Western Australian Engineering Turnaround Success
'Our client’s company was insolvent. His ambition was to pay all employees in full and deliver a reasonable return to other creditors. We assisted him to realise that ambition by negotiating and documenting a deed of company arrangement which was, ultimately, supported by all creditors present.'
John Hutchings, Chairman and Head of Corporate & Commercial
Our client
Our client was a mid tier engineering
and manufacturing company that delivered specialised services to
Australia's largest mining companies. The business had been
profitable but was hard hit by the downturn in the mining sector.
The business was also poorly structured.
Their ambition
Our client's ambition was to reduce his
exposure whilst, so far as possible, maximising the return to
employees and creditors. His ambition was complicated by the
position of the Australian Taxation Office as the second largest
creditor, a substantial related party debt and an unsustainable
cash flow.
We implemented a strategy that
delivered a fair outcome for all creditors and minimised the
director's liability whilst ensuring the ongoing operation of the
profitable elements of the business.
Enhancing their success
We successfully delivered a strategy that paid down the secured
debt, reduced liabilities owing to employees and generated a timely
and fair return to unsecured creditors whilst saving key elements
of the business.
Behind the headlines
Part of the business was initially sold off via an asset sale to
a third party. This had the dual effect of reducing exposure to an
institutional secured creditor and paying employees entitlements.
The company was then placed into administration and a deed of
company arrangement proposed.
The proposal was to deliver a return to unsecured creditors
substantially in excess of the return they would receive on a
winding up, with payment being made immediately. The proposal was
accepted.
Importantly, the deed of company arrangement saved a key
certification of the business which (post administration) would
allow it to rebuild, utilise tax losses and continue to earn
income.
An additional benefit was that a substantial portion of a
related party debt was paid without compromising the return which
unrelated unsecured creditors received.
The successful outcome was underpinned by the ability of the
company's director to identify issues of insolvency and act upon
them early. The administration and deed of company arrangement
limited the director's exposure to contingent liabilities
inevitably associated with corporate insolvency.
Senior lawyers involved in the matter
John Hutchings - Chairman and Head of Corporate &
Commercial
Nick Amore - Senior Associate, Corporate & Commercial