Restructuring, Turnaround and Insolvency Specialists

Voluntary Administration

Case Study 1 – The Printing Company (wind-down)

The company was incorporated during March 1967 and operated a small printing business which had been handed down generations from father to son. The company operated the business from leased premises in the eastern suburbs.

The company was losing clients as it was unable to keep up with it’s larger competitors with regards to client cost structuring.  The company also operated in a niche market which was previously dealt with by smaller companies such as this one as the larger printing companies were unable to cost effectively service this niche market.  With the development and advancement of technology the large franchise printing companies were able to service the niche market customers for competitive prices.

The administration provided a stepping stone to the liquidation of the company which allowed for an orderly winding up of the company’s affairs and achieved the best return to all creditors.

The assets of the company were sufficient enough to discharge the debt owed to the secured creditor, provide a return of 100 cents in the dollar to the priority creditors (employee entitlements and superannuation) and a return of 18 cents to the ordinary unsecured creditors of the company.

Case Study 2 – The Trading Supplier

The company carried on the business of distributing and manufacturing blinds.

Upon my appointment I held negotiations with a number of parties who had expressed an interest in the business.  These negotiations covered various rescue packages, no scenario was ignored and all options were fully investigated.  Options considered included, an equity partner, injections of capital and the sale of the business.  The rescue packages and various scenario’s were placed under time constraints as the company had insufficient funds to continue to meet the demands of trading the business and the employees were stood down with pay until an arrangement could be met.

As a result of the company having insufficient funds to trade whilst I was appointed, I had to consider several options for the company to meet current orders, to maximise the return to creditors, including various suppliers operating the business under a licensing agreement.  Further, the timeliness of the sale meant that sale of asset documents need to be drafted and executed in a timely manner.  I used external lawyers to prepare all sale and license documents necessary.

As a result of these activities I was able to secure a Contract of Sale of the business of the company and the contract was executed on 12 May 2006, prior to my report pursuant to section 439A(4) being sent to creditors.  Further, this enabled the business of the company to continue to trade and I note this approximately doubled the return to the ordinary unsecured creditors under a “shut down” scenario.  Further, the Retention of Title stock of the company was not included in the sale and was able to be returned to the suppliers, despite some claims being poorly worded and I would have had to defend our right to the stock under a “shut down” scenario, however the commercial decision in the event of the sale was to return all stock that was claimed under Retention of Title.

Broadly speaking the unconditional sale of business agreement provided for the payment of a purchase price of $1.8 million payable over a period of six months.  The purchaser took over all existing employee entitlements (excluding superannuation) and would continue the employment of existing employees.

To secure the company’s position in regards to the payments due over the period of six months, I negotiated that the company’s pre-appointment debtors and all collections would remain the property of the company until personal guarantees and irrevocable bank guarantees could be provided for the instalments.

Pursuant to the terms of the contract of sale all assets including book debts were purchased.  We anticipate as a result of the sale ordinary unsecured creditors will receive a return of approximately 40 to 50 cents in the dollar.

Case Study 3 – The Trading Manufacturer

The company carried on the business of distributing and manufacturing retreaded tyres and procured tyre treads, based in regional Victoria.

Upon our appointment we reviewed the management structure in place at the business premises and through diligent analysis it was determined that the business of the company would continue to trade under the existing management structure with my strict supervision to enable me to advertise for a sale of business as a going concern.  We installed a procedure of purchase order approval, hence no further credit for the company was to be supplied without the written approval of myself, my co-appointee or the supervisor on the file (who was limited in the dollar value to be approved).  Further, to continue our constant evaluation of the business of the company, we conducted weekly visits to the company premises but our control procedures were sufficient to operate the company from our office rather than the company’s premises.

Issues from trading this business were numerous including importation of rubber products from 2 overseas countries to deal with a workforce of over 65 people.  Numerous meetings were held with other stakeholders in the process including local, State and Federal government representatives.

A significant trade creditor of the company made us aware of their significant claim for Retention of Title for stock supplied, extended their claim to also claim Retention of Title over their stock mixed into the manufacturing process, and stock applied to the casing stock and sold to customers.  Further, they claim their Retention of Title also creates a Charge over the book debts of the company and the receipt of collections of book debts.  In addition there is a claim for stock on site at the date of appointment and used by us during the manufacturing process pursuant to an alleged implied “consignment agreement”.

To further explore this claim and the circumstances surrounding the initial trading with this supplier in 2003, we instigated proceedings to have key employees of the supplier examined pursuant to section 596 of the Corporations Act 2001.  This was a useful process and will assist in dealing with the defence of the creditor’s claim.

We confirm that the Sale of Business of the abovenamed company was initially settled on Monday, 7 November 2005.  We note that difficulties had arisen in the timing and co-ordination of a settlement, including the counting and valuation of stock and work in progress.  We further note that this significantly delayed full consideration being received for the Sale of Business.  Full consideration for the Sake of Business was finally received on 1 December 2005.

Further complicating the matter, the extended final settlement would not have occurred without us providing personal undertakings to the purchaser as to the maximum amount of potential monthly tyre failure claims for the first three months of the new trading period of the purchaser.

This undertaking period has now expired and there has been no claim on the undertaking and none are anticipated.

Since the sale, we regularly had to perform an accounting exercise and reimbursement process between collection of book debts of our entity and the purchaser’s company and vice versa.

Pursuant to the Sale of Business agreement the purchaser was to assist in the collection of the book debts of the company.  Unfortunately, we note that the purchaser was delayed in installing any accounting system until a new computer system was implemented in mid-December 2005.  This delayed the initial collection of debtors.

We advise that we have referred several “difficult debts” to a success fee based collection agency to further pursue the outstanding amounts.  We note that several debtors have claimed a contra account to be off-set against the creditor amount outstanding.  We have written to each of these debtors advising these issues are inappropriate and some are in contravention of the Corporations Act 2001.  We will be taking legal action in regard to these matters.

Whilst the litigation against us for the Retention of Title claim continued, we were able to make a 100 cent in the dollar dividend to employee creditors on May 2006 as well as to wholly discharge one of the two secured creditors and make a significant payment to the other secured creditor.

A final dividend and payment to the remaining secured creditor cannot be done until the conclusion of the litigation above.

 

Liability limited by a scheme approved under Professional Standards Legislation