15 June 2020

Financial Stress: Considerations When Assisting Others

The current Covid-19 crisis has been an eye opener to us all and only time will tell the affects, implications, ramifications of what we have been through.

In light of that we are taking this opportunity to summarise what you need to consider if you have investments or deposits or managed funds that you may wish to use in appropriate circumstances to assist in business and family circumstances where there may be financial stress from third parties such as banks, other lenders, creditors etc.

We are dealing with a number of variable situations where, in some cases people have come into this current climate in a position of strength and in other cases people are vulnerable with large borrowings, stress on their businesses, stress on their income and so on.

We have been engaging with a number of family and business situations where those with reasonable reserves in investment portfolios, family trust investments and so on, are using those resources to prop up their businesses and take the stress off business loans. In other situations clients are advancing monies to members of their family including children and taking security for those advances while at the same time taking out bank loans that are otherwise causing some financial distress.

It will be occurring to many of you who are in positions of comfort that there may be situations within your own business or your family’s business or within your family itself where you may be able to provide assistance.

These are all commendable and natural responses to situations where there will clearly be some economic difficulties and stress. We do advise those of you who wish to assist in this manner to take appropriate legal and accounting advice before you advance any money to business entities or family members. There are significant implications if these advances are not properly structured, correctly documented and secured for example:

  • there may be issues on a liquidation or receivership which could mean that your funds are compromised;

  • there could be issues on any matrimonial or relationship property breakdown if the funds are not secured and recorded in a particular way;

  • there could be issues whether the advances have been properly made and in fact repayment is validly enforceable;

  • there may be some tax benefits or implications if the loans are not structured correctly;

  • you may need to think about guarantees in respect of any advances to companies, trusts or other entities.

While we adhere, of course, to the golden principle that personal and business assets and affairs should be kept separate and apart to avoid risk, there are very easy mechanisms to secure personal investment in business or family assets and the current climate may be an appropriate situation for you to consider these possibilities.

We are more than happy to discuss any of these issues with you and can be of assistance in structuring financing options should you  have turned your mind to these possibilities.

In this regard please do not hesitate to let us know. It is important that appropriate steps are taken to secure your family assets and your family wealth and this can be done with the appropriate processes we can put in place for you.



The above information is of a general nature only; in no way does it constitute legal advice. All readers should contact a law firm for advice relating to their specific circumstances.

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