuals both have different needs.There are a few things that bankruptcy will not protect you from. So you need someone who will have the answers and who guide you through the minefield – and it can be a minefield as our stories in the book will have sharply demonstrated.

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TRICKS AND TECHNIQUES

So far I’m sure that it appears my stories have focussed on the emotional energy connected with financial issues, or indulgent waffling about my role in things, and I hear you asking “aren’t there some tricks you can teach me?”You didn’t come here for a self-help book on your emotional wellbeing. I get that, I just think it’s equally important for you to realise that a clear mind and an unemotional approach is half the battle to rebuilding your fortunes. As surprising as it may feel to you at the moment if you’re suffering financial stresses, if you have the right mental approach, you might even enjoy the next stages of the journey. I guarantee you that they won’t be boring. There are many tricks - although let’s just call them techniques. Tricks sounds deceitful and I need to be very clear on this.The techniques I have deployed or witnessed over the years as people have navigated personal and business insolvency were all legal techniques to the best of my knowledge.They were techniques allowed for under the requirements of the Bankruptcy Act and the Law. I’m not a lawyer, I don’t give legal advice. The techniques I touch on in this book are simply that. Techniques and some would say smart moves deployed by clear headed businesses and individuals. Techniques that very simply have helped countless people use Bankruptcy and Insolvency options for exactly what it is intended for; • • •

To provide a fair process for dealing with the financial affairs of insolvent debtors. Ensure an orderly distribution of the estate of the bankrupt among creditors and Allow for the rehabilitation of the bankrupt or insolvent company where possible.

We don’t live in Ancient Greece, where a person (and their wife and children) unable to pay their debts was forced to work for his creditors until such time as the debt was paid off. It’s worth noting however, that even in Ancient Greece the state placed time limitations on this and most debtors were released from slavery after five years. AVOIDING SCURRILOUS ACTS

Today, bankruptcy exists to allow for protection for individuals from having their lives destroyed by financial misfortune. It’s true that the laws have been exploited and as a consequence the Bankruptcy Act continues to be updated to prevent it’s exploitation by scurrilous individuals

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11. REBUILDING

Ultimately, laws which are often updated to capture the scurrilous often also entrap the innocent or let’s just say less scurrilous individuals. Insolvency - the in-ability to pay one’s debts isn’t a criminal Act in most instances. It used to be - but that’s not the world we live in today. That’s important to remember. Creditors and debt collectors have been known to use fear of criminal proceedings to intimidate individuals in their pursuit of monies owed. There are circumstances where the court may consider that certain actions are criminal acts of fraud or acts deliberately undertaken to deny creditors the monies they are due. You should seek qualified legal advice to make sure that your own actions don’t fall under this category. Acts that may be considered to fall under the category include; • •

Attempting to put property or assets beyond the reach of creditors. (i.e. gifting property or putting them in the name of family or friends). Going into hiding or attempting to leave the country.

These actions will get you into trouble with the law and make it difficult to argue that you simply are in the unfortunate situation of not being able to pay your bills. • •

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Deceptive behaviour will likely be considered by the courts as just that ‘Deceptive’. Your failure to pay a debt is not in itself an Act of Bankruptcy. It’s how you handle what happens after that that determines how your situation will resolve itself.

NEXT STEPS

In this book I have tried to guide you through the confusing road of bankruptcy. Without further advice, you could quickly take a wrong turn that leads you into a dead end alley with all of your creditors blocking your only exit. Thank you for reading my book. If you enjoyed it, won’t you please take a moment to leave me a review? Thanks! CONNECT WITH ME: FAVORITE ME AT: http://carltonross.com.au

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