In times of financial distress or when facing operational inefficiencies, restructuring your business can be a viable strategy to return to profitability and ensure long-term sustainability. In Australia, several restructuring options are available, each suited to different situations depending on the severity of the financial difficulties and the specific goals of the business.
As a business advisor specialising in insolvency and restructuring, I can guide you through the various pathways to restructuring your business in Australia.
1. Informal Restructuring
Before considering formal legal restructuring processes, businesses may opt for informal restructuring. This involves directly negotiating with creditors, suppliers, and other stakeholders to modify payment terms, reduce debts, or agree on new contracts. Informal restructuring offers flexibility and can preserve business relationships, but it requires all parties’ agreement to be effective.
2. Debt Refinancing
Refinancing involves replacing or restructuring existing debt with new debt, often under different terms. This might mean securing a lower interest rate, extending the loan term, or consolidating multiple debts into one. Refinancing can improve cash flow and reduce financial pressure in the short term, allowing businesses to focus on operational improvements.
3. Voluntary Administration
Voluntary administration is a formal insolvency procedure where an independent administrator is appointed to take control of the company. The administrator evaluates the company’s financial position and explores options to save the business or maximise returns to creditors. This may involve restructuring the business, selling it, or entering into a deed of company arrangement (DOCA) with creditors to pay debts under agreed terms.
4. Deed of Company Arrangement (DOCA)
A DOCA is a binding agreement between a company and its creditors outlining how the company’s affairs will be dealt with to maximise the chances of the business continuing or to provide a better return for creditors than immediate liquidation. It allows the company to compromise certain debts, restructure its operations, and potentially emerge from voluntary administration as a viable business.
5. Liquidation and Asset Sale
In some cases, the best course of action may be to liquidate non-core or underperforming assets to reduce debts and refocus on the most profitable areas of the business. While liquidation is often seen as a last resort, selling assets can provide the capital needed to restructure and relaunch the business more effectively.
6. Business Sale
Selling the business, either in part or whole, can be a way to avoid insolvency while preserving the value of the business’s assets and operations. This might involve finding an investor or competitor interested in taking over the business, allowing it to continue operating under new ownership while providing returns to creditors.
7. Safe Harbour Protection
Under Australia’s Corporations Act, directors can access “safe harbour” protections from personal liability for insolvent trading if they are developing a course of action that is reasonably likely to lead to a better outcome for the company and its creditors than immediate administration or liquidation. This encourages directors to take proactive steps to restructure their business without the immediate threat of personal liability.
Restructure + Insolvency Advice can be provided to assist restructuring a business in financial distress requires careful consideration of the options available and their implications for the company’s future. Each option has its advantages and challenges, and the right choice will depend on the specific circumstances of the business and its financial health. Engaging with a professional advisor specialising in business restructuring and insolvency is crucial to navigate this complex process effectively. With the right strategy and support, restructuring can offer a pathway to recovery and future growth for businesses facing difficulties.
The Team at The Accountants and The Finance Brokers are here to help you navigate your cash flow requirements in your business. We offer complimentary cash flow reviews and assist you in understanding your finance needs.
