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Summary
Course developer and presenter
COVID-19 impacted
Creditors accepted a return of 21 cents for every dollar owed
Major creditors were the ATO and a related company
The restructuring fund paid by 12 monthly instalments
Background
The company operated a business providing leadership and communication courses, training and soft skill development courses in NSW, Qld, and Vic since 2017.
The company’s business started growing quickly shortly after its incorporation. However, once the COVID-19 pandemic started, the company was unable to meet its taxation liabilities due to tight cash flow. This was principally as a result of government-imposed lockdowns and various restrictions.
Debt profile
At the time of the appointment of the SBRP the company’s main creditors were the Australian Taxation Office (ATO) for approximately $320,00 and a related company debt of approximately $230,000.
The company had a good historical compliance record with the ATO, but as mentioned financial pressures caused by the pandemic resulted in a tax debt accruing. While various payments arrangements with the ATO commenced, the director recognised the interest and other ATO penalties made the payment terms increasingly difficult to meet.
The director was confident of the company’s long-term profitability, our office was engaged to act as the company’s small business restructuring practitioner (SBRP) to seek creditor support to agree to a restructuring plan. This was in order to deal with the company’s core debt that could not be met from company profits in the short term.
Other steps taken to ensure future viability of company
The directors also took the following steps to address the company’s trading position and to ensure its future viability:
Shifting from in-house courses to digital courses using new technology.
Reducing the need for contractors (generally more costly) and utilising the existing in-house teams.
Reducing staff costs—reduced staff numbers.
Converting a satellite office to online-only.
Having regular meetings with the external accountant to review trading position as against forecasts.
The SBR process
Upon appointment, our office worked together with the director and the company’s external accountant to:
ensure the company’s tax lodgments were up to date to the appointment of SBRP
finalise a (conservative) sales forecast
formulate a cash flow forecast for the next 12 months
create the offer’s terms (under the restructuring plan).
While under SBR, the business continued to trade as normal while the offer was being formulated and our report to creditors was being completed.
Offer under restructuring plan
Following a careful review of the sales and cash-flow forecast the offer put to creditors comprised 12 monthly payments from forecasted profits. Further, the company director also agreed that the related company creditor would forgive its debt due by the company thereby increasing the return to the company creditors to approximately 21 cents for every dollar owed.
This offer was a commercially favourable return when compared to a scenario where the company was to be wound up.
Outcome
Creditors accepted the offer and the director immediately commenced payments under the restructuring plan.
As a result, the small business restructuring process allowed the company to deal with its core debts which together with the other steps undertaken by the directors prior to and through the process will help to ensure its future viability.