VA can save cash-strapped ASX small caps as accounting deadline looms
Announcement posted by BRI Ferrier 17 Sep 2014
With the capital markets remaining brutal for ASX-listed small cap companies, directors struggling to fund working capital and looming compliance expenses must make urgent decisions about their future before the 30 September deadline for the lodgement of company financial accounts and solvency declarations - or face the damning prospect of personal liability for insolvent trading.
“It’s no secret that the capital markets have effectively been closed to listed small cap companies for some time. Many are now in dire straits, having exhausted traditional avenues to raise funds and are fast running out of cash,” said Mr Antony Resnick, principal of leading turnaround and business advisory firm BRI Ferrier.
“Adding to that pressure, 30 September, the date by which the statutory audit must be completed, company accounts lodged and by which directors must make a solvency declaration is looming. Many directors of small caps will be feeling apprehensive about whether they can genuinely vouch that their business is a going concern”, Mr Resnick said.
Mr Resnick commented that directors in this position still have a number of restructuring options available provided they act early and quickly.
“Options include realising non-core assets and re-deploying the proceeds, but these sales often take time to settle and can be subject to onerous conditions. Where time is pressing, prompt action in appointing a voluntary administrator to preserve and salvage enterprise value is another viable strategy. Administrators may also canvass solutions such as capitalising debt using a deed of company arrangement or restructuring for the purposes of a backdoor listing”, Mr Resnick said.
Mr Gavin Robertson, principal of the commercial law group at M+K Lawyers said that while voluntary administrations were sometimes perceived as a precursor to liquidation, this was certainly not the case if they were initiated early enough and the directors had a considered plan for restructuring the business.
“Voluntary administrations can be a positive tool,” Mr Robertson said. “They were expressly introduced as an avenue to give distressed companies the maximum chance of survival.”
“In fact, voluntary administrations can be very beneficial for directors. The company gains a freeze on its creditors, giving it vital breathing space to restructure and preserve the value of company assets, including trading businesses, for the benefit of all stakeholders.
“And where assets sales are part of the solution the administrator will in most cases be able to achieve a better result than the directors because of their strong commercial reputation and ability to inject competitive tension into any bidding process”, Mr Robertson said. ”Additionally, shareholder and director approval are not required to carry out the sale which can save significant time and money”
Mr Resnick from BRI Ferrier added that another major advantage of a voluntary administration is that directors are protected from exposure to claims of insolvent trading which can leave them vulnerable to significant personal liabilities.
“The law requires directors to protect the interests of creditors. They can be held personally liable if they incur debts once a company becomes insolvent. But by placing the company in voluntary administration, directors are protected from further liability and the company can then efficiently carry out a reconstruction.”
Mr Robertson said that the chances of rehabilitating a company can be significantly improved if companies act at the earlier stages of financial distress.
“Putting a company into administration is a finely balanced decision but at the end of the day, erring on the side of being proactive can allow the directors to preserve a measure of control over the company’s destiny and enhance their chances of saving it through a reconstruction that can mean the difference between liquidation and a new lease on life,” Mr Robertson said.
ASIC’s Insolvency statistics for the year to 30 June 2013 report that 1,207 companies entered voluntary administration with the industry sectors recording the highest number of voluntary administrations being: Construction (237), Retail (103), Manufacturing (103), Accommodation/Food Services (92), Transport/Postal/Warehousing (66), Wholesale Trade (54) and Mining (51).
Notes to Editor
Costly compliance deadlines for listed small caps
Success Stories - Companies saved by voluntary administration
Benefits to directors of using a voluntary administration to raise capital
For further information contact Su Lin Ho at CallidusPR on (02) 9262 9295 / 0421 616 617 or Viv Hardy at CallidusPR on (02) 9283 4113 / 0411 208 951
About BRI Ferrier
BRI Ferrier is an independent national firm which help organisations manage financial challenges through the provision of insolvency, business advisory, turnaround and forensic services. Our nationwide team of professional’s works with organisations of all sizes from sole traders to ASX listed and government entities
“It’s no secret that the capital markets have effectively been closed to listed small cap companies for some time. Many are now in dire straits, having exhausted traditional avenues to raise funds and are fast running out of cash,” said Mr Antony Resnick, principal of leading turnaround and business advisory firm BRI Ferrier.
“Adding to that pressure, 30 September, the date by which the statutory audit must be completed, company accounts lodged and by which directors must make a solvency declaration is looming. Many directors of small caps will be feeling apprehensive about whether they can genuinely vouch that their business is a going concern”, Mr Resnick said.
Mr Resnick commented that directors in this position still have a number of restructuring options available provided they act early and quickly.
“Options include realising non-core assets and re-deploying the proceeds, but these sales often take time to settle and can be subject to onerous conditions. Where time is pressing, prompt action in appointing a voluntary administrator to preserve and salvage enterprise value is another viable strategy. Administrators may also canvass solutions such as capitalising debt using a deed of company arrangement or restructuring for the purposes of a backdoor listing”, Mr Resnick said.
Mr Gavin Robertson, principal of the commercial law group at M+K Lawyers said that while voluntary administrations were sometimes perceived as a precursor to liquidation, this was certainly not the case if they were initiated early enough and the directors had a considered plan for restructuring the business.
“Voluntary administrations can be a positive tool,” Mr Robertson said. “They were expressly introduced as an avenue to give distressed companies the maximum chance of survival.”
“In fact, voluntary administrations can be very beneficial for directors. The company gains a freeze on its creditors, giving it vital breathing space to restructure and preserve the value of company assets, including trading businesses, for the benefit of all stakeholders.
“And where assets sales are part of the solution the administrator will in most cases be able to achieve a better result than the directors because of their strong commercial reputation and ability to inject competitive tension into any bidding process”, Mr Robertson said. ”Additionally, shareholder and director approval are not required to carry out the sale which can save significant time and money”
Mr Resnick from BRI Ferrier added that another major advantage of a voluntary administration is that directors are protected from exposure to claims of insolvent trading which can leave them vulnerable to significant personal liabilities.
“The law requires directors to protect the interests of creditors. They can be held personally liable if they incur debts once a company becomes insolvent. But by placing the company in voluntary administration, directors are protected from further liability and the company can then efficiently carry out a reconstruction.”
Mr Robertson said that the chances of rehabilitating a company can be significantly improved if companies act at the earlier stages of financial distress.
“Putting a company into administration is a finely balanced decision but at the end of the day, erring on the side of being proactive can allow the directors to preserve a measure of control over the company’s destiny and enhance their chances of saving it through a reconstruction that can mean the difference between liquidation and a new lease on life,” Mr Robertson said.
ASIC’s Insolvency statistics for the year to 30 June 2013 report that 1,207 companies entered voluntary administration with the industry sectors recording the highest number of voluntary administrations being: Construction (237), Retail (103), Manufacturing (103), Accommodation/Food Services (92), Transport/Postal/Warehousing (66), Wholesale Trade (54) and Mining (51).
Notes to Editor
Costly compliance deadlines for listed small caps
- 28 August 2014:
- 30 September 2014:
- 30 November 2014
Success Stories - Companies saved by voluntary administration
- King of Knives group successfully went through a VA and deed of company arrangement process, restoring it to solvency while paying all classes of creditors a dividend.
- Construction company St Hilliers Group went into VA in May 2012 and underwent a restructure which saw control of the company returned to its sole director by December 2012.
- Various fashion brands including Sass & Bide, Bettina Liano, Charlie Brown, Herringbone, Jayson Brunsdon and Wayne Cooper’s Brave have emerged from VA in recent years, restructuring their businesses to return in some form to the Australian market.
- Food manufacturer, Spring Gully Foods went into VA in April 2013. The company emerged from VA in July 2013 with a deed of company arrangement under which creditors agreed to the company’s plans to modernise manufacturing processes and make the entity more sustainable. The business remains family-owned and controlled.
- Mothercare Australia was restructured for a backdoor listing using a Deed of Company Arrangement and a Creditors’ trust.
Benefits to directors of using a voluntary administration to raise capital
- Directors are relieved of potential liabilities going forward, most significantly for insolvent trading
- Administrator brings an objective perspective to developing solutions for the company, whereas a director’s judgment may be clouded by being too emotionally involved
- Administrator may have better market credibility to realise the best value from an asset sale
- Administrator can effect asset sales without shareholder approval
- A deed of company arrangement can be used to compromise creditors’ claims.
For further information contact Su Lin Ho at CallidusPR on (02) 9262 9295 / 0421 616 617 or Viv Hardy at CallidusPR on (02) 9283 4113 / 0411 208 951
About BRI Ferrier
BRI Ferrier is an independent national firm which help organisations manage financial challenges through the provision of insolvency, business advisory, turnaround and forensic services. Our nationwide team of professional’s works with organisations of all sizes from sole traders to ASX listed and government entities