The international legal network
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.
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: firstname.lastname@example.org
Wed, 08 Jul 2015 01:15:24 GMT
Wed, 08 Jul 2015 00:52:37 GMT
Wed, 08 Jul 2015 00:48:00 GMT
Wed, 08 Jul 2015 00:35:28 GMT
LAWorld Annual Conference (Cape Town) from 5pm on Tuesday the 5th of April, 2016 to 2pm on Friday the 8th of April, 2016
Europe/Middle East Regional Meeting and Lawyers Next Generation (Bratislava) from 5pm on Friday the 5th of February, 2016 to 5pm on Saturday the 6th of February, 2016
North and South America Regional Meeting (Miami) from 6pm on Wednesday the 11th of November, 2015 to 2pm on Friday the 13th of November, 2015
Europe/Middle East Regional Meeting and Lawyers Next Generation (Milan) from 5pm on Friday the 18th of September, 2015 to 5pm on Saturday the 19th of September, 2015