Can a business facing $1.8 million in personal director liability be saved? In this fascinating case study episode, Darren Vardy reveals how he rescued a national IT company through voluntary administration, delivering creditors double the return they would have received in liquidation. Learn how emergency weekend appointments work, why court extensions of convening periods are sometimes necessary, and how strategic sale negotiations during administration can transform outcomes. Discover the difference between secured and unsecured creditors, understand deed of company arrangement proposals, and see how proper intervention at the right time can save businesses and protect directors from devastating personal liability.

KEY TOPICS COVERED:

• Emergency voluntary administration appointment with one day to spare • Managing a $1.8 million Director Penalty Notice through administration • The 20 business day convening period and court extensions • Negotiating business sales during voluntary administration • Understanding secured versus unsecured creditors • Deed of Company Arrangement (DOCA) proposals and creditor voting • Trading while insolvent and administrator personal liability • How 12-18 months of trading losses accumulated during sale negotiations • Delivering 66 cents vs 33 cents in the dollar to creditors • The two-year DOCA period and successful completion • Lessons learned about pushing purchasers and setting deadlines

KEY TAKEAWAYS:

✓ Emergency appointments can be made over weekends when DPN expiry is imminent ✓ The company owed $2.5M secured, $750K priority employees, and $3.8M unsecured creditors ✓ Voluntary administration typically has a 20 business day convening period ✓ Court extensions can be obtained when standard timeframes are insufficient ✓ Administrators are personally liable for trading losses during administration ✓ Strategic intervention forced a 12-month stalled sale to complete quickly ✓ The DOCA delivered employees 100% and unsecured creditors 66 cents in the dollar ✓ Liquidation would have only delivered unsecured creditors 33 cents in the dollar ✓ The two-year DOCA period (Oct 2022 - Nov 2024) was successfully completed ✓ Directors learned the importance of setting firm deadlines with purchasers ✓ Continuing to trade at a loss during sale negotiations creates significant risk

Who Should Listen: Business owners, company directors, lawyers, accountants, and anyone wanting to understand financial distress warning signs.

About the Host:

Darren Vardy - Managing Director of Insolvency Options and Registered Liquidator with over 30 years of experience in business recovery and debt solutions. Darren has helped thousands of businesses and individuals navigate financial distress and find practical solutions to complex problems.

Connect With Us:

• Website: insolvencyoptions.com.au  • Phone: 1800 463 328 • LinkedIn: https://www.linkedin.com/in/darrenvardy/

Subscribe & Follow:

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Co-host: Anthony Perl

Produced by: Podcasts Done For You

Voluntary administration success story

2

Saving a national IT company.

3

Welcome to IO Insolvency Options

with Darren Vadi, the managing

4

Director of Insolvency Options

and a registered liquidator.

5

With over 30 years of experience

helping businesses and individuals

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navigate financial challenges.

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In today's episode, Darren

shares a detailed case.

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Study of a national IT

company facing a $1.8

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million director penalty notice

with just one day to act.

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He walks you through the entire voluntary

administration process from emergency

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weekend appointment to successful

deed of company arrangement revealing

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how strategic sale negotiations and

court extensions delivered creditors.

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66 cents in the dollar instead of

just 33 cents through liquidation,

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you'll learn about convening periods,

court applications, and the critical

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decisions that saved this business.

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I'm your co-host, Anthony Pearl.

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Let's dive into unlocking

more about insolvency options.

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Darren, you mentioned previously

in another episode when we were

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talking about an example that you

had of a national IT company that.

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Had an expiry on a

director penalty notice.

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Talk to me a little bit about more

of that, because I th think it'll

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be interesting for us to understand

a little bit more detail what that

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actually case was and what are the

steps that perhaps could have been

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avoided in going through it all.

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Darren Vardy: Sure.

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So I was appointed

voluntary administrator.

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Of a company that was part of a group

of 10 companies, which provided an

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IT workforce and system integration

services to the banking and financial

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institutions, supply chain and logistics

businesses and government departments.

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It was quite a significant going concern

when I got appointed and I got appointed

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off the back of being contacted by.

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The director over a weekend saying

that he had received a director

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penalty notice through the mail.

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He just returned from being on

leave, and the expiry of the director

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penalty notice was the Monday.

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So we had to quickly affect

the appointment of a voluntary

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administrator to enable.

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The particular director to avoid

any personal liability in respect

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to that director penalty notice.

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And I must say that director

penalty notice was not for an

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insignificant amount of money.

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It was for about $1.8

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million.

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So life-changing personal exposure,

if the appointment of an external

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administrator did not occur immediately.

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So during the 12 months prior to.

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My appointment, the company had been

negotiating the sale of a division

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of its business, and the sale process

was progressing at a really slow pace.

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Now, because the sale was on foot,

the company had continued to trade,

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but the company had been incurring

trading losses during that period by

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virtue of this particular division,

because they had to maintain the

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division in situ, they knew that they

would ultimately receive the money.

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And that would then be able

to go to pay the creditors.

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However, the A CO intervened and issued

the director penalty notice because

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it was concerned about the size of

the debt that had actually grown to.

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Now, on my appointment, it was determined

that the company owed about 2.5

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million to its secured creditor.

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It owed about 750,000 to.

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Priority employee entitlements, which

include superannuation, and it owed $3.8

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million in unsecured

creditors, of which 3.3,

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uh, related to the company's

taxation obligations.

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And it was evident that the majority of

that debt had accrued in the last 12 to

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18 months since this sale was on foot.

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So once appointed, I continued to

trade this business and actually took

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control of the sale negotiations.

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Now, given that there were ongoing

trading losses, it was imperative

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that we close this business sale

out in a very short period of time.

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Or vacate, same, which meant I would

need to cease trading that division.

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I would need to terminate the staff

accordingly, and we would need to

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restructure the balance of the business

back to a profitable position to

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enable it to continue to trade out

through a deed of company arrangement.

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Now, the timeframe for a voluntary

administration is generally 20 business

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days from the date of appointment,

and this is when a second meeting.

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Or a decision meeting of creditors

is held to vote on the future of

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the company or to vote on any deed

of company arrangement proposal.

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Now, the second meeting or

decision meeting of creditors can

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be extended by either the court

or by a resolution of creditors.

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Now, if it's by resolution of

creditors, the extension of that

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meeting or the extension of.

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The convening period can only

be for a maximum of 45 days.

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Now, in this instance, given that we

were dealing with sale negotiations

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that had been on foot for 12 months,

it was determined that it was probably

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unlikely that we could conclude

those sale negotiations within the

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timeframe the voluntary administration.

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Even if we had creditors adjourned

that decision meeting for the 45 days.

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So what we did was we made an application

to the court to extend the convening

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period, which is not uncommon.

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So the convening period was

extended from the 2nd of August,

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2022 to the 17th of October, 2022.

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At that time, that then allowed me to.

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Settle the sale and execute all the

necessary documentation, transition

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all the employees, and then report back

to creditors as to what had occurred.

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Plus, it gave time for the directors

and the remaining group of companies to

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submit their deed of company arrangement

proposal because the deed of company

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arrangement proposal was essentially.

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Predicated off the back

of the successful sale.

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So our second report, the creditors was

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The extended convening period and

the meeting of creditors was held

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on the 24th of October, 2022.

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So at that second meeting of creditors,

creditors resolved that the company

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enter into the deed of company

arrangement that was actually proposed.

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So in summary, the deed of company

arrangement proposal provided for the cash

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at bank that was available to discharge

all pre-appointment superannuation

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liability, the funds being made available

from the sale transaction would go

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to discharge, firstly, the secured

creditor, and then the balance would

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be made available to the unsecured

creditors as part of the DE proposal,

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plus some contributions from the

company out of future profits over the.

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Deed of company arrangement, period.

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Now, the deed of company arrangement

period went from October 22 through

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to November, 2024, so just a

little bit over a two year period.

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So the outcome of the deed was that

employee creditors were paid 100 cents in

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the dollar, and the uns skewed creditors

were paid 66 cents in the dollar.

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Now, if the creditors did not accept

the deed proposal, as I indicated

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earlier, I would've been forced to

shut down that non-profitable division,

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which would've led to an increase

in employee entitlements payable

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for want of redundancy in the like,

and when preparing our analysis.

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To see what the return in a

deed of company or agent looked

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like versus a return in a

liquidation scenario looked like.

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Whilst employees would've been

paid a hundred cents in the dollar,

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unsecured creditors were only likely

to get about 33 cents in the dollar.

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So creditors accepting the deed of company

arrangement proposal ended up with a

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return, which was two times what they

would've received under a, in a docker

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as opposed to a liquidation scenario.

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So that was quite a successful

outcome from that particular scenario.

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Can I just get you to clarify what

constitutes an unsecured creditor?

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Sure.

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So an unsecured creditor is your ordinary

creditors, so it includes the tax office,

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it includes trade creditors, anyone

who provides services to the company.

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Anthony Perl: And it's good to know

that, because I think that, you

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know, when you're in that situation,

you're dealing with a company like

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this, you know, you've gotta set your

expectations, right, that what you're

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going to get back is going to be limited.

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Darren Vardy: This is true, yes.

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And the very appointment of an

external administrator means

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that the company is insolvent.

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So it doesn't have sufficient

assets to cover its liabilities.

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So then it's a matter of then

determining how best and how we going

138

to maximize that return for creditors.

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Anthony Perl: So let me just

rewind a little bit here and go

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back to the start of the story.

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In terms of when you were appointed,

you know, they had a very limited

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period of time here in the first place.

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How do they go about finding yourself

and how quickly can you make a decision

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that this is a business that it's

worth your while getting involved with?

145

Sure.

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Darren Vardy: So in this instance,

the director was referred to me

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from one of its shareholders.

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It was quite a large business that had

a number of different shareholders who

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had invested monies into the company.

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So I was actually referred by one

of its shareholders to the director.

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Now, having seen the balance sheet,

having known that the sale was on

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foot, a decision had to be made

very quickly to get involved.

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It was.

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Almost a decision that could not be made.

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The appointment had to happen to avoid

the significant personal exposure of the

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director from the director penalty notice.

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And then we had to very short space

of time after the appointment,

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work it out from there.

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So what we did was we went in.

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We ran some immediate cashflow

and financial modeling to work

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out what the trading would look

like for the next few months.

162

Whilst we took through the process at

the same time, we had a team looking

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at what the deposition was, and

within a business days, we need to.

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Hold a first meeting of creditors

in a voluntary administration.

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So it was a hectic eight business days

to get to a position where we knew

166

what the financial position at the

date of my appointment was like, but

167

to also ensure that we knew that we

had a financial plan to trade forward,

168

to settle the sale, to minimize any

trading losses in the intervening

169

period to then go and with the ultimate.

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Outcome of proposing a deed of company

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Anthony Perl: arrangement.

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So I wanna get into some of the details

of that, but I just wanna clarify as well.

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I mean, how quickly can you make

a decision in that scenario?

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Um, because it's not a simple one.

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It's not like buying a pen.

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You are making a fairly

significant decision yourself.

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So is that something you can generally

turn around very quickly to decide, this

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is something I wanna get involved with?

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To

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Darren Vardy: make the decision as

to whether we get involved or not.

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With 35 plus years experience is generally

a decision that can be made quite swiftly.

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Yes.

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So

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Anthony Perl: talk to me a little bit

about then the whole sale of the business.

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Firstly, you've got this situation that

you talked about where a lot of the debt

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was being accrued in a 12 to 18 month

period where they were negotiating a sale.

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So what was the intent of

accruing that kind of debt?

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Where they trying to build the

business or what was the scenario

189

that was happening there?

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Darren Vardy: My take on that was that

the division that was being sold was

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loss making, given that it was being

sold, they were restricted from doing

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anything with the division by virtue of

restructuring because the purchaser wanted

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to take over that division in situ, and

there just seemed to be no urgency from

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either party really to get the sale.

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Progressed and and affected.

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Whereas one of the outcomes of the

appointment of myself as voluntary

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administrator was everything then

became urgent because the purchaser

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then realized that as administrator,

I wasn't going to continue to trade

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this business for any great length

of time, particularly if there was

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this division that was costing money.

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Because as an administrator, I'm

personally liable for the debts incurred.

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So if I'm trading at a loss.

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I'm liable for the loss.

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So it was a, an intervention, so to speak,

that was required to make things happen,

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to get the sale settled, to then get the

company back into a position where it was

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trading profitably, absent that division

to then move forward onto bigger and

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better things, which it has done since.

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Anthony Perl: I mean, from the

purchaser's point of view, buying

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that business division, are they

having to pay off some of that debt?

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What's their attitude?

211

Walking in?

212

Darren Vardy: In this particular

instance, they were buying the workforce

213

and the contracts that went with that

workforce, and whilst it may have

214

been a loss making division within the

organization, I was appointed to because

215

of economies of scale and the other.

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Business that the purchaser had, it

would effectively become a profitable

217

business within their organization.

218

Anthony Perl: And so in that scenario as

well, are you looking at other potential

219

purchases or In this particular case,

it's like we've gotta do everything we

220

can to work with the one that's already

done a lot of the work along the way.

221

I presume in that instance,

222

Darren Vardy: given the trading

losses, we would not have been

223

able to go out to the market again.

224

Particularly given the length

of time that he'd taken to get

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the initial sale to where it was

at the date of my appointment.

226

So the only real option was purchaser,

come to the table, let's do this deal.

227

Or as I indicated earlier, I shut

down that division, make staff

228

redundant and restructure the

rest of the business to trade on.

229

Anthony Perl: And from the purchaser

point of view, do they work out

230

they're getting a better deal than

they would've done if they'd have

231

purchased things 12 months prior?

232

When they first started

the negotiation, the deal

233

Darren Vardy: was the same.

234

It was, you know, they had signed heads

of agreement, they were locked in.

235

They had the ability to walk away

if they wanted to as a result of

236

the insolvency event of the company.

237

By virtue of the appointment

of the administrator, however,

238

they still wanted the business.

239

We just needed to get

them to move a little

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Anthony Perl: bit quicker than they were.

241

So we're now a little bit down the track.

242

So talk to me about both sides.

243

The original company that had this

division in there and then the

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new business that's bought it.

245

Darren Vardy: I can't say anything

about the new business that's bought

246

it 'cause I haven't really followed

them and their successes or otherwise.

247

But certainly in respect to the

business that was left, that

248

was successively restructured.

249

And they've continued on a profitable

basis since then, up until the closeout

250

of November, 2024 when the deed of

company arrangement came to an end.

251

Anthony Perl: And I guess just to wrap

things up, I mean, in this scenario as

252

well, how much does the company like

that actually learn from the process?

253

The fact, you know, you've said that

they're now in a positive situation.

254

Is it a steep learning curve?

255

Is it something that you generally see?

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Okay, they're not gonna repeat

the mistakes that were made here.

257

Darren Vardy: Look, it is

a steep learning curve.

258

I think as a director described to

me it was chaos for three months

259

during that voluntary administration

period because a lot needed to

260

be done in a short space of time.

261

And there was a lot of the old

cliche burning the midnight oil.

262

There was a lot of late nights

and early mornings to get to the

263

outcome that was achieved and.

264

One of the takeaways of the directories,

uh, was that, you know, he was reluctant

265

to push the purchaser, albeit the

fact that he was continuing to trade

266

at a loss in the intervening period.

267

And one of the learnings is that

as a director on potentially liable

268

for the losses for one of insolvent

trading, if it ever got to that stage.

269

In this particular instance, the

shareholders were propping the business up

270

and had been propping the business up for

want of cash flow, but there were a lot of

271

learnings about continuing to incur debt.

272

At what point in time do you make

the decision to rip the bandaid off

273

and retire a division particularly?

274

You know, hindsight is a wonderful thing.

275

Maybe the director should have put some

earlier deadline on the sale and put

276

some real deadlines in place to make

that decision to not incur the debt.

277

But I'm still in contact with the

director and I believe that they're

278

still operating successfully and looking

at potential amalgamations with larger

279

organizations on an international scale.

280

So it's good to see the success come

out of what could have been disastrous

281

for the director personally with

a director penalty notice of $1.8

282

million.

283

Anthony Perl: I suppose the last important

point here to make is if you're in that

284

situation and you're looking at trying

to sell, in this case a division of

285

the business, there's a point where you

can't really be taking it lightly around

286

the purchaser and, and I suppose always

the fear is that you don't wanna push

287

them too hard because you don't want

them to walk away, but you've gotta.

288

Manage that negotiation process and

make them understand if they really

289

want it, they've gotta act quickly.

290

Darren Vardy: And that's really the key,

is that you need to balance the desired

291

outcome of a sale versus the current

and ongoing operations of the business.

292

Because if the businesses

unable to wash its face, is

293

unable to pay its debts, then.

294

That's when the director's

obligations really come into the

295

forefront with insolvent trading

and the like director's duties.

296

And there's a real balance that

needs to be considered by the

297

directors is at what cost do I

continue to progress with a sale?

298

And can the business afford that cost?

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Because if it can't afford

the cost, then an alternative

300

plan needs to be implemented.

301

Anthony Perl: And that's all we

have time for in this episode.

302

But next time on IO Insolvency options,

we'll continue exploring some critical

303

topics that every business owner

and director needs to understand.

304

Darren will share more insights and

stories from his 30 years of experience.

305

Helping businesses navigate financial

challenges and find practical solutions.

306

For details on how to get in touch

with Darren and his team on Insolvency

307

Challenges, please consult the show notes.

308

This podcast is produced by my

team at podcast done for you.com

309

au helping professionals

share their expertise through

310

powerful podcast content.

311

If you found value in today's episode,

please like, comment, share, and

312

subscribe to IO insolvency options.

313

Until next time, remember,

there's always a way forward.

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When you know your options.