Voluntary administration


01 Dec 2020

Using a Deed of Company Arrangement to fix a trading crisis in a hospitality business

Community pulls together to save RSL services and local venue.

From the onset of 2020, we witnessed a variety of businesses fall victim to the COVID-19 pandemic. Businesses around Australia have struggled to make ends meet, with COVID-19 not paying any heed as to the industry of its victims. One of the key industries we observed as being hit the worst—without a doubt—is the hospitality sector.

While liquidation has been a common approach for hospitality businesses struggling during these times, this article is an example of where the path less travelled can make all the difference. Through applying a well thought out strategy via the voluntary administration (VA) regime, we’ve seen first-hand, businesses provided with a second breath of life and chance of survival in these uncertain times.

Recently, our Geelong office in Victoria was given the opportunity to work with the Colac RSL and RSL Victoria to implement such a turnaround regime, with the view of maximising the return to creditors, salvaging business continuity and securing future success.

The Colac RSL is an integral and core part of the Colac community. The RSL provides locals with a hospitality and gaming venue and local war veterans receive their welfare services. Given the significant standing of the RSL and its services in the community, it was critical for the RSL to survive.

At the onset of COVID-19, the Colac RSL found themselves in a similar situation to other businesses in the hospitality sector. With staged restrictions throughout Victoria, in addition to already poor sales performance, the RSL’s cash flow declined significantly throughout its operations. Cash strapped and in the midst of a crisis, the RSL was teetering on the line of insolvency.

Despite the RSL’s actively deteriorating financial position, the management committee sought Worrells Geelong Partner, Scott Andersen’s advice. Thanks to this early consultation with our team, we gained an understanding of the RSL’s operations and outlined how implementing the VA regime with the objective of getting a Deed of Company Arrangement (DOCA) approved by creditors could return the Colac RSL to viability.

Once appointed, the VA period saw us assume control and trade the RSL’s operations in a limited capacity due to COVID-19 restrictions for six weeks, which also reduced trade on fees. In placing the RSL into VA, the management committee could essentially place a hold on creditor claims and provide for an avenue of business continuity to be investigated.

Over the course of the trading period, the administrators and Worrells team worked closely with various stakeholders in the local Colac and Geelong community, and investigated avenues to facilitate the continued operations of the RSL. As part of this process, we held various meetings with stakeholders such as RSL Victoria and other like-minded associations. Following these meetings, local businesses gathered together to help the association.

The culmination of these efforts saw the successful proposal of a DOCA by a likeminded association. The proposal set the association up to receive the financial contributions it needed so the RSL could continue to provide their services to the greater Colac community.

The Colac RSL’s circumstances and experiences leading up to the VA appointment are not unique and are unfortunately the reality for many hospitality businesses in these trying times.

The key takeaway from the Colac RSL good-news story, is to not wait until it is too late and to obtain appropriate advice on the company’s future as soon as possible. Informing yourself or your clients of the available options, sooner rather than later, is critical to ensuring future business success.

With the key to a successful VA-DOCA regime being the ability to work effectively and amicably with creditors, now may be one of the best times for proposals to be put to creditors given the demonstrated empathy towards businesses’ financial positions. However, when the moratoriums on creditor’s debts start to expire, it will be no surprise when creditors start to come knocking for their money when we reach a ‘COVID-normal’.

Should you client be experiencing something similar to the above circumstances or concerned about the amount of debt accruing, we urge you and your client to contact our offices to see what your options are. Worrells, being based locally, while being staffed nationally, enables your clients to get the advice and solutions they need, when they need it.

Business can be tough

Our team is focused and ready to help

Get in touch

Subscribe for all the latest help and news