Background:
RRI embarked on its first small business restructuring endeavour with a complex introduction to the process. We were engaged by an Indigenous Corporation in South Australia to serve as the Restructuring Practitioner for their social enterprise.
The Corporation’s primary objective was to address local disadvantage by creating sustainable employment opportunities, aiming to uplift the lives of local indigenous people and preserve their land for future generations.
Challenges Faced:
The Indigenous Corporation held significant assets acquired through government grants, aiming to bolster the economic conditions of the local indigenous community.
At the time of RRI’s appointment, the Corporation employed 13 indigenous employees. However, the enterprise grappled with challenges caused by COVID-19 restrictions. Lack of funding for a vital program in 2020/21 exacerbated financial strain, accumulating substantial tax debt.
Approach and Solutions:
RRI collaborated closely with the Corporation to devise a restructuring plan for presentation to creditors. Comprehensive investigations into the Corporation’s affairs were conducted and documented in a report to creditors.
Despite determining that the SBR (Small Business Restructuring) did not offer a superior return compared to liquidation for creditors, RRI articulated non-monetary justifications for adopting SBR. These included highlighting the adverse impact on the local indigenous community in the event of liquidation.
During the SBR process, proactive engagement with the Tax Office proved pivotal. The Tax Office was willing to participate early, offering initial assessments and constructive feedback to enhance the restructuring proposal’s acceptability.
Outcomes:
A restructuring plan was formalised after collaborative discussions and negotiations involving RRI, the ATO, and the directors. This plan envisaged a return to the ATO of approximately 30 cents in the dollar, representing a positive step toward resolving the Corporation’s tax debt.
RRI’s inaugural small business restructuring for the Indigenous Corporation showcased the complexities of preserving an enterprise deeply rooted in community development.
Despite financial challenges and the absence of a notably superior financial outcome, the successful formulation of a restructuring plan underscored the value of non-monetary considerations in such cases.
The engagement and collaboration with the Tax Office further exemplified the potential for constructive dialogue and early involvement in restructuring processes.
Ultimately, this restructuring endeavour represented a vital step towards revitalising the Corporation’s social enterprise, preserving indigenous assets, and sustaining meaningful employment opportunities within the local community.
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Email enquiries@rriadvisory.com.au for an obligation-free insolvency consultation.
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.