Summary
Electrical contractor
COVID-19 impacted
Major creditors were the ATO and Queensland Rural & Industry Development Authority
Creditors accepted a return of 20 cents for every dollar owed.
Background
The company operated an electrical contracting business on the Gold Coast.
During the 2020–2022 financial years, the company was exposed to a series of external factors outside of its control which impacted its financial position and performance. Specifically:
Debtors became more difficult to collect, impacting the company’s cash flow.
Staff were at various points in time either sick or subject to COVID-19 quarantine requirements, impacting project timelines and expected viability of jobs.
The company experienced a reduction in sales.
There was an inability to obtain necessary stock due to supply shortages.
Debt profile
The company’s creditors were:
ATO for approximately $310,000.
Queensland Rural & Industry Development Authority (QRIDA) for $100,000.
Suppliers and banking institutions totalling $230,000.
In September 2022, after the company failed to maintain its latest payment arrangement, the ATO issued director penalty notices to the company directors. As the directors were confident of the company’s long-term profitability, we were appointed as the company’s small business restructuring practitioners to seek creditor support to agree to a restructuring plan.
Other steps taken to ensure future viability of company
Prior to our appointment the directors took the following steps to address the company’s trading position and to ensure its future viability:
Engaged an external CFO to assist the directors to regularly review the company’s trading position and ensure they were hitting their ongoing financial targets.
Engaged an external bookkeeper to assist with keeping the company’s accounting records up to date.
Continued with their traditional approach of being engaged as a subcontractor for other parties, and expanded their services to also work directly for customers.
Employed an office manager to assist in liaising with customers and debt collection.
The SBR process & offer under restructuring plan
Our office worked together with the directors and the company’s external accountant to ensure the company’s tax lodgments were up to date and to formulate the terms of the offer to be put forward under the restructuring plan. The business continued to trade as normal while the offer was being formulated and our report to creditors was being completed.
The company directors decided—that as an offer—they would personally contribute a one-off lump sum payment which would result in all creditors receiving approximately 20 cents for every dollar owed by the company. The offer was payable to creditors within seven business days of accepting the restructuring plan.
This offer was a commercially favourable return when compared to a scenario where the company was to be put into liquidation.
Outcome
Creditors accepted the offer and the company directors immediately paid out the funds due to creditors under the restructuring plan.
As a result, the small business restructuring process allowed the company to deal with its legacy debts which together with the other steps being undertaken by the directors will help to ensure its future viability, and the directors avoided personal liability from the ATO’s prior director penalty notice.