Restructuring, Turnaround and Insolvency Specialists

Deed of Company Arrangement

Case Study 1 – The Christmas Tree Company

The company operated a seasonal Christmas Tree farm from the directors’ personal residence.  During one particular season the stock of trees to be sold were poorly shaped, and consequently, the stock undersold the initial and subsequent assessments determined by the directors.  Given this, the expenses and costs incurred by the company were unable to be met.

Additionally, the company’s income was solely generated from the sale of it’s Christmas Tree stock during November and December annually with the debtors created from this income stream being realised through late December to early February annually.

The company had minimal ongoing expenses, including, rent, power, wages and had minimal purchasing requirements.  The creditors of the company included a secured creditor, some employee entitlements (due on termination), unsecured creditors and a few lease companies.   Additionally, the company had neglected to remit statutory payments such as Superannuation Guarantee Contributions and PAYG withholding.

Upon the appointment of the administrators, the company and it’s directors were able to assess whether the underlying business operated by the company was viable and was able to be revived.  The appointment also allowed them to determine whether they were in a position to put forward an proposal for a Deed of Company Arrangement for creditors consideration.

The directors arranged the sale their personal residence.  The funds provided at the settlement of this property discharged the company’s indebtedness to the secured creditor and provided sufficient funds to enable a proposal for a Deed of Company Arrangement to be put forward for creditors’ consideration.

The funds available to creditors from the Deed of Company Arrangement provided a return of 22.904 cents in a dollar to the ordinary unsecured creditors, a return which would not otherwise definitely be available in a liquidation scenario.  The debt owed to the secured creditor was discharged by the sale of the directors’ personal residence.

Case Study 2 – The Printing Company

The company had been operating a digital printing business for a number of years at various locations for several years.  They had expanded their business across several stores at various locations.

Several years ago the company entered into a significant number of hire purchase and operating lease agreements with a major supplier of digital printing equipment.  The company ran into difficulty with the high ongoing rental and lease charges which it had agreed to enter into.

Additionally, the company had neglected to remit statutory payments such as Superannuation Guarantee Contributions and PAYG withholding. The appointment of the Administrators enabled the company to continue to trade and provided them with sufficient time during which to assess whether:-

  1. their underlying business was viable,
  2. review their internal costs and expense structures,
  3. whether to inject further capital, and;
  4. whether they were in a position to put forward a proposal for a Deed of Company Arrangement.

The directors of the company concluded positively with regards to the above and put forward a proposal for a Deed of Company Arrangement that allowed the company to reduce it’s costs, provide a return to the creditors which would not otherwise be available in a liquidation scenario.  The proposal also gave both the company, and the significant creditor the opportunity to re-assess the agreements entered into between the parties.

The debt to the secured creditor was fully discharged via the settlement of the directors’ personal residence.  The proven claims of the priority creditors were paid in full and the continuing employees were retained by the company.

The property settlement also provided the basis for the funds for distribution to ordinary unsecured creditors.  We advise that from the funds made available by the directors a distribution of approximately 22 cents in the dollar was paid.   In addition, the negotiations between both the major lease holder and the company provided new lease and rental agreements which better suited both parties.

 

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