Worrells Melbourne were appointed administrators to Otway Community College, a not-for-profit organisation providing educational courses, disability services and support services to new migrants, refugees and young people. Approximately 300 people were students or members.

As with most administrations we were appointed with very little funds in the business. However one thing was very different, discussions were already on foot with competitors regarding a sale or a merger.

As administrators we offered one interested party the opportunity to conduct a due diligence of the business on the proviso that they agreed to continue operating the college for one month, under a very carefully worded management agreement. This was accepted and endorsed by various state and federal government authorities.

The outcome of all these efforts were:

• We brokered a sale of the College’s business and obtained the relevant agreement for the sale from the various State and Federal Government authorities;
• The new owner offered employment to 75 of the 85 employees (which was considered a huge win for the region as Colac, where the College is located, has a population of about 11,000 and has suffered from a number of large businesses closing their doors permanently over the past 2 years);
• Around 280 of the 300 students were able to continue with their education;
• The purchase price paid was far greater than we could have ever expected under a fire sale scenario or (for that matter) far more than what was expected from other competitors in the market. We were heavily restricted on who we could sell to as the government authorities would not entertain many of the other competitors offers as they simply didn’t have the necessary accreditation);
• The secured creditor (a bank) received approximately 50% return (approx $60K) on their debt (and by way of bank guarantees may in-fact receive the full amount of their claim);
• The original operating company was eventually placed into liquidation and the return to priority (employee) creditors is (with the support of GEERS) 100% for wages, super and leave. GEERS themselves should receive close to 40 cents in the dollar on funds remitted.

There are a number of lessons to be learnt from this administration.

Worrells were appointed administrators without requiring a substantial upfront fee. This allowed the existing funds to be dedicated to a positive outcome – being the sale of the business. Where parties are already in discussion with an organisation about the possibility of acquiring their operations and they are prepared to bear some financial risk to complete a due diligence, it makes common sense to give them reasonable time to do so.

Being open minded and willing to explore all options can ultimately lead to a more favorable outcome. In this instance, the College would have most certainly closed its doors and all would have been lost if “open and frank dialogue” had not occurred with all stakeholders early in the appointment.

The chance of being able to salvage a business and ultimately improve the overall return to creditors increases substantially if those parties responsible come to us early enough in the piece. What is “early enough” is of course subject to some debate, but one thing is for sure, it doesn’t mean “when all other bets are off”.