Bankruptcy is almost always the last thing anyone would ever want to happen to their small business. Bankruptcy refers to the situation where your business closes down and a trustee takes control over your business assets as a result of your inability to repay your business debts. Not only does bankruptcy disrupt your income and credit rating, it may also adversely affect your staff and customers.
However, bankruptcy is a last resort option, meaning that it is not the only option in circumstances when you are unable to repay your business debts. Therefore, when your business is running into financial trouble, it is highly recommended that you immediately seek a business bankruptcy lawyer who can advise you on different ways of repaying your business debts without involving a declaration of bankruptcy or closing your business.
But how do I choose a suitable lawyer? Here are five recommended questions for you to consider when hiring a business bankruptcy lawyer.
1. What is your experience with business bankruptcy matters?
Obviously, you will want a lawyer who has experience in bankruptcy law rather than a general practice lawyer. A good starting question is to ask if the lawyer has previously advised on or dealt with bankruptcy affairs. Through this, you can get a better understanding of likely legal outcomes, costs and the commitment that both you and the lawyer will undertake.
It also is important to emphasise that you seek legal advice in relation to business bankruptcy not personal bankruptcy, which is governed under slightly different rules.
Moreover, technically speaking, ‘bankruptcy’ only applies to individuals (including small businesses). However, when a company is unable to repay its debts, that is technically called ‘liquidation’. Despite the terms ‘bankruptcy’ and ‘liquidation’ often being used interchangeably by the lay person, they have significant differences in the eyes of the law. For example, bankruptcy is governed under the Bankruptcy Act 1966 (Cth) while liquidation is principally governed under the Corporations Act 2001 (Cth). Therefore, if your business actually falls within the definition of a ‘company’, you may want to hire a lawyer who can help you understand the liquidation process and its alternatives under Corporations Act.
2. How will you help me?
At the minimum, your lawyer should at least advise you about the four options for dealing with debt that are available under the Bankruptcy Act 1966:
- Declaration of intention
- Debt agreement
- Personal insolvency agreement
- Bankruptcy
However, depending on your circumstances, you may also want your lawyer to further help you complete necessary paperwork, declare your assets to your trustees and/or represent you in court on bankruptcy matters.
Therefore, it is important that you be clear and direct about your needs so that you can determine whether the prospective lawyer is the right fit for you.
3. What information do you need from me?
This question purports to gives you an idea of what you need to gather and provide for your lawyer. Usually, you would need to provide information relating to the value of your business assets, loan documents, debt repayment records, etc. It is also important that you ask your lawyer for a brief rationale why you need to provide a certain piece of information. This is because your lawyer should only gather information for the purposes of understanding the nature and risks of your situation. Any irrelevant information which you disclose may not only complicate the matter for your lawyer, but it may also compromise your business secrets.
4. What are your costs?
Given that you are already facing financial trouble, it would be within your financial interests to ask how the lawyer will charge you for his or her legal service.
Billable hours are when the lawyer charges for every hour spent on your matter. Some lawyers may even charge you every six minutes. Therefore, it is important that you get an idea of how much time your lawyer is expected to take. In addition to the time structure, also ask your lawyer of what type of tasks or bases upon which he or she will charge you. This ensures transparency in the lawyer’s billing method.
Flat fee is an one-off, fixed price for the lawyer’s service. While the flat fee structure provides a definite payment figure, it may not always cover all legal costs such as filing or contract negotiations. Therefore, it is important to ask what type of services and tasks will be covered under the flat fee.
5. Is there any conflict of interest?
If your lawyer is also working for your trustee or creditors, there would be a conflict of interest involved. If so, this would likely result in your lawyer being forced to abandon your matter halfway through due to ethical and code of conduct rules, thereby wasting your time and money. Thus it is best to avoid such dramas early on by asking this simple question.
Conclusion
It is important that you ask the right questions so that you hire a suitable yet cost-effective business bankruptcy lawyer.
Require a business bankruptcy lawyer? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 750+ expert lawyers or to get answers to your legal questions.
