As I write I trust you are well and like me contemplating the resumption of business life in your workplace. It’s amazing how the world is changing so quickly as we enter Phase 3 of the re-opening of the WA economy. But it’s not over yet and we all need to keep clean and distanced to limit the spread of the virus. It would be a disaster if, while we enjoy the normality of life, one of our loved ones fell ill.
As a kid, my Dad bought me a simple Canon camera, you know the old ones that used film that you had to get developed. So you paid for the camera, the film, and the processing and if you weren’t very good at taking the photos (like me) then it became an expensive exercise. I liked taking shots of scenery. However, the cost cloud always hung over my head, so I would delay taking a shot in the hope that the weather or the view was better at another time, and my photo would be more perfect. I learned the lesson that a photo today was better than a worse photo tomorrow. And our current situation with business in Australia is a bit like taking the photo. Do I act now or put it off in the hope that tomorrow will be better?
There are some present circumstances that warrant serious thinking if you or your business are not as financially strong as you could be. Let me give you the background to my thoughts for eligible individuals and businesses:
there have been very few demands issued by the ATO since January for payment of outstanding tax debts;
we have a loan repayment holiday from the banks until September;
we have cash flow boost and Job Keeper assistance until the end of September;
there is a six month temporary debt protection measure in place (ending September); and
there are rent deferral measures in place.
As you can see Australia is experiencing a sort of nirvana in which the end point is September. Recent media commentary indicates that the cessation of this help could result in many businesses failing in the following months. The former Governor of the Reserve Bank was asked recently what shape the recovery curve might have in Australia. His response wasn’t a “v” or a “nike upwards tick” or a “w” : it was the sign of a square root. You remember these from school, a dip, an uptick and then a flat plateau.
Stevens also said “that unemployment goes up like an elevator, and falls like stairs”. In other words it’s very hard to get people employed again.
So how is your business placed to weather that sort of a recovery process?
A lot of small businesses in Australia are undercapitalised from the day they start. For a business that is short on capital, and propped up by Government stimulus packages currently available, the end of September might look like a cliff over, which you, like many others will fall. Please don’t do this. Help is available.
Our Corporations Act in Australia contains a number of tools that can help restructure business and provide protection from creditors. A common approach is the Voluntary Administration process. This entails appointing a registered insolvency practitioner to take the role of the Directors. Their job is to work out a way of helping the business continue by a recapitalisation. This could be a sale of the business, but more commonly happens by the owners proposing a Deed of Company Arrangement (or a DOCA, as it’s called) by paying an amount of money in full and final settlement of the amounts owing. If accepted by the creditors, a DOCA results in a binding settlement and allows the company to return to the control of its directors to continue trading.
Now in ordinary trading times a DOCA might not seem very attractive: the directors pass control to an unknown professional with the risk that the DOCA doesn’t get accepted. However, with some preplanning before appointing the administrator, it’s possible to structure things to your best advantage and also give the creditors a better outcome than will happen if you have to shut up shop. And one of those advantages right now is that the Covid-19 has created a willingness among creditors to be more lenient than before. And with the common largest creditors being banks and the ATO they can be keen to talk turkey. So there is an opportunity to restructure within the law by using a DOCA to reduce your debt and overhead costs and restart the engine of your business. We have strong associations with insolvency practitioners and insolvency legal experts and look forward to talking with you if you think this could be beneficial for you.
Of course if you are really struggling with business life and can’t see any light at the end of the COVID tunnel we are here to help. Like my experience with the camera it’s sometimes better to act now rather than hang on, in the hope that tomorrow will bring a better day. We are independent and can assess your business by asking you the hard questions to help you make informed decisions about the future. If the future for your business is poor, then quick action taken sooner rather than later can save you money. Again the mood of creditors is in your favour and the debt protection measure could be used to get the better outcome for you.
I didn’t want to be morbid and convey a message that our economy is shot. But it’s like dieting before summer so you look good on the beach. If your business needs to diet now there are tools available that will help it be less painful than it could otherwise be. I look forward to hearing from you if we can help.