Business restructure strategies for moving your business forward

Business restructuring provides a powerful strategic alternative for distressed companies to resolve financial, operational, human resources or legal issues and to navigate troubled economic times. We’ve assembled these great tips to help business owners complete a successful business restructure. They’ll help you streamline the restructuring, minimize time and costs associated with the process, and maximize the outcome for all the parties involved.

Tip One – Be Savvy – Get experts to help.
Restructuring is both an art and a science. Make sure to enlist help from experienced restructuring specialists. From the financial and legal advisors to the individuals working from within the business to facilitate the turnaround and business restructure, these specialists should have experience in managing and dealing with the complexities of the corporate restructuring process.

Tip Two – Be Quick – Time can be a crucial factor
Expertise can save you both time and money through providing effective guidance and negotiating and facilitating all transactions. From pre-planning to re-establishment of the new company, you can achieve their goals in a relatively quick period of time with strategic planning and professional execution of a business restructure. If you delay the process (ie. drag it out over some time), the unrest it may cause to your business and critical assets like staff can have devastating effects in the long term. The uncertainty and instability of a long drawn out restructure can be both demoralising for staff and adds additional stress for the owner/s of the business.

Tip Three – Be Prepared – Organize your critical information.
From the planning phase through execution, organization of company information is critical. All key information should be clearly accessible to help expedite the process and easily locate the required data. Data and other information needed during the process can include financial statements, debtors, employee details, legal contracts, real estate leases, intellectual property agreements. If you don’t have some of these in place it may delay processes significantly and could affect the outcome of the restructure.
Tip Four – Be Transparent – Structured disclosure is good.
By developing an effective communications strategy for your business restructure and disclosing forward progress to relevant parties during the restructuring process (such as employees, suppliers, financial institutions and the media) some of the long term risks of the process are mitigated. It is critical that you know what to say, how to say it and when to say it. It is also vital to recognize the strategic relevance of your communications with your stakeholders. When left in the dark, stakeholder may react

Tip Five – Be Sensitive. Take your creditors’ financial insecurities into consideration.
When dealing with financial matters of this scale, emotions run rampant. It is normal for business owners to feel bad (or sometimes worthless) that they need to restructure their business. Their may be some creditors that will be disappointed in you. Always remember that your creditors entered into the relationship with you for their own benefit. They have assumed commercial risk (as you had with your customers) – the outcome of a business failure probably will mean that they receive no payments from you, but a successful restructure should enable you to continue your business with them and ultimately return some benefit to them. Always be sensitive to the needs of stakeholders and provide reassurance that their matter is one of significance and will be addressed during the process. As one business operator once said “This is not a personal thing – it’s a business related transaction where all parties assumed some risks and benefits.”

Finally, be on the lookout for organisations that will prey on you vulnerabilities and weakness at a time when your business in under significant pressure. Some unscrupulous business restructure suppliers will seek to get you to expose your personal assets to them as assurances for facilitating the business restructure process. Under no circumstance should you sign personal guarantees exposing your personal assets during a restructure process. An ethical practitioner will ensure that you and your business are able to withstand the cost of a restructure and move forward successfully.

You can find out more about Clarity Group Australia in this short presentation. We are a leading business restructure provider in BRISBANE, SYDNEY, MELBOURNE. Call for more information to 1300 001073.

Introduction – We make things simple and take the frustration and pain out of business restructures for business owners. Take a moment and watch our introduction to Clarity Group Australia. We specialise in Business Turnaround and Restructuring Services. Including Pre-Insolvency Planning, Business Restructure Management, Insolvency, Debt Consolidation, ATO Debt Management, Liquidating a Company, company debt. We provide an initial confidential free service on Liquidating a Company lawfully.

Is business restructuring legal?

Yes, many companies restructure their businesses legally and ethically.

Isn’t this just illegal “phoenixing” a company?

We do not phoenix companies or support the illegal phoenixing of companies to avoid debt. Illegal phoenix activity involves the intentional transfer of assets from an indebted company to a new company to avoid paying creditors, tax or employee entitlements.

The directors leave the debts with the old company, often placing that company into administration or liquidation, leaving no assets to pay creditors.

Meanwhile, a new company, often operated by the same directors and in the same industry as the old company, continues the business under a new structure. By engaging in this illegal practice, the directors avoid paying debts that are owed to creditors, employees and statutory bodies (e.g. the ATO).

Illegal phoenix activity is a serious crime identified by ASIC and may result in company officers (directors and secretaries) being imprisoned.

How can restructuring help a company in financial difficulty?

Fundamentally, restructuring should be considered to ultimately improve the operating performance of a business. Their are many aspects to restructuring including legal, human resources, operational and financial. If a company is in financial stress there are a range of options available to business restructure consultants to find a way through. Under all circumstances, the approach to creditors is generally an important aspect of restructuring and ensuring that creditors and other stakeholders are part of the overall plan is critical to success.

What is the process and timeline of a restructuring?

Our restructuring process follows a range of standards and proven methodology. We normally work through a specified plan with the company directors and shareholders. The speed of execution of that plan is according to business and individual needs.

type of debt instrument taken in exchange for existing debt;
debt to equity exchange ratio, which will require some sort of valuation;
proportion of equity dividend to creditors;
tax treatment of the residual debt and the converted amount.

What is financial restructuring?

Financial restructuring is a corporate restructuring process that addresses problems or inefficiencies caused by an inappropriate capital structure of a company or business. It may involve :

Converting existing debts to equity;
Converting preference shares to ordinary shares;
Debt subordination;
Debt compromise;
The sale or transfer of existing debts or equity to more supportive new owners; and
Accelerated sale of a part of the business in order to free up working capital.

What is debt refinancing and debt restructuring?

In debt refinancing, a company or individual applies for a new loan that has better terms than a previous contract and can be used to pay down the previous obligation. An example of a refinancing would be applying for a new, cheaper loan and using the proceeds from that loan to pay off the liabilities from an existing loan. Refinancing is used more liberally than restructuring because it is a quicker process, easier to qualify for and impacts and organisation’s credit score positively since payment history will reflect the original loan being paid off.

Debt Restructuring

For companies in distress, borrowers can turn to debt restructuring. At the most basic level, restructuring refers to altering an already existing contract (versus refinancing which starts with a new contract). An example of a typical restructuring would be lengthening the due date for the principal payment on a debt contract or modifying the frequencies of interest payments. Restructuring occurs mostly in special circumstances, where borrowers are deemed financially unstable and are unable to meet debt obligations. Restructuring can affect your credit score as financiers may chose to share the information with recipients of a credit reporting system.

What is operational restructuring?

Operational restructuring examine the causes of poor business performance and the development of a strategy to achieve improvement on the level of performance. Operational restructuring focuses on the profitability of operations and includes examining many aspects of the business’ failure to perform including human resources, equipment, management etc.. It does not address the capital structure or financing structure of a company. The plan will usually cover the following areas:

Review of products and markets to assess their contribution to profit;
Alignment of costs with revenues and making appropriate cost reductions;
Rationalisation of operations and facilities to improve efficiency and release cash;
Disposal of underperforming and non-core businesses;
Identification of skills and resource gaps in the management team;

What is business stabilisation?

Business stabilisation is a corporate restructuring process designed to help a business through short term and unexpected financial distress, such as the loss of a major contract or the withdrawal of a major finance provider from the business. The need for stabilising business generally results from a major crisis. It is designed as a short-term measures to enhance cash-flow and generate liquidity. It will usually be combined with steps to help rebuild the confidence of key stakeholders. Business stabilisation will create sufficient breathing space to implement a longer term turnaround process.

What is turnaround management?

The term turnaround management refers to the process whereby a restructuring advisor works closely with the directors of a company to identify failures and opportunities and further develop a strategy to return the company to financial health. Often we place a turnaround manager in the business working with the Director to ensure that support is on hand on a day to day basis and that project plans are adhered to – ultimately to maximise opportunities for success.

Is every turnaround successful?

There are a variety of outcomes that result from a business turnaround scenario. Proven risk management approaches ensure that the opportunity for failure is mitigated and the opportunity for success is increased. Some turnarounds/restructure efforts fail for a variety of reasons not least the lack of credible information supplied to the restructure advisor at the start of the process. We work with you to explain specific risks (as a Doctor would prior to an operation) and let you make informed choices about the approach and methodology we use. We also detail the course of action and probable outcomes at the outset of the process to ensure that you are well informed at the outset.

How do i get started?

The first step is having a no obligation chat with a consultant/advisor. We have consultants available after hours because sometimes the need is pressing and we are mindful of your circumstances.

Clarity Group Australia on Biteable.

Want to know more?? You can view our Powerpoint Presentation here!

How good are you at managing stress? If you’re a small business owner you better be good at it or learn some strategies to improve how you manage it. Nicole Leinbach-Reyhle provides some ways to managing stress.

Being a small business owner doesn’t come with a job description, and more often than not it includes unforeseen stresses and challenges that are out of the business owner’s control. As a result, more and more entrepreneurs are finding ways to balance the demands of business in both practical and surprising ways.

Common Stress #1: Lack of Control

While being your own boss may appear to put you in the driver’s seat, working with external business partners, clients, investors and other outside parties puts you in a position where you lack control. Sure, you may have influence… but that’s isn’t the same as identifying all end results. This can cause many small business to gain stress and seek resolution. Unfortunately, guaranteeing the results or even the answers you want to happen are not always possible. To help manage this, consider accepting that not all decisions will be made in your favor and aim to have a positive outlook on even those decisions that are not. Naturally, we want to always “win” or complete whatever it is we aim to achieve, but reality tells us that this isn’t always the case. Appreciating your wins and accepting what you can’t control can help calm these frustrating situations. According to a study by Happify.com – a company committed to supporting scientific happiness – you can also benefit from listening to music, taking a walk, being with friends or doing something you enjoy that has nothing to do with your work. These escapes from your professional responsibilities – even if brief – can help support you in being less stressed about what you can’t control. Managing stress of the lack of control is important to how you perform.

Common Stress #2: Reacting Too Soon & Too Fast

So often in business, people react to decisions without actually taking actions to better support them. As a small business owner, this is particularly important since your actions dictate company results. Reactions, however, are often emotionally driven and as a result, do not effectively support business decisions. To help ease the urge to react to something versus support it with a professional action, take time to listen, analyze the situation, consider multiple responses to it and breathe. Yes… breathe. Giving yourself time to evaluate situations versus abruptly reacting to them can not only help your business, but also better support you managing stress levels.

Common Stress #3: No Time to “Do It All”

Depending on your version of “doing it all”, 24 hours a day is likely not enough to get everything you want done. Between the recommended 7 to 8 hours of sleep a night – according to the American Academy of Sleep Medicine – and the unspoken belief that entrepreneurs need to work 70 plus hours a week to be successful, doing it all seems nearly impossible. Accepting this is key to eliminating some stress, though it would be foolish to imagine this would eliminate all stress. By acknowledging you can only do so much in one day and accepting that your health – including sleep, exercise and eating habits – all contribute to your overall professional performance, you can better manage your day-to-day stresses. Budgeting time to work out, allocating certain hours for family and / or friends only and choosing to not check emails during certain hours of the day are all proven ways to help manage your busy workload and eliminate stress. The real challenge, however, is to keep to whatever schedule you put in place – as there are always interruptions and opportunities to sway you away from the schedule you have identified as best for both you and your business.

While stress isn’t formally identified as a job description of entrepreneurs, it comes with the territory and should be considered along the way. A final tip in supporting the stress levels most small business owners have is to accept failure as part of the small business ride. Of course, no one wants to fall down and never get back up… that certainly isn’t the goal… but along most small business owner’s adventures includes moments – if not longer experiences – where failure seems to outshine success. Don’t let this get you down or ruin your big picture plans. Instead, simply evaluate why something didn’t work and how you can better perform, react to a situation or plan ahead for next time. For the future, it just may be those failures and stresses along the way that rise you to the success you’re aiming for.

Nicole Leinbach Reyhle is the Author of Retail 101: The Guide to Managing and Marketing Your Retail Business, as well as the Founder of Retail Minded and the Independent Retailer Conference. This article was first published in Forbes Magazine.

If you’re finding that the stress of your business is overwhelming, why not call us for a free no obligation chat about how we can help you overcome. Phone 1300 001 073.

We know and understand that determining insolvency status is difficult. Relevant Australian legislation refers to insolvency as:

A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable. A person who is not solvent is insolvent- Section 95A of the Corporations Act 2001 and Section 5 of the Bankruptcy Act 1966.

There are two (2) common meanings of ‘insolvency’:

Cash-flow insolvency – being unable to pay debts as and when they fall due.
Balance-sheet insolvency – assets being exceeded by liabilities.

Commonly regarded indicators of insolvency, as established in the legal case of ASIC v Plymin (2003) 46 ACSR 126 include:

1. Continuing ongoing losses

A series of trading losses can lead to or be indicative of a shortage of working capital. A prolonged period of trading losses will likely reduce a company’s capacity to pay its debts when they fall due.

2. Liquidity ratio below 1.0

The two most commonly used liquidity ratios include the current ratio (current assets ÷ current liabilities) and the quick ratio (cash & cash equivalents + accounts receivable ÷ current liabilities).

The current ratio examines a company’s ability to access funds in the short term from current or “liquid” assets to meet short-term liabilities. An on-going current ratio of less than 1.0 indicates that a company has not maintained sufficient assets to meet the day-to-day obligations of creditors and that it may be insolvent and not able to pay its obligations to creditors as and when they fall due and payable.

The quick ratio examines the ability of a company to pay its debts by using its cash and near cash equivalents (i.e. accounts receivable and marketable securities). A quick ratio of less than 1.0 indicates that a company would not be able to repay all its debts by using its most liquid assets and that it may be insolvent and unable to pay its obligations to creditors as and when they fall due.

3. Overdue Commonwealth & State taxes and obligations

The failure to lodge tax returns on time and the failure to maintain its payment obligations can be an indicator that a company is not able to meet all of its statutory obligations as and when they fall due. Often when a company is experiencing difficulty in meeting its obligations to trade creditors, it will neglect its taxation obligations to assist with cash flow.

An employer is also required to pay superannuation contributions to the relevant employee superannuation fund within twenty-eight (28) days of the quarter end, under Superannuation Guarantee Charge legislation. Similarly, superannuation obligations are often neglected in order to assist with trading cash flow.

4. Poor relationship with present bank including inability to borrow additional funds

A Bank has a unique relationship as it will usually be aware of the cash position of a company and may have access to a company’s financial information in circumstances where a company has borrowed money. A Bank’s actions such as the dishonouring of cheques, rejection of finance or the immediate calling of bank loans will come as a result of a lack of confidence in the company’s financial position. A Bank failing to extend further credit to a company usually stems from a history of delayed repayment or defaults of monies due to the Bank, and/or the Bank’s assessment of the financial position/capability/viability/management of the business.

5. No access to alternative finance.

A company can seek to replace current debt with perhaps longer-term debt, usually borrowed on more relaxed lending criteria, however on less favourable terms (i.e. higher interest rates). Any incoming financier would make that same financial assessment of a company as the current financier when extending credit. Similarly, inability to source alternative finance from another provider does not bode well for the company’s financial sustainability.

6. Inability to raise further equity capital

Equity capital is another form of financing that allows a company to gain access to cash. Potential equity investors, knowing that an eventual return may be delayed or uncertain, are likely to be diligent in reviewing the finances and prospects of a company in an effort to be satisfied that the return is commensurate with the risk. It is of concern if current shareholders are not willing to increase their stake in the company to ensure its future viability. It must be noted that a lack of investor confidence may be due to a number of reasons, including a lack of desired profitability, rather than solvency concerns.

7. Supplier placing the debtor on COD terms, or otherwise demanding special payments/arrangements before resuming supply

These are both clear indicators of a deterioration of a company’s trading relationship with suppliers and its ability to meet its on-going liabilities. Where suppliers amend the terms of trade with a company to COD it usually suggests that the creditor has no faith in the company’s ability to meet further commitments. Similarly, requests for special payments/arrangements will usually come as a result of a supplier’s fear of non-payment and seeks to impart their own desired terms to ensure repayment.

8. Creditors unpaid outside trading terms

If a significant portion of a company’s aged payables are outside normal trading terms (usually 30 days, depending on the industry), it is a sign of an inability to satisfy its debts when they fall due. This is a telling indicator of cash flow insolvency.

9. Issuing of post-dated cheques / dishonoured cheques

This is clear evidence that a company does not have the current capacity to pay its debts which are due, and seeks to pay its current obligations with future cash inflows.

The issuing of post-dated cheques shows that a company has extended past its current cash resources in attempting to satisfy its current debts.

10. Payments to creditors of rounded figures, which are irreconcilable to specific invoices

Lump sum (round) payments are evidence that a company does not possess sufficient cash to meet its obligations as and when they fall due and instead resorts to making payments based on the cash available at the time, rather than payments for specific invoices within trading terms. Entering into such an arrangement is usually an admission that the business cannot meet the full debt when due, otherwise the arrangement would not be necessary.

11. Solicitors’ letters, summons, judgments or warrants issued against the company

The issuing of demands by solicitors is usually an indication that a creditor has exhausted all avenues to recover its outstanding debt and has sought the assistance of an external third party to assist with collection.

Numerous demands from a number of solicitors will create a strong presumption of insolvency. Debts which are long overdue and have reached the stage of legal recoveries are a clear sign that a company is not able to repay its debts in a timely manner.

12. Inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and make reliable forecasts.

A company is obligated to keep financial records that correctly record and explain its transactions and enable the preparation of true and fair financial statements pursuant to Section 286 of the Corporations Act. However, should a company fail to maintain this obligation then it is presumed that it is insolvent according to Section 588E of the Corporations Act. The mere fact that a company does not keep financial records does not necessarily mean that it is insolvent. However, Courts have come to the conclusion that companies in financial distress will normally have records in disarray. Historically, an insolvent company usually does not have reliable financial information up to date and readily available. Reluctance to update financial accounts is usually a product of directors avoiding the realisation that the company is in fact insolvent.

A company exhibiting a few of the above indicators may not necessarily be terminally insolvent, but may be simply experiencing short-term cash-flow problems. If numerous indicators are identified over a prolonged period of time, it then may be the case that the company is insolvent and consultation with us is recommended to assess your options. You can call 1300 001 073 for a free no-obligation chat or email us on our contact page.

Once insolvency is established, it can lead to some serious legal consequences for a company or individual. For example:

They may be subject to Court proceedings for liquidation or bankruptcy.
Penalties and civil recoveries can be triggered against directors should the company continue to trade on and incur debts (that is, directors can be exposed to an insolvent trading claim by a Liquidator).
Insolvency may be an event of default in a business contract, at the detriment to the company.

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