The persistent issues of supply chain disruption and staffing shortages that crippled many businesses have been exacerbated by rising interest rates, cost of living crisis, and in many cases a natural disaster on top of this can destroy key business assets.
Whether these affected businesses can recover is uncertain. It is expected that to have a chance at survival, many will need to restructure at the very least their balance sheets, and in some cases their operations. To assist those grappling with a restructure there are tools available. Now is also the time to access Restructuring Expertise to receive the necessary guidance and properly access the array of tools potentially available to a business encountering such difficulty.
The restructuring tools available include:
- Small Business Restructure
- Safe Harbour
- Deed of Company Arrangement
For those businesses where restructuring is not an option, consideration may need to be given to effecting closure and an exit through a formal liquidation process.
Small Business Restructure
The Commonwealth Government recently introduced a formal debt restructuring tool which can help restore positive cashflow to small businesses impacted from events such as a natural disaster. The Small Business Restructure (SBR) process is designed for small companies who have an underlying profitable business, to help reset their balance sheet whilst remaining in control of the business and compromise their debt in order to continue in existence and trade viably in the future.
The SBR process commenced in January 2021 in response to the COVID-19 pandemic as a cost-effective way to provide a fresh start to small businesses adversely impacted by the pandemic. It can also provide Directors with protection from personal liability for Director Penalty Notices from the Australian Taxation Office and Insolvent Trading.
The fundamental purpose of an SBR is to provide small businesses with a second chance. As such, creditors are prohibited from taking any action against the company to recover money and/or property, including terminating contracts and formal debt recovery proceedings during an SBR.
Directors retain control of the business throughout the process, and the company continues to trade under instruction of the existing directors in accordance with normal day to day operations. It is a simple, low-cost process aimed to maximise the dividend return to creditors in an expeditious timeframe, whilst preserving a business and enabling it to continue to operate.
Safe Harbour
The Safe Harbour rules give Directors breathing space to turnaround their business without the fear of being pursued for an insolvent trading claim, and to avoid prematurely placing their company into external administration. It encourages businesses to work through financial difficulties by putting in place a restructuring plan that is likely to lead to a better outcome than a formal insolvency appointment. Possible restructuring initiatives could include securing new capital (debt/ equity or a combination thereof), refinancing or restructuring debt, implementing operational improvement initiatives and rationalizing underperforming business units.
Our Safe Harbour engagements are tailored specifically to the needs of each business. As a minimum we typically:
- undertake an immediate financial viability assessment;
- prepare a short term financial forecast;
- advise on the requirements for Safe Harbour protection; and
- assist with developing and implementing an appropriate turnaround plan.
Deed of Company Arrangement
The voluntary administration process provides companies experiencing financial difficulty with breathing room to continue trading while:
- restructuring debt;
- recapitalising the business, including a restructure of shareholdings; and
- reshaping the operational model of its business (if necessary).
The restructure process once agreed is effected through a Deed of Company Arrangement.
Voluntary administration means that an organisation experiencing financial difficulty can maximise its chances for a successful turnaround and continue as a business in its current form – or in some capacity. It’s a process best used where an organisation – while having financial pressures – is able to demonstrate a viable (restructured) business model.
The voluntary administration procedure achieves this by:
- creating a legal moratorium – or suspension – on creditor claims being enforced (including equipment financiers, landlords and trade suppliers).
- allowing administrators to ‘reshape’ the business model by terminating the company’s obligation to continue payments for underutilised leased equipment, underperforming leased premises and underutilised team members.
- providing key stakeholders (including trade creditors) with the confidence to continue supporting the business during the restructure as a consequence of a statutory guarantee for payment for goods or services provided to the administrators.
During the administration period, the voluntary administrators work with the company’s directors to formulate a proposal to creditors to restructure the company’s debt — known as a Deed of Company Arrangement or DOCA. If creditors accept this, the company can return to the director’s control and continue trading under the new structure.
Liquidation
Being faced with business failure can be a stressful time for directors, who may be trying to balance the competing interests of the company’s creditors, while also facing potential personal liability for their actions. Where plans to restructure the business’s debt and/or operations appear unlikely to restore profitability and cashflow, the appointment of a liquidator may be the best and most proactive option for all key business stakeholders (including directors, shareholders, employees and creditors).
Once appointed, a Liquidator will take responsibility for:
- managing the termination of business operations and the sale or realisation of business assets.
- dealing with creditor claims and communications, removing a considerable amount of stress from the directors and ensuring that all stakeholders are treated fairly.
- facilitating the payment of employee entitlements – employees will typically be able to make a claim for unpaid entitlements through the Commonwealth Government’s Fair Entitlements Guarantee (FEG) scheme (only available once a company is placed in liquidation).
- reporting to and distributing funds to creditors in accordance with statutory priority arrangements
- In the role of a liquidator, we help directors by conducting the process efficiently and with care to ensure the best possible outcome for all stakeholders.
Grant Thornton Restructuring
Grant Thornton’s Restructuring Team works closely with key stakeholders – including owners, managers and lenders – to quickly identify and resolve issues affecting profitability, protect enterprise value and recover value. We’ve successfully managed restructuring and turnaround projects across a variety of industries in time-critical situations and have a strong track record of helping mid-sized businesses and organisations build sustainable platforms for growth.
Disaster Recovery & Relief
