13 Dec A manufacturing business

Capability: Restructuring & Turnaround

Industry: Manufacturing

Appointment: Voluntary Administration / Deed of Company Arrangement

  – Restructuring a financially distressed company

Overview

• Family-owned manufacturing business based in Sydney with 35 employees established in 2000
• Australian Taxation Office was owed $2.5m for both PAYG and GST
• Trade creditors were owed $500k
• Employee wages and entitlements were paid up to date with no arrears
• The majority of the plant and equipment was subject to hire purchase agreements with a financier

Challenges

• The business experienced a decline in profits primarily due to low productivity, increased labour costs and stagnated turnover
• The company held ongoing supplier contracts with major customers that contributed a significant portion to its revenue
• The operation of the business was heavily reliant on the productivity of the manufacturing division and the success of sales representatives

Solutions

• Traded on the business for a short period enabling the business to be restructured and was able to improve trading performance by improving production efficiency and reducing variable costs
• Rationalised the workforce and reduced labour costs (significantly reducing overtime) and made 4 employees redundant
• Implemented an incentive-based bonus scheme to remunerate high performing manufacturing and sales staff
• Instructed the company’s external accountant to review and amend incorrect tax lodgements. This reduced the company’s tax liability by $900k (or 36%) from $2.5m to $1.6m and increased the return to ordinary unsecured creditors
• The director restructured the business through a Deed of Company Arrangement (‘DOCA’) and preserved the major supplier contracts
• The director contributed $350k into the DOCA for the benefit of creditors to pay a dividend to creditors at a rate of 20 cents in the dollar

How Greengate Advisory can help

Greengate Advisory examines all options available for businesses by reviewing trading performance and considering non-financial factors to improve all stakeholders’ positions.

Early intervention is often the difference between successful restructuring or failure of the SME entity and avoids the destruction of the SME’s enterprise value. We will develop and implement strategies and we have the expertise to provide restructuring advice.