Administrators and liquidators have a fixed view towards insolvency, aiming only to take control of the company and wind them up, which sometimes is more costly.
Byronvale Advisors breaks that mindset. We look at all alternatives for the benefit of our stakeholders. From our extensive experience, we recognise most businesses can often be saved long before resorting to insolvency. Directors have nothing to lose and everything to gain by obtaining a second opinion about pre-insolvency and Safe Harbour provisions, which encourage directors to pursue restructuring opportunities that will deliver a better outcome.
We work in a broad range of industries and sectors, including:
Utilising our extensive network of specialists and experts, we will assemble a team tailored to your business – industry, size and structure.
Our initial consultation is free of charge and obligation, and we may offer you options that others cannot.
Once we understand your unique situation and the strategy needed to repair it, we will provide you with a quote for our services. We will always make you fully aware of all costs prior to engaging our services, and you can always walk away if you choose to without charge or obligation.
There are several warning signs and different ones for different stakeholders. Examples are directors and management running from problem to problem and not working on the things they should be, cash is tight and there is difficulty getting paid or paying creditors, feeling overwhelmed, staff dissatisfaction, and a lack of direction and a plan to achieve that vision.
A turnaround specialist works with a distressed company to improve operations and make it profitable again. They aim to help a company position itself more securely in the market for the long term after the initial recovery. They can also show companies how to prevent future similar problems by identifying the issues that led to a failure or near disaster and providing information about how to address them if they emerge in the future.
At Byronvale Advisors, this process involves our philosophy of coaching management and company directors to work on their business, not in their business.
This is a complex question where the answer relies on the state the business is in, the attitude and drive of the management and the size of the business. We ask the management many questions and then make an objective assessment ourselves. Two key questions we ask are:
There are a lot of variables that will affect the timeframe e.g. commitment of the Board and senior management, the size or the business, the state of the business at the start of the process. We have completed a turnaround in as little as six months, and larger more complex engagements may take two to three years.
For a turnaround or restructuring engagement to be successful, however, it is vital for management to have the right attitude and commitment not only towards achieving survival, but eventually running the business better.
There are five primary avenues – Safe Harbour with a restructuring advisor, administration methods (voluntary administration, receivership, deed of company arrangement, and liquidation), there are turnarounds either by management or with the help of a turnaround advisor, cease trading or do nothing. Obviously only some of these actions are proactive ways to get a ‘better outcome’.
There are various penalties and consequences of insolvent trading for directors, including civil penalties, compensation proceedings and criminal charges. There are also implications for other stakeholders – employees may lose their jobs, creditors may not only lose money but could face ongoing financial distress, customers and clients that rely on the products and services are affected, investors and lenders are financially impacted, and the wider community in which your business is part of is impacted. These effects may not just be a one off and may continue for several years.
A company is insolvent when it cannot pay its debts as and when they become due and payable. The Corporations Act defines solvency and insolvency as:
Section 95A — Solvency and Insolvency
Some signs are:
Safe Harbour protections are provisions within the Corporations Act that enable directors to continue trading while the company is insolvent if they believe their actions will ‘reasonably’ lead to a ‘better outcome’ for the company.
The Safe Harbour provisions can be highly useful for small and startup businesses. In Australia, 80% of small businesses that enter formal administration end up in liquidation. For small businesses, Safe Harbour gives directors an avenue to rectify their problems and avoid formal administration. It is also cheaper, and the directors are still in control of their business.
For startup businesses, Safe Harbour can ease some problems for their investors who would previously be reluctant to take on roles as directors because of the risks associated with unintentional breaches of insolvency law.
The best result and the aim of Safe Harbour is that the course of action leads to a better outcome for the company and the company is no longer insolvent trading. However, the Safe Harbour also ceases to apply when:
The directors must develop a restructuring plan, ensure they are current with their employee entitlements and tax obligations, ensure no misconduct by officers or employees, inform themselves of the company’s financial position and engage a restructuring advisor.