Making any form of insolvency or restructuring appointment is a stressful time for directors and shareholders. Whilst embarrassment and fear of the unknown are common emotions, it is important to realise there is no shame in a business failing or experiencing liquidity issues as these things happen all the time and not all businesses are set to prosper and succeed.
Various questions and matters need to be queried and traversed by directors/shareholders to ensure the insolvency/restructuring professional they appoint proceeds in the most efficient and favourable manner for them and all other stakeholders.
This article will identify some of the options available and provides a set of questions and issues (not exhaustive) to be reviewed, answered and considered by directors/shareholders prior to making any decisions about the future of their company.
There are probably several factors causing you to consider taking action with serious consequences for your business and yourself:
- The company has financial issues. You are struggling to pay debts on time. You are aware if you continue to trade when you know the business is insolvent you are breaking the law and could face imprisonment.
- Creditors are sending notices and threatening legal action over unpaid debts.
- Shareholders and directors are hostile and there are disputes within the company.
- You fear company creditors or shareholders may take the company to court to be wound up and put into liquidation.
- You have lost clients/sales are in decline.
- Dramatic changes in your market have impacted your trading conditions.
You realise you need expert financial advice on what steps you should take next.
Options available to you
Discuss your options and step through the checklist, below, with one of our friendly financial and business advisors. We’ll listen to you, understand your situation and suggest options for you and your business. Possible options for you include:
A liquidator, registered with ASIC, is appointed. The liquidator will take control of your company. They have a duty to act on behalf of your creditors.
The liquidator’s main concerns will be to realise company assets to raise funds to pay the costs of the liquidation and all, or part, of the outstanding company debt. At the same time, they will investigate the company’s finances and management. They produce a report for ASIC identifying the causes of the company’s failure.
The process may include meetings with creditors or company directors. Company assets will be sold, normally via auction. Funds raised from the sale of assets are used to settle outstanding debt, in full or in part.
Finally, the liquidator delivers a report to ASIC and the company is deregistered.
Your fellow directors may opt for voluntary administration. You will hand control of the company to an administrator who will ensure the business continues to trade while investigating the company’s finances. The administrator will aim to pay outstanding debts AND save the company if it can be saved.
There are three possible outcomes from voluntary administration:
- A Deed of Company Arrangement
The DOCA is a legally binding agreement between the company and its creditors. It details the amount of debt to be repaid and documents how and when debts will be paid back, with options for repayment including lump-sum payments or instalments over time, based on future profits from sales of assets. When the debts have been repaid as agreed the company will resume trading.
- Return control to the directors
The administrator’s financial investigations indicate the company will be able to continue to trade successfully and profitably.
Restructure and Turnaround
You will work with restructuring and turnaround experts. The team will review the company’s financial structure and situation. They will identify strategies to improve cash flow, source additional funding for business growth, restructure the company or other solutions to improve your company and encourage growth and profitability.
Any of the options listed above may have serious consequences for your company, you and your family. A thorough review of the checklist, below, will help reduce the risks to you.
A set of questions and considerations before you take your next step. We recommend going through this list with one of our team to advise and help you:
Licensing and Insurance
Am I seeking professional advice from a licensed and regulated practitioner and does s/he hold appropriate professional indemnity insurance?
Who recommended me to the practitioner I am taking advice from?
If it was an online/google source or someone I do not know maybe I should get a second opinion to confirm the advice.
Current Adviser’s Opinion
What does my company’s accountant or lawyer think about the practitioner I am talking to?
Type Of Appointment and Experience
What type of insolvency administration is best for my company?
How many of those types of appointments has the practitioner I am talking to undertaken?
Length, Cost and Quote
What is the estimated length and cost of the insolvency administration?
Has this estimate or quote been put in writing?
Who Acts For Who?
Does the practitioner I appoint work on behalf of the directors or the creditors?
D and O?
Do I have directors’ and officers’ insurance?
What liabilities of the company have I personally guaranteed?
Which of my personal assets are at risk in this regard?
Related Party Transactions
Are there any transactions in the past (say) four (4) years made to the benefit of me and my related parties to the detriment (objectively) of the company?
Who holds the company’s books, records and data?
What questions need to be answered in the director’s questionnaire of the particular practitioner I am talking to?
Report On Company Activities and Property (ROCAP)
Am I able to complete all the relevant financial information required in the director’s report on company activities and property?
ATO and OSR lodgments
Are my tax/statutory lodgements up to date?
If they are late what are my personal exposures as a director?
Are my financial reports up to date?
Director Penalty Notice (DPN)
Do I have a director penalty notice risk for unpaid tax and superannuation?
What funding can I secure for the company post restructure?
Will the appointment affect any licenses I hold?
What impact will the appointment have on the company’s bankers and any personal borrowings I have with those banks?
Will the appointment be on public record – where else will it be advertised and notified?
Will the company’s business be advertised for sale by the practitioner during the administration?
What are the benefits and risks in this regard?
I have a strained relationship with a company banker and suspect they may not support my restructuring ambitions in administration.
What other financiers can help refinance these existing banks to give the restructuring plan a better chance of success?
What are the refinance costs/benefits in this regard?
Will the appointment impact my credit rating and future financial requirements?
What will happen to the company’s available cash at the bank on appointment?
On appointment who has full control over the company’s assets and business?
What role do I have in this regard?
Can the practitioner I appoint be replaced by creditors or can a secured financier take away control from my appointed practitioner?
Cash-Flow and Practitioner Risk Profile
Do I have enough resources/funds and the right practitioner to take control of the business while we investigate a company restructure?
What does my (say) six-week cash flow in administration look like?
Walk The Walk Examples
Has the practitioner I am talking to ever traded on a business in administration to a successful deed of company arrangement/creditors’ trust – examples?
What impact will the appointment have on the customer, lease, rental, landlord, employment, supply, and other contracts?
As a director/employee will I get paid during the administration period?
Support & and
Do I have the support of my employees and key trade creditors to effect a restructure and turnaround plan?
What happens to employee entitlements of the directors, shareholders and other related parties of the company on appointment?
When my company’s assets are realised, which creditors get paid and in what order?
How we can help you
At Corporate Lifeline, we understand the reality of any insolvency/restructuring appointment. It is a tense and difficult time for directors/shareholders. We’ve already helped hundreds of Australian companies and we can help you, too.
However, canvassing the information and responses to the above questions, with the help of a financial professional, prior to any insolvency/restructuring appointment are key to improving outcomes for all stakeholders affected by the relevant administration.
If you have spotted the red flags warning of financial distress and potential corporate insolvency early enough, Corporate Lifeline’s Business Advisory team will work alongside you.
We will review the company’s financial situation and your financial and corporate structure. We’ll develop tailor-made solutions and strategies to help your company back to successful trading.
We will help you to implement the changes and we’ll stay with you monitoring company finances to be sure of continued success.
If your company is insolvent, our financial experts will work with you, identifying options to give you and your business the best possible outcome.
Contact one of our professionals today.