ADS Voluntary Administration: Dance Company

  • December 9th, 2018
  • David Hill

Through voluntary administration, a struggling dance-event company was able to continue trading to achieve the best outcome for its creditors.

A dance company was begun in 2017 by a successful NSW dance school to run a dance festive. However, due to financial difficulties, the dance company had to suspend trading having accumulated a considerable amount of trading losses and debt.

The dance company had hit a pause on trading due to insufficient working capital as well as other issues relating to disputes. The directors were facing trade losses, coupled with approximately $1 million in unexpected expenditure.

Prior to seeking advice from the Australian Debt Solvers’ insolvency experts, the company had recorded debts in excess of $4.5 million, with $549,000 owing to the Australian Tax Office (ATO). In addition, the company had disputes with various parties regarding development plans for a second proposed dance festival.

The company had historically traded at a loss, and by all indicators, it would be unable to trade successfully with respect to the planned second festival. Without drastic, urgent measures, the dance company was at a significant risk of being wound up whilst its directors faced a high likelihood of being held liable for failing to avoid insolvent trading under s588g of the Corporations Act 2001.

Additionally, the dance company incurred over $1.4 million in trading losses.

Had the business continued on its course, it was very likely the directors would have become personally financially crippled. Additionally, it was probably the company’s unsecured creditors who would have had little prospect of recovering debts owed by the company.

Seeking a way to turn around its business and achieve the best outcome for creditors, the dance company contacted ADS for urgent assistance. Our experts advised voluntary administration to allow the company some breathing space from its creditors whilst an external administrator took over and recommended the next best step forward. The voluntary administration process resulted in the company able to continue trading with a deed of company arrangement (DOCA).

As a result of obtaining timely advice about the voluntary administration process, the dance company was able to come up with a solution for its creditors. The DOCA outlined terms for paying off creditor debt over an 18-month time frame, and it included an insurance claim. Additionally, the DOCA established an obligation on the part of the company to make monthly contributions for a compromise arrangement, for the benefit of creditors, including the ATO.

Unsecured creditors alike were able to recover some of their funds, as through the trading strategy outlined in the DOCA, unsecured creditors are expected to receive up to nine cents in the dollar after the DOCA ends. The plan under the DOCA allowed secured creditors to be repaid in full and for unsecured creditors to receive some of their money back, which was likely a better outcome than alternatives like liquidation could achieve. It also reduced the risk of the directors being found liable for breach of their duty to prevent insolvent trading and in turn the risk of personal financial liability.

Following the voluntary administration and completion of the 18-month DOCA time frame, the dance company believes it can continue to successfully trade thanks to the expert advice by ADS.

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