Aussie mortgage holders are not the only ones struggling to make ends meet and pay their debts this Christmas.
asserted
ends → struggle → debts
After 188 years of rich history, Australian retailer David Jones was forced to admit defeat this week.
asserted
Jones → force → defeat
Shoppers will be wondering what is going on and what is next for the iconic retailer.
asserted
what → wonder → retailer
To understand what is unfolding at DJs, it helps to consider what happens to individuals when they cannot pay their debts.
asserted
they → understand → debts
What happens when you fall short?
asserted
you → happen → ?
When this happens, households or individuals have several options.
asserted
households → happen → options
They can, of course, try to cut their costs or boost their income to keep making payments.
asserted
They → try → payments
They can appeal to their creditors (banks and others they owe money to, like utility or telco companies) for an altered repayment structure under a financial hardship arrangement.
asserted
they → appeal → arrangement
In the worst-case scenario, they can default on their payments and wait for their lender to sell their home from under them to recover the money owed.
asserted
lender → default → money
Or, before that, they can voluntarily declare themselves bankrupt to the Australian Financial Security Authority (AFSA).
asserted
themselves → declare → Authority
AFSA then appoints a trustee who takes stock of the person's assets and debts, and sells the assets to distribute the proceeds among the person's creditors.
asserted
who → appoint → creditors
The person is declared bankrupt for three years and one day, then emerges with a clean slate, keeping only a few personal items but free of most of their debts (excluding some debts like child care support owing).
asserted
support → declare → debts
What happens when a company can't pay?
asserted
company → happen → ?
As opposed to going bankrupt, the word for when a company cannot pay its debts when they fall due is 'insolvent'.
asserted
they → oppose → debts
Company directors face strict penalties if they continue to trade while insolvent or on the brink of insolvency.
asserted
they → face → insolvency
As a first point of call, they can appeal to their creditors and suppliers for a reprieve from payments, as DJs had been doing with its rent payments owing, including to its biggest landlord, Scentre Group, which owns Westfield shopping centres.
asserted
which → appeal → centres
If this fails, however, directors who suspect their company is either insolvent — or about to be — can voluntarily appoint an administrator to take over the day-to-day running of the business (similar to the trustee of a bankrupt person).
asserted
company → fail → person
Crucially, this can trigger a freeze on payments due — in DJs' case, most pertinently, overdue rent to its landlords — while the administrators take stock of the business.
asserted
administrators → trigger → business
In addition to this, there is also the option for a company's creditors (people the company owes money to) to appoint an administrator or a receiver to protect their interests.
asserted
company → be → interests
In the case of DJs, both things have occurred this week — with DJ's directors appointing McGrathNicol as administrators and DJ's largest creditor Hilo Global appointing another firm, FTI Consulting, as receivers.
asserted
Global → occur → receivers
The administrators and receivers will now duke it out to decide the future of the company, which is likely to include radical downsizing of its retail footprint (that is, closure of stores) and sale of excess stock (against which the loan from Hilo is secured).
asserted
loan → duke → Hilo
To insiders, the collapse of David Jones comes as no surprise.
asserted
collapse → come → surprise
The rise of online shopping has decimated the share prices of physical retailers over the past decade or so.
asserted
rise → decimate → decade
Some retailers have had greater or lesser success pivoting to online, but the decline of big chain retail stores has been on the cards for a while now.
asserted
decline → have → while
Of course, this week's interest rate rise, pushing borrowing costs to levels not seen in 18 years, will further crimp consumer spending, particularly in the lead-up to the busy Christmas period.
asserted
rise → push → period
Remaining retailers, however, may cheer the prospect of cheaper rents as DJ exits malls around the country.
uncertain
DJ → remain → country
A tussle will now likely take place between the company's creditor-appointed receiver and its board-appointed administrator as they seek to radically restructure and/or ultimately wind down the retailer.
asserted
they → take → retailer
In lending money to DJs, Hilco Global took as security the stock sitting on shelves and hanging on coat hangers in DJ stores.
asserted
Global → lend → stores
The Aporia
