A Creditors Voluntary Liquidation success story

A medium-sized construction company found itself in financial difficulty due to a range of factors.

AT A GLANCE

INDUSTRY      Property Construction
COMPANY SIZE      Annual turnover of 2.1 million
TOTAL OUTSTANDING DEBT      $450,000
PLAN OF ACTION      Creditors Voluntary Liquidation

BACKGROUND

A medium-sized construction company specialising in residential property construction found itself in financial difficulty due to a range of internal and external factors, including defective work claims. Rapsey Griffiths was called upon to review the Company’s viability and identify the most appropriate response to the challenges it faced.

The essential task is always to establish what can be achieved and communicating a clear way forward.Mitch Griffiths (Co-founder / Director)

CORE PROBLEM

A multi-faceted challenge

Following a business viability review, Rapsey Griffiths determined the Company was insolvent and unable to continue trading.

Poor quoting practices had resulted in losses on a number of projects. Litigation from home owners due to purported defective works was also in effect, adding to the high levels of personal stress being experienced by the owners and managers of the company.

As the business lacked the capacity to undertake a turnaround strategy, an approach needed to be formulated that provided a way for the Company, its stakeholders and its creditors to move forward.

Adding up the debts

ATO $150,000
Trade Creditors $100,000
Employee Entitlements $50,000
Claims Against $150,000

THE SOLUTION

 Finding the way forward

Given the significant debt involved and the Company’s inability to pay its debts as and when they fell due, Rapsey determined that the best solution would involve:

  • Entering a Voluntary Creditors Liquidation
  • Establishing and realising the assets of the Company

Communicating with employees and creditors regarding the liquidation process

  • The liquidator dealing with incomplete construction projects and assisting customers claims under the home owners warranty insurance

Realising the Assets

Trade Debtors $100,000
Equipment $60,000

 

What is a Creditors Voluntary Administration?

Creditors Voluntary Liquidation occurs when the directors and shareholders of a company resolve that the company is insolvent, and its affairs should be wound up. Often referred to as a Business Liquidation, it is a fast and effective strategy to deal with a company that can no longer pay its debts.

THE OUTCOME

 A return to order

While liquidation is generally a last resort, the benefits of undertaking the Creditors Voluntary Liquidation suggested by Rapsey Griffiths meant:

  • Director compliance regarding their statutory duties and reduced risks of continuing to trade whilst insolvent
  • Averting a Standard Director Penalty Notice being issued by the ATO (subject to lodgement being on time)
  • Debt to trade creditors and claims for defective work against the Company ceased (subject to the signing of personal guarantees)
  • Customers were allowed to have their projects completed by an alternative construction company
  • Employment entitlements were paid in full via the Fair Entitlements Guarantee Scheme (a government initiative to pay employees of companies that are placed into external administration)
  • Employee Superannuation could be paid from the assets realised by the Liquidator
  • Unsecured creditors received a distribution of 10c /$

The liquidation assisted the directors to comply with their duties, providing employees and creditors with a return on outstanding debts.

Clarity makes resolution easier to achieve. By working together, we can put mechanisms and processes in place that help move things towards a suitable outcome.Mitch Griffiths (Co-founder / Director)