It is not often that insolvency practitioners get to report good news and happy endings. A recent Worrells appointment is a shining example of how positive, flexible business turnaround outcomes can be achieved using the Voluntary Administration and Deed of Company Arrangement process.
I first met the directors of the Walgett District Sporting Club Limited (“the Sporto”) in late May 2013. At that stage the club’s financial position was dire, it was losing money, the general manager had fled town and the board determined it had an obligation to appoint administrators because the company was insolvent. The Sporto provided the town with bowling greens, tennis courts, netball courts, a golf course and it was one of only two licensed venues in town.
However, the signs were not all bad. Revenue was strong for a club of its size. The financial difficulties were caused by lack of control over costs and poor governance.
Still, on commencement of the Voluntary Administration there was no choice but to close the doors due to insufficient trade capital. News of the club’s closure spread quickly. Before day’s end I had been in meetings and telephone conversations with the following community members:
- The local Shire Council president and four council members.
- The president and general manager of the local RSL club.
- A representative for a group of local business people.
- Local police officers.
- The local Centrelink manager.
All parties expressed concerns regarding the social impact that may result from loss of the sporting facilities, licensed premises and employment. If the Sporto were to go in to liquidation, the land containing the sporting and club facilities may be sold to private owners and lost to the community.
A number of community groups expressed interest in proposing a Deed of Company Arrangement (‘DoCA’). I met many times with the various groups and encouraged all stakeholders to work together in the best interest of the club and the community. Over the following weeks I worked with the members of the local community to formulate a proposal for a DoCA.
The community rallied together and raised funds. The Walgett Community Unit Trust was formed and business leaders in the community volunteered their services to act on the club’s board. The DoCA proposal would see the Walgett Community Unity Trust loan the Sporto funds to pay creditors in full and to complete necessary renovations to the club complex.
- Creditors voted unanimously in favour of the DoCA.
- A new board was appointed.
- The club was renovated and re-opened.
- Creditors (including the secured lender and employee entitlements) were paid in full.
All of this was achieved in a little over four months. The Sporto has now been re-opened and trading for over two months and I have been advised that it is trading profitably.
Insolvency appointments do not have to be a last resort, signaling the death of a business. Given the right combination of people, funding alternatives and willingness to reform business practices, Worrells can work with clients to achieve positive outcomes like this.