Restructuring Solutions

A Deed of Company Arrangement is a formal process that enables the company to avoid liquidation and continue in some form into the future.

A deed of company arrangement is a binding agreement between a company and its creditors setting out how the affairs and assets of the company will be dealt with if the company has entered voluntary administration. Entering into a deed of company arrangement can allow a company to avoid the total and immediate winding up of its affairs and creditors can also get a better return than the immediate liquidation of the Company.

Benefits of a Deed of Company Arrangement.

The key benefits of a Deed of Company Arrangement are:

• Allows for a formal repayment arrangement to be agreed between the Company and its creditors;

• Contributions/repayments can be made over a period of time from ongoing cashflow of the business; and

• A Deed of Company Arrangement could allow for creditors to continue trading with the Company and share in the benefit of the Company’s ongoing success.

The Process of a Deed of Company Arrangement

The Deed of Company arrangement process is as follows:

• At the second meeting of creditors of the Company convened by the Voluntary Administrator of the company, the creditors will vote on a Deed of Company Arrangement proposal. For the proposal to be approved, the majority of creditors in both number and value must vote in favour of the proposal;

• Upon approval the Company has 15 business days after the end of the end of the creditors meeting where it is approved. If the DOCA is not executed it will automatically go into liquidation;

• The Deed Administrator will then administer the DOCA in accordance with it terms and upon all contributions and/or asset realisations occurring the Deed Administrator will distribute available funds to the creditors of the Company.

The Small Business Restructuring Process (SBRP) was designed to allow business to continue operating under the control of its directors, whilst it works with a Restructuring Practitioner to develop a plan to restructure the company’s affairs, which is then approved by the creditors of the Company.  

Access the Small Business Restructuring process

To be eligible for restructuring, the company must meet the following requirements:

• • Total liabilities of the company must not exceed $1mil;
  • All entitlements of employees that are due and payable must be paid;
  • All Tax returns, notices, statements, applications or other documents as required by taxation laws (within the meaning of the Income Tax Assessment Act 1997) must be lodged with the ATO;
  • No person who is a director of the company has been a director of another company that has been under restructuring or subject to the simplified liquidation process within the period of the preceding seven years, unless they are exempt under the regulations; and
  • the company must not have undergone restructuring or been the subject of a simplified liquidation process within the preceding seven years

The above criteria excludes employee entitlements that are not currently due to be paid and the tax debts do not need to be paid, rather only the lodgements are required to be completed.

The Process of a Restructuring Proposal

The appointment of the restructuring practitioner to the company occurs by way of written notice and it is the role of the restructuring practitioner. Following the appointment of the practitioner the Company has 20 business days to provide creditors with the written restructuring proposal. The creditors then have 15 days to consider and vote on the proposal.

Once creditors approve the Restructuring Proposal, all unsecured creditors of the company are bound by the proposal and the company is required to meet its payment obligations provided under the proposal. Once the company has made all of its payments under the proposal, the Restructuring Practitioner will make a distribution to the creditors of the proposal and the company is released from all debts and claims that were admissible under the restructuring proposal.

Benefits of a Restructuring Proposal

There are many benefits to the restructuring proposal process, including:

• The directors of the company remain in control of the day-to-day operations of the business at all times;
• A moratorium on the enforcement of personal guarantees is provided to allow for the restructuring proposal to be formulated and provided to creditors
• All unsecured creditors of the company are bound by the restructuring proposal and upon successful completion of the restructuring proposal the company is released from all debt and claims that were admissible under the restructuring proposal.

At RRI Advisory we are able to assist you in assessing your financial circumstances to determine if a Small Business Restructuring Proposal might be suited to your business.

Members’ Voluntary Liquidations (MVL) are a formal process that allows a solvent companies affair to be wound up and requires the company to be able to pay all of its debts within a twelve (12) month period.

A MVL allows for the appointment of a qualified person (the Liquidator) who is tasked with realising the Company’s Assets and distributing any surplus to the shareholders of the Company.

Benefits of Members Voluntary Liquidation

There are many benefits to the creditor’s voluntary liquidation, including:

• It allows an independent expert to take responsibility for attending to the finalisation of the company’s affairs, which may be legalistic and time consuming process;

• There may be tax benefits to the company’s shareholders. For example distribution of a company’s paid up share capital and pre-CGT reserves may be distributed to members tax free. In addition, the Liquidator is able to obtain clearance from the ATO;

• The Liquidator may be able to distribute the assets of the Company in specie to the shareholders of the Company should this be a desired outcome; and

• It is a more formal procedure to finalise a company’s affairs, particularly where the company is unable to be voluntarily deregistered due to restrictions imposed by ASIC.

The Process of a Members Voluntary Winding Up

The process of a members voluntary liquidation is as follows:

• a meeting of the directors of the company takes place to resolve that the company is solvent and that the company should be wound up. The directors are required to prepare a Declaration of solvency ASIC Form 520, setting out the assets and liabilities of the Company Once the declaration is lodged with ASIC, the directors will then call a members’ meeting to wind up the company;

• the members meeting will take place to pass a special resolution (or a circular resolution if no members’ meeting is held) that the company should be wound up.

• The Liquidator proceeds to realise the assets of the Company, attend to the lodgement of any outstanding tax returns and seek clearance from the ATO. Upon receipt of the tax clearance, the Liquidator will pay any outstanding creditors prior to making a final distribution to the shareholders of the Company.

At RRI Advisory we have extensive experience undertaking MVLs and can quickly and efficiently assess a client’s position to determine if this option is suitable for their needs.