Case Studies

Before we launch into the case study, depending on when we are engaged, the above diagram displays how we look to influence the corporate health of a business and how this plays out over a timeline. There are stages a business goes through to achieve the growth and renewal from a declining situation, and in-between how we navigate the situation in the emergency and restructuring phases.

Given the Company’s financial position and the urgency surrounding the DPN (emergency phase), we recommended an insolvency-based solution (restructuring phase) aimed at preserving enterprise value, enabling ongoing trade, and protecting the director from personal liability (growth phase).

Our recommendation involved the Company to pursue Voluntary Administration (VA) with the aim of proposing a Deed of Company Arrangement (DOCA). This strategy was considered the most appropriate given the urgency surrounding the DPN remission period, as well as the complex creditor landscape, including equipment financiers, a commercial lease, and significant related party debts. VA provided a mechanism to preserve the business, manage creditor claims in an orderly manner, and offer a structured path to potentially compromise debts while continuing operations.

Our key strategic steps included:

• Licensing Operations: We structured a license agreement allowing a different or new entity to take over day-to-day business operations, ensuring continuity and safeguarding the core of the business. Additionally, this step derisks trade on liabilities for the administrator.
• Liaising with various stakeholders: We acted as a bridge between the Company and all the associated stakeholders such as the CEO, CFO, the shareholders, the administrator, the landlord, the Company’s lawyers and several creditors.
• Workforce Transition: All staff were terminated and re-employed by the licensee entity, with no outstanding employee liabilities left in the old Company.
• Capitalising the Licensee: The new entity was adequately funded to maintain operations, ensuring supplier and customer confidence.
• Assessing Director’s Repayment Capacity: We reviewed the director’s financial position to understand the potential recovery from the $500,000 loan and any possible contribution toward a restructuring deal.
• Liquidation vs. DOCA Analysis: A comprehensive estimate of recoveries in a liquidation scenario was prepared to inform creditors and support the Deed of Company Arrangement (DOCA) proposal. The DOCA proposal was constructed in a way that satisfied the key stakeholders.

Although the above steps seem academically straightforward, once the strategy was set, the implementation required continuous and daily engagement. A key player in the restructuring was the administrator we recommended who played a pivotal role in achieving the outcome. 

As a side note, matching the insolvency practitioner to the unique requirements of a client/appointment, can have a major bearing on the success of the strategy. 

The administrator played a key role in solving difficult problems, especially with the landlord. They worked out a deal to keep the place open under fair terms that helped the business keep running. They made sure to act independently to support the creditors and safeguard their own duties. By remaining impartial and communicating openly with everyone involved, the administrator built trust and supported the proposed DOCA.

Stay tuned for the final episode to find out what happened at the creditor’s meeting and where the business is now….