ADS Voluntary Administration – Labour Hire Company Case StudyJanuary 18th, 2018
The company was able to generate a trading surplus of $125K during Voluntary Administration.
A labour hire company established a decade ago in South Australia, made up of a team of support staff that includes recruitment consultants, recruitment resources and accounts and payroll staff, provide human resources solutions to businesses in the transport, warehousing, and storage industries.
This company, while growing rapidly prior to entering Voluntary Administration, had difficulty managing its trading due to insufficient profit margin measurement, insufficient working capital reserves, and poor management and accounting systems, which led to company debts in excess of $1.3 million. Of these debts, $1.2 million was owed to the Australian Taxation Office (ATO) and $80,000 was owed in employee entitlements. This growing debt meant the company was at risk of being wound up, with all employees to be terminated and unsecured creditors unlikely to have their debts recovered.
There was also a risk that the company director would be liable for insolvent trading under section 588G of the Corporations Act 2001 (Cth). Under this legislation, a director has a duty to prevent the company from trading while insolvent and can be held personally liable for any debts incurred as a result of insolvent trading. In the year prior to entering voluntary administration, the company experienced ongoing trading losses of over $700K.
The labour hire company contacted Australian Debt Solvers, who appointed a voluntary administrator from Mackay Goodwin to restructure business operations in order for the company to continue to trade in the long term. The restructure included a reassessment of management quoted for current and ongoing customers, and several initiatives put into place to enhance the overall operations of the business including lodging outstanding taxation and budgeting. This involved Australian Debt Solvers obtaining an external accountant for all future budgeting and costs purposes.
The Voluntary Administrative process allowed the company to continue to trade due to a Deed of Company Arrangement (DOCA) proposal being created between the company and its creditors. As a result of the DOCA, the company was able to meet the secured creditor debt via an 18 month DOCA compromise, with secured creditors to be unaffected and unsecured creditors to receive 50 cents in the dollar at the end of the DOCA term. As well as this, employees were able to retain their employment and entitlements. If the company had ceased to trade, it’s highly likely that unsecured creditors would have not recovered any debts and all employees would have lost their jobs and any entitlements they were owed. Hence, the DOCA worked to find the best possible solution for all involved – including the company, its creditors, and employees.
Following the voluntary administration process, the labour hire company director believes the business will continue to grow thanks to the actions of the Australian Debt Solvers team.
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