Government Support packages offer great help, but what other options are also available for businesses?      


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Government Support packages offer great help, but what other options are also available for businesses?      

In these difficult and trying times, with the COVID-19 restrictions on our businesses and personal life, we need to be resilient and stay positive on both accounts.

Our lives are changing because of COVID-19

While the travel, hotels, hospitality and entertainment industries have been badly hit, basically losing their entire revenue overnight, it is all industries, all business and all individuals that have been affected.

Businesses are operating in a completely different dynamic, with staff working from home and attending “video conferencing meetings” with nearly all face to face meetings being abolished.  While operating under these draconian measures, we are in fact losing the personal touch and our focus is shifting to just getting the job at hand done.

We need to understand what our business needs

The government has released various rescue packages to assist the business community.  These rescue packages may assist some businesses that were in a reasonable financial state prior to the COVID-19, but unfortunately it may not be enough for all businesses.

We are seeing profitable businesses, that have been affected by the COVID-19 crisis, with a need to hibernate the business for a time with a view to re-emerge when some similarity of normality returns.

Listed below are some options that may be considered:

1.  Holding Deed of Company Arrangement (Holding DOCA):

A Holding Deed of Company Arrangement allows, amongst other things, for the following terms:

  • Deferment of normal business trading during a defined period of say, six (6) months
  • A negotiated deal with employees
  • A statutory arrangement with creditors
  • Protection for directors against insolvent trading offences
  • Reporting to creditors, to explain the financial situation and proposed courses of action available

Features of the Holding Deed of Company Arrangement include:

  • Statutory bar to all actions including legal action immediately
  • Conforming with the Corporations Act
  • Creditor involvement, including by vote at a meeting on whether the company should enter the Holding DOCA
  • Instantaneous freezing of creditors and a Deed, binding on all creditors, within as little as four (4) weeks

Will it be that easy? Of course not, there may be difficulties, but a key feature is that the Corporations Law permits us to be very flexible with the terms.

2.  The liquidation option:

Where there is the possibility that a business may be trading insolvent and was already on the road to insolvency when COVID-19 hit, it is crucial to identify this position and avoid delaying the inevitable.  While it is a hard decision to make, liquidation can also provide several benefits to a director:

  • It may prevent a director from becoming personally liable for the company’s tax debts
  • It avoids the personal liability that comes attached to the new “government and bank- backed loans”
  • Your employees’ entitlements may be met in a short period of time through a government scheme while the assets of the company realised

It ends the worry and your stress in trying to save the business.

If your client’s business is experiencing financial difficulty, ensure that they seek assistance early, help them understand and obtain the available government assistance, and encourage them to talk to an expert insolvency accountant, like dVT Group, who can provide assistance by discussing the right options for the business.

Contact Riad Tayeh at dVT Group on 02 9633 3333, or by email mail@dvtgroup.com.au

dVT Group is a business advisory firm that specialise in business strategy, turnaround, forensic investigations and insolvency (both corporate and personal). 

Thanks to Rory Muscat for his contribution to this article.