Turnaround Process, Strategies and Formal Turnaround Options

If a business is financially struggling, you need to be proactive and act fast. The sooner you act, the better your chances of turnaround and survival.

Step 1: Analysing the situation:

• One or more viable businesses. 

• Adequate financial resources.

• Organisational resources.

Step 2: Developing  strategic turnaround plan:

Step 3: Implementing the Plan:

Safe Harbour 

Under Section 588GA of the Corporations Act 2001 (the Act), if your company is taking actions to improve its financial situation, you can access ‘safe harbour’. Safe harbour is a form of legal protection that provides directors with a defence for insolvent trading liability.

The sooner you access it, the better protected you are.

Eligibility   

• Fully paid employee entitlement obligations, including super, and be up to date on your tax reporting.

• Developing one or more courses of action that are reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or liquidator.

Small Business Restructuring Plan

 From 1 January 2021, after the current government protections end in response to COVID-19, this is a new option available to small businesses experiencing financial difficulty.

Under these changes, small business owners remain in control while restructuring debt.

Eligibility 

• be incorporated under the Corporations Act;

• have total liabilities which do not exceed $1 million on the day the company enters the process. This excludes employee entitlements;

• ATO reporting update to date

• Employee entitlement due and payable are paid

Voluntary Administration

This a type of formal insolvency appointment that gives a company breathing space while its future is swiftly resolved. It allows companies to continue trading while undertaking a formal restructure and negotiating compromises with its creditors.

It also stops unsecured creditors from enforcing their claims against the company.

Urgent action needed to turn things around

A business that is underperforming may benefit from working with a turnaround professional for several reasons:

1. Expertise: Turnaround professionals have specialized expertise and experience in helping struggling businesses identify and address their challenges, develop and implement solutions, and achieve sustainable growth and profitability.

2. Objectivity: An outside perspective can help a business identify areas for improvement that might not be obvious to those who are closely involved with the company.

3. Urgency: Turnaround professionals can bring a sense of urgency to the situation, which can help the business address its challenges more quickly and effectively.

When to act: It is recommended to seek the help of a turnaround professional when a business is facing significant financial distress or operational challenges that are impacting its ability to meet its obligations and achieve its goals. The earlier a business acts, the greater its chances of successfully turning itself around.

However, it’s important to note that turnaround is not a one-time event but rather a continuous process of identifying challenges, developing and implementing solutions, and continuously monitoring and improving the business.