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    Turnaround & Restructuring

    Oct 19, 2021 10:14:21 AM

    Lots of good things have happened on Mondays. 

    On Monday the 14th of February 2005 YouTube was born and our screens have been graced ever since with cat videos, fail videos and conspiracy theories  but on Monday 16th of October 1950 the Lion the Witch and the Wardrobe was first published but for many Sydneysiders, Monday the 11th of October 2021 marked a very exciting day. 

    Freedom day or for the newly elected Premier Free-Dom[inic] day marked the first major step in the opening up of NSW and Australia and the rebuilding of our local, national and international economy post Covid 19. 

    Due to Covid 19 and the lockdowns, many businesses that were once healthy, profitable and successful have been challenged and hit by factors outside of their control. 

    It comes as no surprise that these lockdowns experienced by NSW and Victoria have had major impacts on business especially in relation to cash flow. 

    We have seen successful and well known restaurants have to enter Voluntary Administration, we have seen property developers struggle and be forced to divest of key future development sites and we have seen the myriad of small coffee shops have to close their doors due to the forced lockdowns and trading conditions. 

    It is our opinion that the fallout from the lockdowns in Sydney and Victoria has yet to fully begin. We believe that we will see a lag as businesses ramp up their own debt collection and become less focused on ‘getting through covid’ and more focused on ‘getting back to business’. 

    From our own experience, in the last fortnight we have had 10+ engagements to chase debt in the following industries: 

    • Construction 
    • Professional services 
    • Manufacturing; and 
    • Personal goods and services. 

    We also believe that the ATO will start to enforce overdue tax debts and become far less friendly as the economy opens up again. 

    So what can a business do if they are struggling to pay their debts? 

    Restructuring and Turnaround have traditionally been linked to businesses who have ‘failed’. Maybe they made bad business decisions or had too much riding on a key client. It was very rare in the past to have a restructure due to external uncontrolled factors. However we believe that has changed as a result of the impact of Covid. 

    Restructuring a business or recapitalising a business involves a process which can be either formal or informal by which the Directors engage a professional to review, analyse, advise and execute a restructuring plan. As a result of legislative changes there are now more options than ever available to businesses. These include: 

    • Transformation 

    This is the process of a solvent entity who may be experiencing particular headwinds, using cash reserves or capital raised to ‘transform’ their business processes. Usually this involves the business having good underlying foundations and metrics whilst experiencing temporary or systemic headwinds such as undercapitalisation, lack of technology renewal or a lack of clear management.

    • Safe Harbour 

    This is where an insolvent or soon to be insolvent entity raises capital, usually via debt or asset divestments, to execute a turnaround plan which would place the company in a better position that should it be placed into administration. This process affords certain protection to directors when raising debt or divesting assets to fund the turnaround. 

    • Small Business Restructuring 

    This is where an insolvent or soon to be insolvent entity appoints a Restructuring Practitioner to oversee the restructuring proposal which is developed by the directors and voted upon by the creditors. This process affords certain protections for the business especially around creditors commencing actions in regards to debts. 

    • Voluntary Administration (DOCA Process) 

    This is where an insolvent or soon to be insolvent entity appoints an Administrator to explore possible options for the business. Focusing on the Deed of Company Arrangement (DOCA) aspect, this tool enables parties to propose a restructuring or recapitalising of the company where creditors are bound by the outcome. This process is extremely useful in situations where balance sheets are carrying too much unsecured debt or unbearable tax debts. 

    • Liquidation (Insolvent)

    This is where an insolvent company appoints a liquidator to realise its assets and deal with its debts. Whilst this may not seem like a straightforward restructuring tool, in some instances this can be utilised to acquire assets out of liquidation and discard accrued unsecured creditors. 

    We recently conducted a webinar on Restructuring & Turnaround 101. You can download the slides here. 

    Now more than ever there are more options available to a business who is facing headwinds, carrying too much debt or has a significant outstanding tax liability. Ensuring that the right plan is implemented is critical to a successful turnaround. 

    Unfortunately the reality is that businesses who have suffered as a result of Covid will unfortunately have to carry the burden for the next few years unless they take action now. 

    The Ask 

    We would like to speak to any client or business who is carrying more than $100k in ATO liability. 

    We believe that we can assist and formulate a turnaround or restructuring plan that suits their needs. 

    Please reach out to James Frank (jfrank@franklaw.com.au) or Ash (ayogachandra@franklaw.com.au) to book a Free First Conference to discuss options.