Electrical contractor finds itself in double trouble.
An electrical contracting company faced the threat of insolvency due to its inability to meet a contingent cross-guarantee claim for debts, which it had guaranteed, from a related entity.
The related entity was wound up after significant losses and cash flow problems prompted the directors to appoint a liquidator. This triggered potential cross-guarantee claims against the electrical contracting company.
A relatively straightforward strategy was developed to restructure the balance sheet using the voluntary administration process. But in practice, it was extremely complicated and involved multiple stakeholders, refinancing a secured facility, and a deed of company arrangement with an associated creditors’ trust to process payments to creditors.
With one company in liquidation, the directors were extremely stressed by the complexity of the restructuring and the need to place the company in voluntary administration to implement the deed of company arrangement.
The timing couldn’t have been worse. The voluntary administration was initiated shortly before Christmas, creating considerable uncertainty for staff, suppliers and customers alike, and therefore the viability of the whole business.
How we turned things around.
We began by developing a high-level balance sheet restructuring and explained to the directors how this could be used to restore the company to viability. This was accompanied by a comprehensive briefing pack for the administrator to minimise the duration of the administration, and reduce uncertainty for both internal and external stakeholders.
The next step was to formulate a deed of company arrangement proposal, which included a complex creditors’ trust with a 25-tier distribution waterfall.
Once these measure were in place, we negotiated a 90% discount in the contingent creditor’s claim and project managed the refinance of ANZ; at all times maintaining communication with the important stakeholder groups. The administration process was completed in 25 days.
Now on the road to recovery.
Following the success of the administration process, we were retained to advise the company moving forward. The strategy is now reviewed annually and shared with the staff.
Better governance is in place with an advisory board to support the directors.
Forecasting is based on strategic plans, and actual performance is tracked against the forecast and key performance indicators. As a result, net profit before tax continues to grow.
The Directors are being upskilled in key financial matters through developing the annual forecast, and monthly financial report.
Importantly, the company’s culture is also developing as its senior personnel have engaged personal business coaches; and the company is re-positioning itself as a customer-centric contractor.