The creditor offers a discount but asks for new security

The lower amount comes with another obligation

A hypothetical creditor offers to reduce a company's debt if the director provides new personal security. The director focuses on the discount and sees a way out of the immediate pressure. Before accepting, have the complete counteroffer reviewed. A lower balance and a different risk to property are separate features of the proposal, and both need to be understood.

Put the proposed changes beside the existing arrangement

Collect the current loan or trading documents, existing security and guarantees, and the new proposal. Identify what the creditor wants added, replaced or retained. Do not assume the discount cancels earlier obligations or that new documents merely repeat them. Ask the lawyer to explain the combined effect and which person or entity would be making each commitment.

Consider the company's wider position

ASIC's director guidance emphasises awareness of the company's financial position and obtaining qualified advice where insolvency is a concern. A counteroffer should be assessed within that broader position. Do not give new security simply because one creditor is pressing hardest. The company's circumstances, other obligations and the proposed transaction need appropriate professional assessment before a decision is made.

Source: ASIC: Insolvency for directors

Test affordability separately from the legal risk

In the hypothetical example, the reduced repayment may fit the cash forecast while the requested security remains unacceptable or unsuitable. Conversely, acceptable wording does not make an unaffordable payment plan workable. Prepare the dated cash information and obtain independent advice about personal obligations. Avoid treating the two reviews as alternatives when the proposal contains both financial and legal consequences.

Ask focused questions about the counteroffer

Have the adviser clarify the secured amount, property involved, release conditions and consequences of default where relevant. These are matters to examine in the actual documents, not conclusions supplied by this article. If an alternative is proposed, record it accurately and wait for the relevant acceptance. Do not assume a verbal discussion changes the written security terms.

Decide on the complete package

Keep the approved terms, advice and authority records together before any documents are signed. CRP can help organise the commercial information for the negotiation. A discount may be useful, but the decision should reflect everything being exchanged for it. Comparing only the old and new debt totals can hide the most consequential part of the proposal.