“One of the most important functions in successfully restructuring a business is immediately creating liquidity”
A business needs to effectively manage cash flow and liquidity. This is not only required to satisfy debts that become due and payable but to also maintain confidence amongst all stakeholders of the business.
As such, one of the most important functions in successfully restructuring a business is immediately creating liquidity through the business internally by way of working capital management and cost reductions. This is the first immediate step as it creates a window of opportunity to explore further avenues such as operational enhancement, revenue growth, asset sales and debt restructuring.
An important action required in order to effectively manage working capital is to actively forecast and track cash flow. Not only does this provide a clear picture on the position of the business on a regular basis, it also instills confidence and allows for improved communication with the stakeholders of the business such as lenders. It also enables efficiency by improving collections and reducing costs.
Proper cash flow forecasting will enable the prediction of highs and lows in the company’s cash balance which will assist in planning the payment of the debts and expenses of the business moving forward. It will also create cash resources. Cash is the oxygen of a business. Without cash, a company cannot survive. As such, there must be realistic mechanisms put in place to ensure adequate weekly and daily management of cash inflows and outflows.
This is done through cash forecasting.
It is vital that the cash forecast is undertaken on realistic estimates. This would entail reviewing cash inflows over the past twelve months coupled with predicted growth or decline subject to the current cycle of the business.
If you need help with forecasting contact us today.
| Features | Benefits | Triggers |
| PART X (PERSONAL INSOLVENCY AGREEMENTS) | ||
|
For Individual | |
- Debt burden removed
- Avoids stigma and consequences of bankruptcy
- Can start life afresh.
For Creditor
- Often received more money than under bankruptcy.
- Payment of dividend often quicker and less costly than under bankruptcy.
- Crystallisation of uncertainty.
- Individual complains of inability to meet debts.
- Personal guarantees on company debt are called up.
- Individual is served with writs / bankruptcy notice.
BANKRUPTCY
- Bankruptcy usually lasts 3 years.
- May be voluntary or an application by a creditor.
- Assets vest in trustee on bankruptcy.
- Certain restrictions on bankrupt. E.g.
– Freedom to travel overseas
-Incurring of debts
- Trustee realises assets for benefit of creditors and investigates bankrupts affairs.
- Some bankrupts must contribute funds out of their earnings above a threshold.
For Bankrupt
- Debt burden removed.
- Can start afresh after bankruptcy.
- Crystallisation of uncertainty.
- Possible early discharge or arrangement with creditors.
For Creditor
- May recover debt.
- Crystallisation of uncertainty.
- Bankrupt’s affairs can be examined before a court.
For Individual
- Inability to meet debts.
- Personal guarantees fall due and cannot be met.
- Served with writs.
For Creditor
- Unpaid debts.
BUSINESS IMPROVEMENT & MEASUREMENT
- Insolvent individual enters formal arrangement with creditors.
- Nature of arrangement negotiated between individual and creditors.
- Registered Trustee administers the arrangement and pays dividends to creditors.
- Individual is released from debts.
For Individual
- Debt burden removed
- Avoids stigma and consequences of bankruptcy
- Can start life afresh.
For Creditor
- Often received more money than under bankruptcy.
- Payment of dividend often quicker and less costly than under bankruptcy.
- Crystallisation of uncertainty.
- Individual complains of inability to meet debts.
- Personal guarantees on company debt are called up.
- Individual is served with writs / bankruptcy notice.
INVESTIGATION / PRE-LENDING REVIEWS
- Indepth assessment / investigation of a debtor for a creditor / lender.
- For existing indebtness.
- For contemplated loans.
- Provides detailed information about a debtor or a creditor.
- Informs lenders about their security and how a business is operating.
- Management and financial advice to debtor can be given during investigation.
- Comfort / advice to lender about further lending decisions.
- Concerns about security and profitability of debtor by creditor who has the power to investigate.
- Uncertainty by lender whether to advance further or new funds.
DIVESTMENT & RATIONALISATION
- Involves sale of non-care business units or closure of non-performing business units.
- Streamlines complex group structures.
- Achieves cost savings by eliminating compliance returns and decreasing administration costs.
- Aligns business structures and needs.
- Improves integrity and flow of information.
- Tax savings and planning opportunities.
- Freeing up management for core business unites.
- Maximising return on assets.
- Management decision to restructure.
- Overtly complex group structure.
- Non-performing business units and non-core business units.
VOLUNTARY ADMINISTRATIONS/DEEDS OF COMPANY ARRANGEMENT
- Insolvent company can be saved. Administrator can be appointed by directors.
- Administrator
– Takes control of the company
– Investigates company’s financial circumstances, and
– Makes recommendations for the company’s future
- No need for court’s involvement.
- Appointment imposes a moratorium on debt enforcement.
- During administration, company guarantees cannot be enforced against directors or relatives.
- Deed conditions are flexible.
- All unsecured creditors are bound by the deed.
- Maximises the chances of the company continuing to exist.
- Maximises the return to creditors.
- Prevents creditors acting to the detriment of the company (i.e. assets cannot be removed).
- Allows time to prepare proposal.
- Directors can avoid personal liability for PAYG tax debts.
- Reduces chance that secured creditor may act to the detriment of company. Directors can take early initiative to save the company.
- Will release directors for insolvent trading claims by creditors if Deed accepted.
- Simpler and less costly than formal scheme.
- Independent person controls the company.
- Directors realise that the company and insolvent or likely to become insolvent.
- Directors realise that a company guarantee is likely to be enforced.
- Bankers realise company cannot meet debt reduction requests.
- Dispute between directors or shareholders not able to be resolved.
- Directors receive penalty notices from ATO which specifies that liquidation or administration is an option.
RECIEVERHIPS / CONTROLLERSHIPS
- Appointment made by
– Secured lender holding a debenture mortgage over the assets of the company or some assets of the company.
– Court order as a result of an application by an interested party.
- Receiver/Controller realises assets on behalf of the secured lender or as per court order.
- Control of assets removed from directors.
- Lender recovers part or all of funds.
- Possible trade on of the company with the end result of returning company to profitability.
- Lender has comfort from the receiver taking control of the assets.
- Independence of receiver can alleviate directors’concerns.
- If dispute between directors, appointment by court resolves impasse.
- Company having liquidity problems.
- Company financials showing continual losses.
- Dispute among the directors of the company.
- Failure to meet loan repayments or other forms of default or erosion of security.
- Lender requests investigation.
- Appointment of liquidator or voluntary administrator.
- Directors/shareholders may have a charge.
COURT LIQUIDATIONS
- Appointment of liquidator is made by the Federal or Supreme Courts usually on the application of a creditor.
- Liquidator takes control of the company and,
– Investigates its affairs;
– Realises assets for the benefit of creditors;
– Reports to the ASIC on the failure of the company.
- A creditor’s debt may be recovered.
- Director’s actions can be investigated.
- Can resolve shareholder’s disputes.
- Company placed under control of independent Court Officer.
- Allows debtor insurance claim to be made by creditor.
- All creditors treated equally.
- Sometimes can recover debt from directors personally.
- Ability to pursue recovery of impugned transactions.
- Inability to recover a debt.
- Dispute with other shareholders.
- Oppression by other director / shareholders.
- Assets of company being dissipated.
CREDITORS’VOLUNTARY LIQUIDATIONS
- To wind up the affairs of an insolvent company.
- To provide fair and equitable distribution of the company’s property amongst its creditors.
- Liquidator takes control and proceeds similar to a Court Liquidation.
- Directors are able to relieve themselves of the legal consequences of operating an insolvent company.
- Creditors may recover some of their losses through a managed asset programme.
- Other benefits similar to a Court Liquidation without the cost of Court application or delay.
- Company has become insolvent or having trouble meeting commitments.
- When a voluntary administration has come to an end in circumstances where creditors desire that a winding up take place.
- Directors receive penalty notice from ATO which specifies liquidation or administration as an opinion.
- Other legal action against the company.
MEMBERS’VOLUNTARY LIQUIDATIONS AND DEREGISTRATION
- Decision to windup is internal and subject to outside influence.
- Liquidator need not be a registered liquidator.
- All liabilities of company are paid.
- Distribution to shareholders of surplus assets.
- Transfer of some assets e.g. shares, real estate free stamp duty in some states.
- Distributions could be tax free to shareholders.
- Cost savings –no further accounting, taxation or secretarial services required.
- Distributions in specie allow for assets to be distributed without involving cash, bank charges and possible short term bank loan interest costs.
- Disputes between directors / partners.
- Company has stopped trading and is solvent but of no further use.
- Company affected by family law ruling to divide assets.
- Company has pre-CGT capital profits to distribute.
