Before considering liquidation, explore your alternatives. Darren Vardy explains small business restructuring and voluntary administration - two processes that can save businesses and provide better outcomes for creditors. Learn the eligibility criteria, processes, and why timing is absolutely critical for success.

Key Topics Covered:

• Small Business Restructuring Plan eligibility and process

• Voluntary Administration and Deed of Company Arrangement

• Key differences between restructuring options

• Eligibility criteria and timing considerations

• How these alternatives provide better creditor returns

• Real examples of successful business restructures

Key Takeaways:

✓ Small business restructuring requires debts under $1M and current compliance

✓ Voluntary administration involves external control but can save businesses

✓ Both alternatives aim to provide better returns than liquidation

✓ Early action is crucial - waiting reduces available options

Who Should Listen: Business owners with financial difficulties, professional advisors, lawyers specialising in corporate recovery, and accountants with struggling clients.

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:

Don't miss future episodes! Subscribe to i.O. - Insolvency Options

Like this episode? Please leave a review and share with colleagues who might benefit from these insights.

Co-host: Anthony Perl

Produced by: Podcasts Done For You

Speaker: 00:00:03

Introduction to Insolvency, understanding the basics.

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: 00:00:06

Welcome to our first episode of io

Insolvency Options with Darren Vadi,

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: 00:00:11

the managing Director of Insolvency

Options, and a registered liquidator.

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: 00:00:15

With over 30 years of experience

helping businesses and individuals

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: 00:00:18

navigate financial challenges.

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: 00:00:20

In today's episode, Darren shares

his journey into insolvency explains

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: 00:00:25

what insolvency actually means.

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And reveals the warning signs every

business owner needs to recognize.

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: 00:00:31

We'll explore when to seek

help and the difference between

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: 00:00:34

corporate and personal insolvency.

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: 00:00:37

You'll understand the

fundamentals of insolvency.

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: 00:00:39

Know when to seek professional

advice and learn why acting

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: 00:00:42

early gives you the most options.

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I'm your co-host, Anthony Pearl.

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: 00:00:47

Let's dive into unlocking

more about insolvency options.

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: 00:00:53

Darren, I guess what we should

look at is in terms of liquidation.

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What are the alternatives?

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Because that's where

you want to be, right?

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You want to be looking at the alternatives

before you get to that situation.

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Speaker 2: Correct.

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And you know, there are two main

alternatives to liquidation.

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The first alternative is a

relatively new regime called

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a small business restructure.

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The small business tree structure is where

an insolvency practitioner is appointed

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for the purposes of developing a plan.

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Of repayment to its creditors and

that plan of repayment is based

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on the affordability of, of the

business to be able to continue to

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trade profitably into the future.

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Or it may well come from any, uh, a

further injection of funds by the business

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owners to discharge some debt, restructure

that debt position to then put 'em into

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a profitable position going forward.

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Now that being said, you know, there

are some eligibility criteria that needs

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to be met, but at the end of the day,

it's all about providing a better return

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to creditors than what creditors would

ordinarily get in a liquidation scenario.

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Speaker: How easy is that to achieve that,

to satisfy the creditors that you're going

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to be in a better situation by doing this?

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Speaker 2: What it comes down to

is as the insolvency practitioner,

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putting the plan forward.

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We would do an investigation into the

company's affairs, not dissimilar to what

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we would do in a liquidation scenario, to

then determine what return would in fact

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be available in a liquidation scenario.

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And then based on that, we would

then look at the affordability of

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the business to make an offer to its

creditors, to provide the best return

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possible, and then compare the two.

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And if the.

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Return that is affordable to the

business is greater than a return

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in the liquidation, then the plan

would be submitted and put forward

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by the insolvency practitioner and

who would then recommend the plan.

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Commonly, when people think

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Speaker: of the term restructure, they

usually think about shifting departments

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around, shifting personnel around.

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Is that much of a factor when it comes

to this area, or is it really, it doesn't

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really come down to people as much.

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It can

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Speaker 2: come down to people.

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Absolutely.

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However, what we find is, you know,

it is a small business restructure.

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We are dealing with small businesses

who don't necessarily have the size and

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structure of what you're referring to.

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Really, it's about, in my view, from

what we've seen, the reorganization of

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debt and getting the working capital

right for the business moving forward.

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You know, there are some circumstances

where I have seen that there was a

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pivot in the type of business, and

as a result of the pivot in the type

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of business, there has been a change

of staff within the business that

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will then lead to profitability.

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Or there may be a change of

product, or there might be a whole

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product range that's been dropped

because of the, the low margin.

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Which then results in because of those

sales not being there, it may result

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in some retrenchments being required.

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However, every business is

different and every business needs

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to be looked at on their merits.

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I mean,

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Speaker: is there merit then

in the concept of bringing

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someone new into the business?

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It could be in an advisory capacity.

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The problem being of course, that you're

talking about spending money when, at

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the very point when you don't have money.

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But can new people coming in be a

critical factor in determining the

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success, or is it too far gone at that

point to really consider that properly?

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Speaker 2: Yes, they can, and all

that will be assessed as part of.

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The affordability of the plan

going forward and the profitability

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of the business going forward.

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Speaker: And it's too, you know, it's

interesting, isn't it, with a lot of

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small businesses, they revolve around a

person or two, and the success of that

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business hinges so completely on those

people that whether you find yourself

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in a situation where you might be

looking at a restructure or liquidation.

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Or even if you wanted to sell the

business, you know, and it was going

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okay and you wanted to sell the business.

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Being revolving around one or two

people that are so intrinsic to the

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success of a business can make that

incredibly difficult, I would imagine.

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Speaker 2: Yes, it can make it difficult

and yes, it's a big risk for business.

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You know, and we all talk

about the, the bus analogy.

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What happens if the owner

gets hit by a bus tomorrow?

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Then what?

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And this is where you get into

your risk management and having

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a risk management strategy.

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In respect of the likes of that.

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But what we quite often find is that

when a business owner is knocking on our

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door to have a chat about the adverse

financial position their company's in,

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quite often we find that those business

owners having fact been a roadblock to

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the business in the past, and therefore,

given the financial position it's in

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with, we find that the business owner

is actually quite receptive to plans.

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Being put in place to return the business

to profitability and to move it forward

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because that then allows them A, to

continue to operate the business, earn

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a living, but it also provides for

the business to also potentially bring

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in another partner to share the load,

to then return it to profitability.

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So the outcome of financial

distress is awareness.

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Awareness of what's going on

and what they need to do to

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actually succeed into the future.

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Speaker: How common is it that

that scenario where they're in

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this situation and they find a new

partner to bring into the business

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that's gonna help turn things around?

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Is that a common

occurrence or is that rare?

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Speaker 2: We are finding it more

common at the moment, given that

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we're sort of coming into a bit of a

generational change within business.

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You know, there are a lot of.

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Older generational business owners that

are looking at their younger staff,

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middle management coming up and through

the business, and the business owners

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are looking for some succession, and

therefore they have to be looking at who

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is coming up and through the organization

who can take the lead to enable them

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to, for want of a better term, retire.

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Yeah.

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So what we are finding, as I said,

with that generational change.

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Finding that baby boomers are now getting

to that age where they're looking to

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retire and they're actually looking,

what is going on with my business?

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And am I maximizing profitability?

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And if I'm not, what do I need

to do to maximize my exit?

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So what you often find is that where

a business has gone through an adverse

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financial situation, those business

owners become more focused on that.

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Which is a positive that can

come out of the position Mary.

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Speaker: Hmm.

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Speaker 2: And what about,

you know, the whole area

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Speaker: of mergers and acquisitions

and is that, you know, are businesses

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that are in this kind of financial

stress, they're looking at a restructure,

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is it viable pickings for other

businesses to come along and say,

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right, we can see an opportunity here?

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Yes, it can be,

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Speaker 2: you know,

strategic acquisitions would

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be more so where it's at.

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If there is a business out there which

is generating sufficient sales, but

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with its current staffing level is not

profitable, and then you have a key

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competitor who could quite easily absorb

the staffing cost because they have

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capacity within their own business to do

so, and maybe at a small additional cost,

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obtain the revenue that comes with that.

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Certainly the strategic acquisition

on behalf of the competitor.

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Yes, they can to be an

outcome of the process.

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Speaker: I'm intrigued as well.

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When you're going through this kind of

process, does it immediately send alarm

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: 00:09:31

bells out about that particular business

in a way that isn't helpful in that kind

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: 00:09:37

of situation to maximize the sale price

of merger price to whatever it might be?

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: 00:09:42

Does the minute that we start talking

about these kinds of things just

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trigger too many alarm bells for people?

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Speaker 2: Look, by its very

nature, insolvency is is not nice.

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It does and can trigger alarm bells.

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However, I think the people that

work in the various industries, the

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economy is more sophisticated these

days and those that, for want of a

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better term, cashed up, they will

be looking out for opportunities

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and opportunities to acquire.

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So on the one hand, there is a

negative connotation that goes with

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insolvency, but on the other hand.

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The positive outcomes that can

come from that for the right party

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generally outweigh the negative.

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Speaker: Talk to me a little bit

about voluntary administration

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as well, because that is another

alternative to the liquidation path.

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Speaker 2: So voluntary administration

is a, a regime that came back

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in, into forcing 1993, shortly

after I came in, in the industry.

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So it's been around for a

long time, as have I, and.

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You weren't responsible for

bringing it back though.

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No, I wasn't responsible

for bringing it in.

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But the beauty about a voluntary

administration is that through a

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deed of company arrangement, again,

a company can provide a return to

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its creditors that would be greater

than say, a liquidation scenario.

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That's one of the purposes of

a voluntary administration.

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The other purpose of a voluntary

administration is to enable.

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The company to continue to trade.

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So that being said, the difference

between voluntary administration

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and small business restructure,

however, is that with a small business

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restructure, it is for want of a

better term, a debtor in possession.

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The director is still in control of

the business on a day-to-day trading,

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whilst the small business restructure

is going through its plan phase.

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And going through the entire phase.

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However, with a voluntary administration,

once an insolvency practitioner is

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appointed as the administrator, they

are actually in control and responsible

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for the operation of the company.

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And what also comes with that

is everything to do with the

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risk of running that company.

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Though as an insolvency practitioner

being appointed as voluntary

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administrator, uh, generally I'm

personally liable for all the debts

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incurred from that point forward.

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: 00:12:11

Throughout the period with which the

voluntary administration had continues,

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Speaker: I mean, that's a difficult

situation to be in, isn't it?

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Because you are going into a business that

you don't necessarily know the business.

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Speaker 2: Correct.

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So quite quickly we need to come up

to speed with the business, come up

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to speed with its financial position,

do some very quick forecasting to

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ensure that we are able to trade

the business at worst breakeven.

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Even if we operate at a small loss,

because it may be worthwhile operating at

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a small loss to at least get the business

sold as a going concern, which will

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provide a greater return than breaking

it up and selling the assets piecemeal.

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So it can get very hectic in a

very short space of time, but this

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is what we are educated to do.

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Is that a

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Speaker: position that you.

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Enjoy being in, if that's the right term.

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You know, because taking on that

kind of personal liability is,

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is a huge thing to be able to do.

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So how easy is it just for you personally

to make that decision to take that on?

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Speaker 2: Look, everything

that we do is calculated.

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We have our systems and processes in place

to enable us to determine whether or not

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we can operate this business profitably.

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And it's part and parcel of attempting

to get the best return to creditors.

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Then the other scenario, which is

liquidation, worst case return,

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been doing it for 35 years.

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It sort of comes of second nature.

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Now, you know, if we are unable to

trade to business profitably, well then

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it's highly unlikely that the business

owners will be able to continue to

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trade it profitably into the future.

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Therefore, any deed of company arrangement

proposal is unlikely to be successful.

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: 00:14:12

Though there's, it's an extra level,

in my view of due diligence as to the

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ability of the business to be able

to trade into the future profitably,

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because if the insolvency practitioner

is unable to do it during the 35 days

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of their appointment, then it's highly

unlikely that the business will be

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able to do it, do that in the future.

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Speaker: It's quite a short period of

time really to have to turn things around.

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Speaker 2: It is, it is

a short period of time.

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However, you know, that can be extended

in various different circumstances.

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But at the end of the day, the idea

is also not for the practitioner

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to be there for too long,

because that also adds to cost.

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And sometimes the cost of the

process may be the very reason why.

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He's unable to succeed in a

deed of company arrangements.

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So there is a, there is a fine line

there that we need to be operating

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on to ensure that there is the best

return and best outcome for the

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company and the best return for credit.

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Speaker: I imagine you also have

to know your own limitations

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when you go into that scenario.

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I mean, your background's in accounting

and there are many facets to a business.

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The financial side is one part, but

you know, there are the ins and outs

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of different businesses, but there's

the marketing, there's the sales,

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: 00:15:30

there's other lots of bits and pieces

and components that make it up.

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: 00:15:34

How important is it to be on top of

all of those elements very quickly

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: 00:15:39

and know what's working, what's not?

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: 00:15:41

What needs to go where you might

need to make personnel changes?

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: 00:15:44

Does all that happen in

relatively quickly in that space?

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: 00:15:48

And do you have to have

good people around you?

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: 00:15:51

'cause it's not to be able to advise

you on those different elements?

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: 00:15:55

Speaker 2: Yeah, look, generally those

sorts of things happen within the first

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: 00:15:57

seven to 10 days prior leading up to

the first meeting of, uh, of creditors.

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: 00:16:03

So then you can explain to creditors, you

know, what you've done and what direction

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: 00:16:08

the business is going in and why.

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: 00:16:10

And that is the key because

you know, creditors.

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Are all keen to understand the why.

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And so that's certainly

an important aspect.

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So in regard to determining, you know,

who should stay, who should go, that'll

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be determined by the analysis of,

you know, the staffing levels, their

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: 00:16:30

capacity, the nature of the business,

what staffing levels are required,

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in what areas, so on and so forth.

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: 00:16:38

And it also comes down to, you

know, industry experience as well.

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I.

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Tend to do a lot of work in the

construction industry around construction

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contracts, around completion.

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: 00:16:49

Quite often have gone in and completed

construction contracts during the

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period of time and you get to know

what can be done, what can't be done,

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and whether certain projects can

be completed or whether there's no

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chance of them being completed at all.

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And it all depends on the ability

for everyone to work together.

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The administrators and their staff with

the current management and their staff

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: 00:17:17

and the creditors 'cause to be successful.

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: 00:17:20

The creditors need to be on board.

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: 00:17:22

You know, if, if we are operating on a

project and despite creditors being owed

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: 00:17:27

money up until the date of my appointment,

you know, without those particular

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: 00:17:32

creditors to assist in finishing a

project, the project won't be finished.

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: 00:17:36

So there's a lot of work that needs

to be done by all parties pulling

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together to get a successful outcome.

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Speaker: Well, that's it for this episode

of the IO Insolvency Options Podcast.

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: 00:17:48

I hope you've got plenty of valuable

knowledge and practical steps for whatever

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: 00:17:53

your situation is from Darren today.

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: 00:17:55

And if you need guidance

on insolvency matters.

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: 00:17:57

Contact Darren Vadi

directly@insolvencyoptions.com

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: 00:18:02

au or call 1804 6 3 3 2 8 or of course

you could connect with Darren on

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: 00:18:07

LinkedIn details in the show notes below.

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: 00:18:10

With over 30 years of experience,

Darren and his team provide

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: 00:18:13

personalized solutions.

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: 00:18:14

For both personal and corporate

insolvency challenges.

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: 00:18:18

This episode was produced by my

team at podcast done for you.com

285

: 00:18:23

au helping professionals

share their expertise through

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: 00:18:26

powerful podcast content.

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: 00:18:28

If you found value in today's episode,

please like, comment and subscribe

288

: 00:18:32

to the IO Insolvency Options podcast.

289

: 00:18:34

Ever you are listening to this, your

engagement helps us reach more business

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owners who need these crucial insights.

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Until next time, remember, there's always

a way forward when you know your options.