Harbour Masters - safe harbour & restructuring blog

Welcome to Harbour Masters, where we offer insights and updates on the expertise and guidance available for the Directors of companies in need of advice in the face of stiff trade winds. Our updates focus on the critical business topics of restructuring, turnaround, and the availability of the new 'Safe Harbour' provisions, all designed to help companies renew, restructure, and rebuild. 

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Solving cash flow problems saves Sydney-based building and construction supplier from going under

21-Aug-2018 12:27:32 / by Geoffrey Granger posted in Building and Construction, Restructuring, Improving Cash Flow

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J and I Scaffolding Pty Ltd was a Sydney-based supplier of building and construction equipment. It had 28 employees and a turnover of around $3.5 million. 
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How Ocean Informatics was saved using a Deed of Company Arrangement

11-May-2018 17:09:21 / by John Keenan posted in Turnaround, Restructuring, Better Outcome, Directors, Safe Harbour, Strategy

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Using a Deed of Company Arrangement as part of a company restructure is a proven way of supporting organisations to stay afloat and pay their creditors and employees. This recent case study outlines how BRI Ferrier worked with one Australian IT business to overcome the difficulties of poor cashflows, an unhealthy reliance on debt and a lack of management direction.

Company background

Since 1998, Ocean Informatics have been in the business of developing information technology (IT) for the health industry. They have clients in both the public and private sectors in Australia and overseas. Their focus is on developing best practice systems for sharing health records at local, national and international levels. The aim of their platform is to support clinicians to deliver improved patient care.

Ocean Informatics operates from offices in Australia and the United Kingdom. The company has an annual turnover of around $3 million. It employs around ten people, including experienced IT engineers with a strong clinical background.

Ongoing trading losses led to internal disputes

The company had a history of trading losses, not uncommon with IT development businesses. Its high cost structure was disproportionate to turnover, where the payroll and overhead costs were unsustainable. This, combined with a lack of strategic management of the operational and financial aspects of the business, led to the company being placed into voluntary administration in late 2017.

To keep the company trading, the management team sought relief from related-party creditors by way of debt to equity conversions on various occasions.

In mid-2017, disputes arose between the board of directors and senior management and contractors. This led to the resignation of key senior management and the termination of certain contractor agreements. The debts owed to these parties were subsequently called up causing an acute cashflow shortage and the appointment of a Voluntary Administrator.

In addition, an application to wind up the company was in progress upon the appointment of the Administrator.

The key issues

With severe cashflow problems, the company was likely insolvent and could not continue as is.
Pending litigation threatened to cause the company to cease trading and be wound-up.
The recent loss of senior managers meant that the organisation lacked strategic and financial direction.
The Company was in desperate need of restructuring, both financially and operationally.
The strategy

Working with BRI Ferrier, Peter Krejci, John Keenan and their team, sought to restructure and save the business via a sale or a recapitalisation using a Deed of Company Arrangement. They negotiated a limited indemnity funding arrangement to overcome the lack of cashflow and support the company’s operations while the restructure was explored during the Voluntary Administration period.

The outcome

Using the Voluntary Administration process followed by a Deed of Company Arrangement, the BRI Ferrier team explored a sale of the business and then introduced a strategic partner through which the business was recapitalised and management restructured.

Based on this injection of funds, the following actions supported the business during this process:

  • a new share capital structure was created;
  • some of the existing creditors converted their debt for equity;
  • new management was appointed in the business; and
  • a range of cost reduction measures were actioned.
Through the Deed of Company Arrangement, the existing litigation against the company was settled, without incurring further significant expense. The business returned to solvency and was able to continue to trade and employ a skilled team to support its customers.

Also, compared to a likely negative outcome under a Liquidation strategy, the estimated return to creditors was substantially improved under the Deed of Company Arrangement.

“BRI Ferrier did a good job, it was crisp and clinical. We now have a recapitalised and restructured business with reduced overheads moving forward.”

Dr Sam Heard - Clinician & Director, Ocean Informatics
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Safe Harbour and Continuous Disclosure – An Update

21-Mar-2018 12:40:21 / by Peter Krejci posted in Safe Harbour, Guidance, Better Outcome, Turnaround, Restructuring, Qualified Adviser, Directors, legislation, Listed Entities

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Listed/disclosing entities need to disclose ‘safe harbour’ issues, but not necessarily ‘safe harbour’ itself

Since the launch in September 2017, there has been considerable debate among professional advisors about the availability of Safe Harbour to Listed and disclosing entities, that is, those with obligations to keep markets informed of information about their securities (shares, units etc.) that a reasonable person would think likely to be material to the price.

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A potential lifeline for retail in the New Year?

07-Feb-2018 11:24:35 / by Peter Krejci posted in Retail, Plan, Better Outcome, Directors, Turnaround, Restructuring, Amazon, Safe Harbour

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Sydney-based Principal Peter Krejci contributed an article in the February 2018 edition of the Governance Institute's membership magazine, 'Governance Directions', published last week. 

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Deed of Company Arrangement - Commercial Settlement

15-Jan-2018 12:07:44 / by Peter Krejci posted in Creditors, Better Outcome, Directors, Safe Harbour

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A Deed of Company Arrangement (“DOCA”) can be the perfect instrument to facilitate a commercial settlement between parties where there are no other viable options available, as demonstrated by the recent matter of Brightwater Engineering Solutions Pty Limited (“the Company”).

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Restructuring & Turnaround - what do these terms mean?

14-Dec-2017 09:58:00 / by Moira Carter posted in Safe Harbour, Restructuring, Turnaround, Better Outcome

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As covered in previous posts, the new Safe Harbour provisions were enacted to encourage directors to seek professional assistance in the early stages of a company’s financial distress (or foreshadowed distress), so as to seek a better outcome. The words usually brought up when mentioning positive outcomes for a financially distressed company are “restructuring” and “turnaround”. But what do these terms mean, what does a restructure encompass, what do we have to go through to “turnaround” a company?

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Down the Amazon to Retail Safe Harbour?

05-Dec-2017 12:13:37 / by Peter Krejci posted in Directors, Safe Harbour, Retail, Amazon

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With the official start date of Amazon Australia's operations locally being today, the reported fears and apprehensions of Australian retailers over the past decade have now been realised. As the media have built-up talk of the negative impact upon retailers, having seen Amazon's effect upon similar businesses in the US and the UK, we look ahead to the likely benefits to retailers set-up as companies in Australia using the Safe Harbour provisions in the Corporations Act.

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ARITA releases its Safe Harbour Guidance for Directors

23-Nov-2017 14:26:58 / by Moira Carter posted in Directors, Safe Harbour, Better Outcome, ARITA, Plan, Qualified Adviser, Guidance

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The Australian Restructuring Insolvency & Turnaround Association (ARITA) has released their one-page fact sheet on Safe Harbour for Company Directors, encouraging ARITA members to use this document for the promotion of their services. 

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What's a 'Better Outcome'?

15-Nov-2017 13:03:03 / by Peter Krejci posted in Safe Harbour, Better Outcome

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Safe Harbour laws effectively provide protection to directors from insolvent trading liability if they pursue a plan that is reasonably likely to achieve a better outcome than an immediate appointment of an Administrator or Liquidator.

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Directors' governance prerequisites

26-Oct-2017 17:06:55 / by Stefan Dopking posted in Safe Harbour, Directors, Governance

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Directors cannot claim safe harbour if, at the time the debt was incurred:

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