Sometimes clients stick their heads in the sand and do not seek specialist advice when they are initially served documents or become aware of looming issues. This being the case, we are occasionally referred files at the very last minute. Even in these situations swift and detailed analysis and careful project management can assist in obtaining a great result for clients as this month’s case study depicts.
BACKGROUND
Our client operated an earth moving
business. By the time they contacted de Jonge Read the company had already been served with a Winding Up Notice. The hearing was due to be heard in a matter of days. The petitioning creditor was the ATO. Our client had a history of non-compliance and had come to the attention of the ATO in the past. With a Winding Up application served and due to be heard the client felt it was too late and nothing could be done. This was not the case.
STRATEGY
Based on our advice the client appointed an Insolvency Practitioner (IP). Immediately upon this appointment, de Jonge Read engaged with the IP and the ATO. In conjunction with the IP we were able to convince the ATO to adjourn the Winding Up hearing so a Voluntary Administrator could be appointed to review the position of the company and enable the director to put forward an offer under a Deed of Company Arrangement (DOCA).
We then engaged with the client’s bankers to advise them of the situation and ask them not to take any action. The basis of our approach to the bank was that property assets would be sold and secured debts of $1.6m repaid. The bank agreed.
The assets of the company were valued. This enabled us to predict with confidence the return that unsecured creditors would receive if the Winding Up proceeded and the company entered liquidation. This was important as it allowed the director to substantiate and determine the amount of the offer to be made under the DOCA, being an amount that could be paid if the company continued to trade.
When the business got into financial trouble it had borrowed money from various family members and related entities. Our firm worked with the director and the Administrator to substantiate, that these were legitimate debts, and collated the supporting information required to satisfy the Administrator. We were able to provide sufficient evidence and the Administrator accepted these creditors for voting purposes.
When all factors were taken into account it was determined that the return to creditors under a liquidation scenario would be around $100,000. The director was able to gain the support of family members to put forward an offer of $150,000 payable within 12 months.
During this process, we worked with the director to help explain the deed offer to trade creditors. Through this process, the director was able to identify 6 other creditors who were prepared to support the DOCA offer. Our firm assisted in arranging proxies from all supportive creditors and submitted them to the Administrator.
OUTCOME
The meeting was held and creditors supported the offer which was ultimately successfully voted through. The ATO then withdrew the Winding Up Notice. This was on the basis that the creditors had as a majority in number and dollar supported the offer which resulted in them receiving a superior outcome through the Deed. If the ATO were to continue the action all unsecured creditors, including the ATO, would receive a lesser return.
Subsequently the amount offered under the Deed was paid within 3 months, and control of the company was returned to the director. The business was preserved, jobs saved and a better return provided to all unsecured creditors.
TAKE HOME
Our high level of expertise in project management was crucial in achieving this outstanding result for the client. Negotiations of this nature with Insolvency Practitioners, financial institutions and unsecured creditors can be delicate and require a skilled and experienced hand. Our firm has a great deal of experience in these sensitive areas.
While it is always best to seek independent professional advice as early as possible, this case shows that it is never too late to influence and improve the outcome that would otherwise be expected.