Very few business owners know the break-even point of their business and do not adequately focus on profitability. This is when business owners need to talk to accountants and or turnaround specialists to assist directors with:
- Options available to increase revenue or reduce general costs and expenses;
- Options available to reduce fixed overheads;
- Strategies which may be available to recover or realise amounts from overdue debtors or the sale of assets that are not of core importance to a company’s business;
- Finance options which may be available to provide immediate cash flow; and
- Coaching them to “work on it, not in it”.
We provide partnering agreements and assistance to accountants that have company directors struggling to make ends meet and do one on one with business owners that approach us direct. Our strategies can be implemented in a timely manner and the turnaround process costs are determined to meet with our clients cash flow, so as not to put extra pressure on the business’ day to day trading, thus ensuring profitably in the future.
On occasions we have negotiated with creditors, thus because of us undertaking a turnaround programmed for our clients to succeed they must enter arrangements to pay debts overtime. We also stress that creditors interests are a priority. Such arrangements can assist a business with immediate cash flow problems by reducing or deferring current liabilities.
Insolvent business asset sale;
An insolvent company can sell its assets to another entity, however before doing so the assets must be valued, and the debtors accurately recorded as to the potential of collecting on them. This can only happen if the insolvent company is then placed into liquidation and the liquidator appointed consenting to the sale as being a commercial outcome. As for the debtors, the liquidator may allow a third party to collect upon the debtors subject to the liquidator receiving a financial benefit from the collections. To ensure the sale is legitimate the assets should be offered on open market, and to a new entity, which may be related. When a sale is to a related entity the sale of the insolvent company’s core business / assets must reflect the new purchasing entity will in a position to trade profitably, or the question of selling assets to defeat creditors could be raised.
When a business sells its assets, the directors must comply with their fiduciary obligations, which include acting in the best interests of the shareholders, the duties also include having regard to and acting in the best interests of the creditors. The director’s obligations are particularly important in circumstances where a sale is to a related entity and that the sale will result in creditors, not likely receiving 100 cents in dollar of what is owed.
Since September 2018 when the legislation changed and Phoenixing became the target of both ASIC and the ATO. All business and asset sales not transacted at market value and not on commercial terms are investigated by liquidators, receivers, ASIC and the ATO and gives rise to being accused of breaches of director’s duties.
This could subsequently result in the director being prosecuted and facing potential disqualification by ASIC from being a director. This is “illegal phoenix activity”, however, ASIC recognises that there is a distinction between “legal” and “illegal” phoenix activity depending on whether the issues of value and commerciality are adequately addressed in the sale. In this regard the ASIC have on their web-site advice that outlines what you cannot do. We have noted a significant growth in the number of “fringe advisers” who provide advice regarding financial difficulties but are not qualified insolvency practitioners nor do they have accounting or litigation experience which means they are unregulated.
The benefits of a sale of business to a related entity may include the directors maintaining control of the business rather than an administrator or liquidator taking control. Continuity of the business in the transmission to the purchaser and the directors can communicate and manage dealings with clients, employees, suppliers and financiers.
As noted earlier a sale of a business must include:
- The business and assets being valued by a creditable
- If a related entity is the buyer, the financial consideration to be paid is transparent, the sale is transacted for best price attainable or fair market value and on commercial terms.
- How work in progress is to be completed and on what terms.
- What impact has the sale on future dealings with the current
- What effect the sale has on leases currently in
- How will unsecured loans and finance agreements be dealt with, what are the secured creditors
- Are all employees being offered continuity of employment by the purchasing entity.
- Confirmation the purchasing entity has the capacity to fund its initial trading costs.