How voluntary administration helped this company out of troubled waters

 A pioneering manufacturer that provides customised products and services to the water industry is now back in full flow after undergoing a voluntary administration.

Background

The NSW-based company has six employees and an annual turnover of $2 million. It operates nationally and provides the most comprehensive range of water potable solutions to the industry. However, following the second Covid lockdown in Sydney, it began to experience cash-flow difficulties. Jirsch Sutherland Partner Andrew Spring, who oversaw the voluntary administration, says the business suffered delays to projects that resulted from the uncertainty of the situation.

“It instigated a few changes to its business including a move away from stainless steel fabrication towards fibreglass fabrication,” Spring says. “That required a repositioning of the business within the marketplace it operates in to ensure its clients and suppliers understood its new direction.”

Spring says despite adapting to the new conditions Covid brought, the cash-flow issues meant the company was unable to adequately provide for its ongoing taxation obligations and couldn’t resolve its ever-increasing tax debt. “The Australian Tax Office has warned all businesses it is now aggressively pursuing the tax debt it is owed, so dealing with this issue was critical,” he says.

Solution

The company decided the best solution was to enter voluntary administration and appointed Jirsch Sutherland. Spring says Jirsch Sutherland’s role was to keep the business open and trading throughout the VA period to enable enough time for the director of the business to formulate a DOCA (Deed of Company Arrangement) for creditors to consider.

“A DOCA is a binding arrangement between a company and its creditors,” Spring says. “It can help a company avoid liquidation and remain in business while allowing it to carry on with its usual operations.”

Jirsch Sutherland worked closely with the director to keep the business trading while also dealing with suppliers and creditors. “We were also responsible for putting the DOCA proposal to the creditors and helped explain its terms and how it would benefit them and the company,” Spring says. “Due to the severe cash constraints, the trade-on strategy was very ‘lean’ and that presented some challenges but none that were insurmountable.”

Results

The creditors accepted the DOCA and the company was restructured. Spring says this is a great outcome for the business, especially as all employee jobs were saved. “The creditors recognised that the DOCA would produce a better outcome for them and the organisation, rather than winding it up,” he says. “Taking the step to enter into voluntary administration is a tough one for businesses but as we’ve seen in this case, it was a necessary step, and one that has not only secured the company’s future but that of its existing staff.”