A Practical Case Study in Using Insolvency to Preserve Value
When people hear “voluntary administration,” the image that often springs to mind is of a struggling business in free fall, staff being let go, creditors walking away empty-handed, and directors disappearing into the shadows.
But that doesn’t have to be the case.
In this example, we were called in after the directors of a specialist electrical engineering company were served with Director Penalty Notices (DPNs) totalling over $1 million. The business itself wasn’t a failure—it was viable, had good clients, valuable plant and equipment, experienced staff, and strong demand for its services. But the tax pressure and legacy issues had become unmanageable, and without action, personal liability for the directors was just around the corner.
The Trigger Point: ATO Pressure Forces Urgent Action
This wasn’t a business that had given up. The directors had already been working behind the scenes to sell the business and preserve what they could. But when those DPNs landed, the clock started ticking—and fast. The only realistic way to avoid personal liability was to appoint voluntary administrators. So that’s where we came in.
We often say that insolvency can be used as a tool, not just a consequence—and this was the perfect example.
Step 1: Keep the Business Trading
One of the first questions we ask: Should this business still be trading? In this case, the answer was a resounding yes.
Our decision to continue trading meant staff were retained, customers continued receiving services without interruption, and we had a solid runway to launch a structured and proactive sales campaign. We kept all 27 employees on board—no redundancies. Not only was this great for staff morale (and productivity), it also enhanced the attractiveness of the business to potential buyers.
Step 2: Market the Business—Fast and Hard
Within days of the appointment, we launched an expression of interest (EOI) campaign. The results were encouraging—more than 20 parties responded, and several serious offers emerged quickly.
Why did this campaign succeed where the directors’ prior sale attempts hadn’t?
Because VA gave us the platform to:
Market the business openly and without the same legacy creditor pressure.
Provide buyers with confidence that liabilities were ring-fenced.
Preserve continuity of trade, staff, and key supplier relationships.
The VA process, if used correctly, can create exactly the kind of certainty and structure that business buyers look for.
Step 3: Stakeholder Engagement—The Unsung Hero
We cannot overstate the importance of communication in these situations.
From day one, we worked closely with all key stakeholders:
The Directors: Although no longer in control, they remained a vital part of the sale process. Their knowledge, customer rapport, and support for the staff were invaluable. We kept them updated and engaged, reducing the risk of misinformation or disengagement.
The Staff: Naturally, they were nervous. But by keeping communication lines open and ensuring they had direct access to us, we kept them informed, supported, and (crucially) retained throughout the process. Their buy-in played a big part in keeping operations running smoothly.
Customers: Business sales can quickly lose momentum if customers start jumping ship. We worked hard to ensure continuity of service and communicated that business was not shutting down. This helped retain key contracts and revenue.
Suppliers: We proactively managed supplier relationships, ensuring continued trade terms throughout the VA period. This kept the wheels turning, reduced disruptions, and maintained the goodwill so crucial for post-sale stability.
Step 4: Close the Deal—and Close it Fast
With strong buyer interest and a well-managed trading business, we moved quickly to finalise a deal. A contract for sale was signed in November 2024 and settled the following month.
The result?
The business was sold as a going concern.
All staff were offered employment with the purchaser.
Ongoing customer contracts and supplier arrangements were transferred.
Creditors are now expected to receive a return of up to 50 cents in the dollar.
That’s not a wind-up. That’s a win.
Key Takeaways
This case study highlights how insolvency, when used early and proactively, can unlock real value. Here are some practical lessons to consider when advising clients in financial distress:
1. Don’t Wait for the Sheriff
The earlier we’re brought in, the more tools we have. Waiting until cash has dried up, staff have walked out, and customers are gone often leaves very little to work with.
2. Directors Aren’t the Enemy
Keeping directors engaged during the VA often adds more value than trying to sideline them. Their input is often key to retaining staff, communicating with customers, and making a sale successful.
3. Employees Matter
Retaining staff isn’t just good ethics—it’s good business. Buyers want a turnkey operation, and a mass walk-out of staff mid-process can tank a sale.
4. Use the Process to Your Advantage
The VA process provides a stabilised trading platform and a legal framework that removes some of the panic. It also helps freeze creditor action and gives time to find real solutions.
Final Thought
When people think of “insolvency,” they often think: end of the road. But as this matter shows, it can be a means to a better outcome—for directors, employees, customers, and creditors.
At Worrells, we’re passionate about turning those moments of crisis into moments of opportunity. If you’ve got a client staring down unmanageable debt or a looming ATO deadline, let’s have a chat.
You never know—it might just be the beginning of something better.
