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Your financial circumstances might mean that a formal Restructuring process is more suited for your business. A formal restructuring is conducted under the certain provisions in the Corporations Act. The restructuring options that may be available to you are:
Voluntary Administrations (VAs) is a formal insolvency appointment that allows a company experiencing financial difficulties some breathing space while the company’s future I is decided allows a company to continue to operate, or, if this is not possible, it provides for a greater return to creditors than would otherwise occur if the business was immediately liquidated.
The Process of a Voluntary Administration
Directors of the company usually instigate the appointment of the Administrator when they believe the company is insolvent or is likely to become insolvent (i.e. the company is unable to pay its debts as and when they fall due). The appointment allows a qualified person (the voluntary administrator) to take control of the company and formulate a way of saving the business
A VA appointment immediately suspends most creditors’ claims against the company and lasts for a period of approximately 20 business days.
At the end of this period, creditors vote for one of these options:
- Approve a Deed of Company Arrangement, that has been formulated by the directors in conjunction with the Administrator, that allows the company to pay all or part of its debts over a given period of time and at the completion of the DOCA the company is free of those debts;
- End the VA and return the company to the control of its directors; or
- Wind up the company and appoint a liquidator.
Benefits of Voluntary Administration
There are many benefits to the Voluntary Administration Process, including:
- Providing a window of time to allow you to collect your thoughts and work with the administrator to create a plan to get your company back on track.
- Quick resolution of the company’s future.
- The best chance for a company to restructure its affairs and continue trading in some form.
- Administers company’s affairs in order to give creditors a better return than they would get if the company were placed into liquidation.
At RRI Advisory Pty Limited we have extensive experience undertaking VAs and can quickly and efficiently assess a client’s position to determine if this option is suitable for their needs.
We are passionate about finding the best solution for all stakeholders and our commitment to finding innovative solutions have helped many companies successful restructure through the use of the Voluntary Administration Process.
Deed of Company Arrangement
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.
Small Business Restructuring
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
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.