Turning a Potential Business Liquidation into a Successful VA
By Troy Graham, Senior Manager, Sydney Office
A profitable teaching college specialising in the food and hospitality industry was facing liquidation after accumulating a significant debt to its landlord.
B&T Advisory was approached by the company’s external accountant because, like many businesses, it had been heavily impacted during COVID. As a large proportion of its students were international, closed borders and restrictions on student intake meant that while the business did not necessarily suffer immediately, the follow-on effect of closed international borders affected the business post-COVID.
Because the college runs two- or three-year courses, the true impact did not end when COVID restrictions lifted – two years without new student intake continued to affect the business for years afterwards.
Looking beyond liquidation
When the accountant first approached our Sydney team, the initial thought was to place the company into liquidation. However, after reviewing the circumstances (a profitable business with a strong outlook), we questioned whether liquidation was the right outcome and suggested considering a voluntary administration option.
Keeping the business operating
The appointment of a Voluntary Administration occurred in the middle of a teaching term, so simply shutting the business was an unfavourable option.
Our team continued trading the business throughout the voluntary administration, keeping employees working while ensuring students could continue attending classes without disruption.
For six weeks, the business continued to operate while the team coordinated all the moving pieces.
A better outcome for everyone
The company ultimately entered into a Deed of Company Arrangement, satisfied its deed obligations, and creditors received their forecast distribution.
Today, the business remains profitable.
The outcome meant:
- Employees kept their jobs.
- Students remained in college with no disruption to their studies.
- Creditors received their forecast distribution.
- The business continued trading from new premises.
Why this matter was different
What made this matter unique was that there was really only one creditor who’s debt was unserviceable.
That creditor couldn’t simply compromise the debt through a commercial agreement, so the business was required to go through a formal insolvency process.
Ideally, if the director had been able to negotiate directly with the creditor, the process would have been much easier. The director had tried to do this, and ultimately the voluntary administration facilitated what the Director had been trying to achieve himself.
Working together to achieve a better outcome
The referring accountant played an important role throughout the process.
To put the Deed of Company Arrangement in place, the accountant worked with the director to obtain finance and bring the company’s financial records up to date.
Because the accountant had been involved with the business prior to our appointment, they had a detailed understanding of the financial position, whereas the director was naturally more focused on day-to-day operations.
Working together meant the company was able to continue trading, the accountant retained their client and continued supporting the business, and together we achieved a better outcome than a liquidation.
The importance of seeking advice early
One of the biggest lessons from this matter is that there isn’t always just one outcome.
Even if it doesn’t result in an appointment with B&T Advisory, it’s worth running ideas by an advisor to obtain a second opinion.
Commonly, there is one piece of the puzzle that seems insignificant to the referrer/director; however, such a fact can completely change the outcome.
Seeking advice early, sounding out the issues and keeping an open mind about the best outcome for the client can make all the difference.
Every little detail, even if it doesn’t seem important at the time, could be the game changer!