A settlement proposes work instead of cash: assess the insolvency questions
Assess proposed services in satisfaction of debt, valuation and insolvency review without promising non-cash immunity.
Corporate Recovery Partners
01 / 06
A different form of payment still needs review
A financially troubled debtor offers services instead of paying your outstanding invoice. The proposal may have commercial value, but do not assume that avoiding a bank transfer removes insolvency questions. Obtain legal and accounting advice before agreeing. Identify precisely what is being exchanged and what happens to the original debt if the promised work is not completed.
Imagine a maintenance contractor owing a supplier and offering to service the supplier's warehouse equipment. List the proposed tasks, qualifications, parts, dates and access requirements. Ask whether the supplier actually needs the work. A quoted retail value is not automatically the same as useful value to the creditor, particularly if extra expenditure is needed to make the arrangement workable.
Do not assume a settlement label prevents scrutiny
ASIC explains that liquidators investigate company affairs and may recover certain transactions. Ask your lawyer how the specific non-cash proposal should be assessed if insolvency is a concern. The general guidance does not determine the result for this exchange. Neither calling it barter nor recording an agreed value establishes that the transaction is beyond later review.
Have the agreement explain when any credit arises and how incomplete or defective work is addressed. Consider whether independent verification is appropriate before applying an amount to the ledger. Keep tax treatment and documentation under professional review. Do not clear the full account merely because the debtor has promised to attend over the next few months.
In the maintenance example, the debtor may need staff, parts and insurance to perform. Ask what evidence supports its ability to deliver the proposed services. If it stops trading halfway through, the supplier may need another contractor and still face an unresolved balance. Compare that practical exposure with other available options using advice about the actual circumstances.
Preserve the proposal, valuation support, advice and evidence of any completed work. Avoid retrospectively assigning a convenient value to make the ledger balance. If the arrangement proceeds, record each agreed credit accurately and monitor outstanding performance. A non-cash settlement should be understood as a specific transaction with its own risks, not a shortcut around assessing a distressed debtor's payment.
