Many directors may not be aware that companies not subject to binding security agreements can undertake a commercial restructure of their business.
Undertaking a commercial restructure of a company may be a viable solution for companies who have unsecured debt issues and where the director is not subject to a personal guarantee, undertaking such a plan is on the basis that the business can operate as a viable going concern and that the commercial restructuring plan will offer a better return to creditors than otherwise if the company went into liquidation.
For a commercial restructure to be compliant specialist valuations are required to ascertain the value of goodwill and assets so that a proper commercial consideration is paid by the new acquiring entity. If a proper commercial consideration is not applied to these transactions then creditors and liquidators have the ability to deem the transaction a creditor defeating disposition under the corporations act and apply via the courts to overturn the transaction.
This would also have the company subject to Anti Phoenixing laws in which the commonwealth government introduced The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 which is a law that was passed by the Federal Parliament in February 2020 to combat illegal phoenix activity.
The Act aims to:
- Prevent creditors from being left behind to deal with a shell company
- Improve the accountability of resigning directors
- Penalize individuals and third parties involved in illegal phoenix activity
This is why it’s imperative to engage restructuring professionals such as Corson Fiske who have the specialist expertise in undertaking such engagements and who are accredited members of the Turnaround Management Association of Australia.
What business may be beneficial for a Commercial Restructure ?
There are many circumstances where a commercial restructure may be the strategic plan your business needs to take in order to survive and continue as a going concern.
- Combined Company debts over $1 Million
- The business does not meet the prerequisites of an SBR
- Where a prior SBR proposal has been rejected by creditors
- The business is not in the financial position to undertake contributions under a VA or SBR arrangement.
- A commercial restructure provides better return to creditors
- The overall business needs to be structured correctly due to significant insolvency risk and personal risk to directors.
Need to know more ?
A commercial restructure of your business may be a solution that could save your business from significant financial trouble.
Reach out to our insolvency and restructuring team for an initial review and to discuss your options.