Quality legal advice anywhere in the world

LAWorld is a non-exclusive international legal network of 50 independent mid sized law firms covering most of the major commercial centres around the world, with more than 1300 lawyers across 90 cities. Its central purpose is to provide the clients of its members with instant access to quality legal advice anywhere in the world.

Members share many characteristics. Most are medium sized within their jurisdiction, able to devote personal partner attention to their clients; valued for the breadth and depth of their legal expertise and the quality of client service and many are active in the International Bar Association.

All have broadly based commercial, corporate and business practices; strengths in litigation; international and domestic clients; English speaking lawyers and a commitment to the use of the latest technology to benefit clients.

Through membership of LAWorld, they can recommend foreign counsel most appropriate and qualified to meet the needs of every client and provide local expertise, lawyer exchanges, meeting facilities in most capital cities and global friendships.

LAWorld News

Payfoll Funding: How to stay ahead of the queue of creditors

An ever-present challenge facing financiers is how best to secure repayment of the money that they lend.  Traditionally, taking security over assets has been viewed as one of the best protections available.  However, through the use of “payroll funding”, it is possible for an otherwise unsecured lender to obtain for itself priority for repayment that can even outrank secured lenders.

The problem

Normally, if a borrower company becomes insolvent any net realisations from its “circulating” assets (which generally include inventory, debtors, and bank accounts) will be distributed firstly to employees for their wages and entitlements, then to secured creditors, and only then to ordinary unsecured creditors.

This means that a financier looking to provide new funding to a company, even if granted security, will normally rank behind employees and all existing secured creditors of that company.  This will often leave the new financier with too great a risk of non-payment to be able to provide funding, especially if the borrower is already in financial difficulty.

The opportunity – payroll funding

However, there is a way for financiers to jump to the head of the queue of creditors.  If a financier provides funding for the specific purpose of paying a borrower’s employees (pursuant to an appropriately-structured financing agreement), the financier will take over the priority of the employees paid using that funding.

This creates a mutually-beneficial opportunity.  The borrower can receive much-needed cash flow while the funder receives a right of repayment outranking not only ordinary unsecured creditors, but even outranking secured creditors to the extent of the company’s “circulating” assets.

Despite these benefits, payroll funding is still a largely untapped market in Australia, providing significant opportunities for financiers looking to expand their range of services, so long as they take care to obtain experienced legal advice regarding the structuring of their payroll funding agreements.

Stephen Polczynski, Managing Partner  Tel:  +61 (0)2 9234 1501     Email: spolczynski@plawyers.com.au

Business News

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