John and Liam from RRI Advisory were appointed as Administrators of a civil works and earth-moving contractors facing financial challenges.
This case study outlines the key actions taken by RRI Advisory to manage the business, address liabilities, and maximise returns for creditors while minimising operational risks and redundancies.
Initial Challenges
License Agreement and Customer Demand
Before our Administrators’ appointment, the business had entered into a license agreement with a related party for its operations. However, a large customer required us, as Administrators, to continue trading the business during the administration process, which posed significant operational and financial risks.
Our Strategy
Deed of Novation
We executed a deed of novation with a key customer to mitigate risks and optimise creditor returns. This allowed customers to formally be transfer to the related party, ensuring continued service and maximising the potential returns to creditors. This strategic move was crucial in maintaining business operations and protecting us as the Administrators from further liabilities.
Secured Liabilities
The company had substantial secured debts backed by its assets. Managing these liabilities was a priority to ensure the company’s assets could be leveraged to meet financial obligations.
Development of a Deed of Company Arrangement
- Collaboration with Directors and Advisors
RRI collaborated with the company’s directors and advisors to develop a Deed of Company Arrangement (DOCA). The primary goal was to offer a better return to creditors than a liquidation scenario.
- Acceptance by Creditors
The creditors accepted the proposed DOCA. This arrangement compromised unsecured creditor claims of approximately $1.7 million, offering a return of up to 22 cents on the dollar, significantly higher than the estimated return in liquidation.
Outcomes
Maximising Returns
The restructuring and ongoing business operations maximised returns for secured creditors. This was achieved through continued trading, ensuring the company could generate revenue to meet its secured liabilities.
Preservation of Employment
The successful restructuring allowed the business to maintain its staff with minimal redundancies. This preserved jobs and ensured the business could continue to operate effectively, further supporting the financial recovery process.
Our strategic administration resulted in significant benefits for both secured and unsecured creditors. The approach taken maximised financial returns, mitigated operational risks, and preserved employment, demonstrating a successful administration and restructuring process.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.