LOW COST LIQUIDATIONS/
Crouch Amirbeaggi has the resources and expertise to save or restructure businesses. Unfortunately, not every business can be saved. In such instances, we offer a straightforward and low-cost liquidation service. We believe our rates to be amongst the most competitive in the country, a belief shared by the 2015 Federal Government’s Senate Enquiry into insolvency. They found that our average hourly charge-out rates are about 33% cheaper than those of larger insolvency firms.
Our fees to act as liquidator of a creditor’s voluntary liquidation start from $8,800.
If there are assets in the company that will be available to be sold and pay for our fees, directors will not pay anything for us to act.
For more information on liquidation costs visit our costs page here.
For a free consultation call us on 1300 276 824.
We offer short-term finance.
As specialists in insolvency and turnaround services with in-house liquidators, bankruptcy trustees, lawyers and accountants, we understand the distressed finance market and can offer a complete restructure and finance solution.
We lend our own funds and can make immediate decisions, and we also have a network of alternative financiers available.
We are short-term lenders with loan terms ranging from one week to twelve months. Loans can range from $100,000 to $1 million. Our interest rate is in the range of 2 – 4% per month and there is no penalty for early payout.
Loans can be approved within 48 hours.
There are generally four options available to restructure an insolvent company:
1. INFORMAL WORKOUTS
Informal workouts allow a company to renegotiate the terms of trade with their creditors. They are a fantastic tool to avoid liquidation.
Sometimes these deals will be called a moratorium, a standstill arrangement or a deed of forbearance. Whatever the name, an informal workout will always be a privately negotiated agreement between an insolvent company and a select group of its creditors.
The inherent weakness in any informal workout is that it is impossible to compel a creditor to accept or honour the deal.
The success of an informal workout will always be contingent upon the attitude and conduct of its creditors.
Generally when a company is in financial distress they lose the trust and confidence of their creditors.
By using an independent expert to negotiate an informal workout you can quickly take the emotion and lack of trust out of the current environment and then it’s possible to quickly develop a good working relationship.
Typically creditors do not want to talk to an insolvent company that has previously failed to honour their obligations and undertakings.
The reputation, honesty and integrity of our staff at Crouch Amirbeaggi is one of the keys to our success at negotiating an informal workout.
Aggrieved creditors want to minimise their economic loss arising from the insolvent person’s circumstances.
ASIC statistics show about 93% of the 9,000 insolvent companies that go into liquidation each year do not pay any dividend, so avoiding liquidation is generally in the best interests of all stakeholders.
Informal Workout Options
Informal workouts may include the following options:
- Moratorium on creditor payments; pending completion of work, debt or capital injection or sale of business or assets
- Extension of time to pay creditors
- Repayment of old debts, including reduction or waiver
- Old debts be paid in instalments
- Debts are compromised
- Debt for equity swaps
- The terms of funding are changed to ensure that the company continues to trade
Informal Workout Cost Advantage
Informal workouts are materially cheaper and quicker to implement than formal restructuring alternatives such as a personal insolvency agreement (Part X) or voluntary administration.
Informal Workout Problems
Organising an informal workout can be a bit like herding cats. Creditors can at any time simply change their mind, abandon the agreed deal and attempt to bankrupt an individual.
In these circumstance all the costs incurred shall be wasted.
One of the barriers that stops a creditor from walking away from a deal is the knowledge that if the company goes into liquidation after an informal workout, payments received by creditors under the informal workout may be clawed back or recovered by the liquidator as preference payments.
2. PRE-LIQUIDATION “PRE-PACK” SALE OF BUSINESS
Since 2011, we have promoted and helped develop Australia’s most progressive method of saving businesses from insolvency. Our pre-pack model gives company directors a second chance to legally buy back their business and start again, while simultaneously ensuring the rights of creditors are protected.
Our pre-pack concept has been widely promoted throughout the industry. It is a new, robust process and one of the cheapest ways to save a business with less than $150,000 in assets from an insolvency event.
A pre-pack can be defined as:
A process of arranging the sale of a company’s business before the formal appointment of a liquidator, who will finalise the sale as soon as possible after their appointment.
Pre-packs are used in the following countries to help small companies restructure: the UK, Germany, France, Netherlands, Belgium, Italy and the Czech Republic.
A variation of the pre-pack model is also used in the US. The most famous example was the General Motors restructure. A company called New GM Inc paid $50 billion for the assets from the insolvent GM Inc. The deal took 30 days to put together and was funded by the US Government. It’s a great example of a successful phoenix saving about 200,000 jobs.
In 2014, a British Government review into pre-packs drew the following conclusions:
• About 25% of all companies that go into administration in the UK each year (about 750 companies) implement a pre-pack;
• 96% of pre-packs save jobs;
• Pre-packs are at least 50% cheaper than a traditional administration;
• About 77% of pre-pack sales in the UK are small companies (i.e. companies with fewer than 10 staff and a turnover of less than ₤1 million);
• The average purchase price of UK pre-pack sales in the UK is ₤54,000 (about $110,000).
For more details, see Graham Review into Pre-pack [hyperlink: https://www.gov.uk/government/publications/graham-review-into-pre-pack-College administration].
About 53% of pre-pack sales in the UK use deferred consideration as a means to pay for assets subject to pre-packs. In two thirds of these sales the new company will give security (a mortgage or security interest) to the insolvent old company to ensure the rights of its creditors are protected.
Here’s an example of this type of pre-pack transaction:
A new company buys the assets from the insolvent old company. But the new company has no money to purchase the old company’s assets, so it agrees to pay the market value of the assets in instalments over the next 12 months.
The new company then gives the old company a security interest (a mortgage or fixed floating charge) over its newly purchased assets, so they cannot be sold without the proceeds being paid to the old company. This protects the interests of the old company’s creditors.
As the British Government report into pre-packs concluded:
“Old company creditors are not unduly harmed by the presence of deferred consideration in a pre-pack deal.”
Our Pre-pack Process
The key to a successful pre-pack is to ensure that the business or assets are sold for market value, and that the creditors receive the benefit of that sale.
Our pre-packs are generally modelled on the UK practice, but tailored to our clients’ needs.
The first thing a client must do if they want us to facilitate a sale is to decide which of two roles they want us to perform in delivering our services. We can act as the client’s adviser and organise a pre-pack sale of the business before liquidation, or we can act as the liquidator of the insolvent company and sell the business after liquidation.
To avoid the perception of a conflict of interest, we cannot perform both roles.
If we act as the pre-pack adviser we can:
- Act solely for the client
- Undertake an informal workout
- Implement a moratorium on creditor payments
- Re-structure a company
- Sell the business into a new shell
- Act as consultant while another liquidator winds up the old company
Pre-pack sales offer directors the certainty of ensuring their business is sold into a new company they own. But the sale will be subject to the scrutiny of an independent liquidator who has statutory obligations to investigate the sale, and set aside any sale that is deemed to be undervalued or that breaches a director’s statutory or fiduciary duties.
Our pre-pack approach ensures that the business will continue to trade up until it is sold.
A quick sale of an insolvent company offers the following benefits:
- It preserves the goodwill of customers
- It retains staff
- It avoids the personal exposure of voluntary administrators, particularly the WH&S obligations that can terrify liquidators
- It avoids funding a trade on administration, which is always difficult, thereby avoiding significant liquidator/voluntary administrator fees.
We make sure every sale we undertake is conducted in a manner that protects the rights of creditors and maximises the value of the available assets for the creditors’ benefit.
The cost of a pre-pack varies depending on the value of the assets being sold.
The directors will need to pay the market value of the assets they purchase.
Market value will vary on the circumstances. For a small, insolvent, loss making company it will usually be the auction value of the assets. For a larger, more saleable businesses the auction value plus an appropriate premium will need to be paid to ensure the purchase reflects market value.
Where there is appropriate security provided, purchasers may pay for the assets over a 6 to 12 month period.
Directors should expect to pay about $5000 for the cost of a Workplace Health and Safety review, an asset valuation, insurance, advertising and sale agreements as part of any pre-pack purchase.
3. POST LIQUIDATION SALE
Instead of doing a pre-pack, directors may invite us to act as the liquidator of the insolvent company so that we can sell the business for them.
If we are appointed as the liquidator, we will act in the best interests of all creditors and not solely for the benefit of directors.
As liquidator we can, if it is commercially viable, invite the director to enter into a licence agreement to continue to trade the business for a few weeks (i.e. the director’s new company can trade the business).
The director’s new company can also execute a conditional sale agreement to buy the insolvent company’s assets.
The sale price is usually estimated at somewhere between the “auction” and “going concern” value of the company, but will not be finalised until the assets are valued by a registered valuer and a public sale process completed by us as liquidator.
As liquidator we will advertise the business as “for sale” and invite tenders from the public to purchase the business as a going concern. If we receive an offer to buy the business from a member of the public, the director (via their new company) will be given the chance to outbid it, just like a normal auction process. If the director or related party cannot outbid the offer, the business will be sold to the public purchaser.
A post liquidation sale of a business by a liquidator does not offer certainty that a related party will purchase the business.
Sales via a pre-pack or voluntary administration, on the other hand, will offer this certainty. But the UK research suggests that 64% of pre-pack sales are to related parties. The average sale price in the UK is $110,000. It follows that in Australia the most likely purchaser of a small business worth about £100,000 will be a related party, if that party is a motivated purchaser.
This process ensures the business is sold for market value. There can be no argument of whether the director was involved in an illegal phoenix sale.
Trading during this sale process must be on a cash-on-delivery basis or creditors must be paid from new company resources to ensure the company does not trade while insolvent.
4. VOLUNTARY ADMINISTRATION
The voluntary administration (VA) framework is a world class statutory framework, but the administrator’s fees and trade on costs are prohibitive for most small businesses to successfully use it to guide them out of financial distress.
In Australia only about 5% of the 10,000 companies that enter into a formal insolvency administration each year will use this framework to successfully restructure.
Typically the lucky 5% are large companies with enough money to pay the administrator’s fees and trade on costs.
In our experience, it is impossible for the majority of insolvent small companies to use the VA framework to restructure. The following background information supports this view:
Figures from a 2013 ARITA report:
- The average cost of a VA was $54,670
- The average cost of a deed of company arrangement $28,772
- Total professional fees came to $83,442
- The average dividend paid to creditors was 5.5 cents.
More from the ASIC Report 412 Insolvency Statistics to June 2014, Table 30:
- 80% of all corporate failures have fewer than 25 creditors
- 75% of all corporate failures owe less than $500,000 to creditors.
Various ASIC annual reports show 93% of liquidations do not pay any dividend.
In short, in 75% of the 10,000 companies that go broke each year, there is simply no money left. The mums and dads who own these 7500 SMEs don’t even have the money to keep trading, let alone a spare $83,000 to pay an administrator.
Without at least $83,000 in cash or liquid assets, an insolvent business will usually be shut down and will not survive the voluntary administration process.
Voluntary administration remains a wonderful framework to restructure companies that have the resources to pay for administration costs. Everybody else should be restructured via a pre-pack or post liquidation sale of assets.
If you are looking for an unethical or, worse, illegal way to shuffle your business into a new company, you’re at the wrong place. In Australia, we are pioneers of the use of pre-packs as a legitimate means to save a small business from insolvency.
For about 10 years, we have lobbied for statutory reform with each Federal Minister, also ASIC Commissioners and ARITA members. Through this process we have become the only firm to be invited to attend the past 3 Federal Government enquiries to discuss what we know is the cheapest way to re-structure or legitimately “phoenix” a small insolvent business in Australia.
We believe, through our 10 years of lobbying for statutory reform, being published in newspapers and insolvency journals both here and internationally, we have done more to assist small business owners than any other insolvency firm in Australia. We have done this because we have seen first-hand how desperately small business owners need a cost effective framework to save their small business from insolvency.
Pre-packs enable a director to legitimately move an insolvent business into a new company shell and start again without having to pay existing creditors.
The United Kingdom Government’s enquiry into pre-packs reported 2 out of 3 pre-pack sales are to new shell companies set up by the existing company directors and about 60% defer consideration for the assets purchased (ie. pay 50% now and 50% later).
Pre-packs are a fantastic tool to save a small business from insolvency, but they are very contentious.
There are 14 Government agencies (called the Inter-Agency Phoenix Forum) which vigilantly review pre-pack sales to ensure they are not illegal phoenix sales.
It is imperative that any legitimate pre-pack sale is undertaken by an ethical and qualified professional, who ensures market value is paid for company assets, and directors do not breach their statutory and fiduciary duties.
If you are in financial difficulty, we can help you. Our partners and staff have worked on more than 1000 bankrupt estates.
Our fees to act as trustee of a bankrupt estate start from $11,000.