Asset Protection & Risk Management

Asset protection involves reviewing the personal asset structure of an individual and their personal solvency position, enabling the implementation of a risk management program that considers strategies to diversify, control or hedge potential risks to reduce personal liability and in extreme cases, bankruptcy.

Each Asset Protection and Risk Management (APRM) program is specific to the individual. The components of every APRM program are governed by the risk profile of the client, based on their lifestyle and risk tolerance. The assessment of the client’s personal risk profile is completely subjective. The assessment is used as a guide for determining the risk areas, identifying the source of a potential claim and then formulating appropriate asset management and defensive strategies.

Risk profiling is a technique used in risk management to identify risk exposures and provides the necessary information to decide how to diversify, control, or hedge potential risks. The drivers behind risk management are personal risk, business or industry risk and legal risk. Once the source of risk has been identified it is easier to develop an APRM program that suits that risk.

The best APRM programs are those that are simple and well documented, that find a balance between the personal asset protection needs of each client and the tax structures that provide the optimum tax benefit. The implementation of an APRM program requires consistency of application and regular monitoring. Ultimately any APRM program will depend on costs, lifestyle choices and risk tolerance.

1. Identify your risk

   Determine risk profile & current risk structure
   
   

2. Determine solvency

   Conduct of pre-APRM statement of solvency
   
   

3. Review Current Structure

   Review & document current assest & funds
   
   

4. APRM program

   Draft bespoke APRM Program in consultation with legal advisor & tax advisor
   
   

5. Implement APRM

   Implement APRM strategy
   
   

6. Determine solvency

   Conduct post APRM statement of solvency
   
   

7. Monitoring

   No APRM program is definite. Strategies must be monitored on a regular basis

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Early Warning Signs

The necessity for turnaround is not always caused by crisis. Ideally, a director will predict a company’s future based on market conditions or outside influences such as political, economic, social, technological, environmental or legal issues. In circumstances where future confrontational issues are foreseen, the process of turnaround is less critical and the benefit of time often affords the turnaround a better prospect of success.

However, the luxury of foresight is not always available. An unexpected event, such as the insolvency of a major debtor or the termination of a profitable contract, can cause significant financial strain on the business. Alternatively, an undetected gradual subtle decline in the business’ profitability and/or cash flow can lead to a company’s demise.

The following are some of the early warning signs that may help identify the need for the engagement of a turnaround specialist by a company in order to maximise the chances of a successful outcome.

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Financial and Operation Review

A Strategic Financial and Operational Review (SFOR) can take a number of different forms, whether it is a pre-lending review, debt restructuring assignment or investigating accountant’s report.

We take a consistent approach to each SFOR, combining technical expertise, relevant industry intelligence and business acumen from across our service lines to efficiently and effectively deliver a high quality SFOR in line with an agreed scope and cost estimates.

Our SFOR team members take time to understand exactly what information your client requires. We seek to fully understand the key drivers of your client.

We will agree a scope, conduct our SFOR, report on our findings, make recommendations for improvement and monitor actual results.

Our SFOR will deliver results.

Financial Modelling & Performance Improvement Platform

Our sophisticated three-way financial model allows a business of any size access to accurate financial modelling to help identify financial issues. We have the expertise to then develop a plan for improvement.

Our financial model

• Provides detailed (three-way) performance, position and cash forecasts for any desired period
• Enables full sensitivity analysis and seasonality adjustments
• Is highly flexible in terms of categorisation
• Is suitable for any situation, but in particular for mergers and acquisitions, pre-lending modelling and in distressed scenarios

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Turnaround Consulting

Both large corporations and small and medium sized enterprises (SME’s) are becoming increasingly sophisticated in their approach to dealing with a failing business, and their financiers are more comfortable being involved in a controlled turnaround.

However, communicating effectively with all key stakeholders is crucial. Proper management of stakeholders may be the difference between success and failure. Key stakeholders need to be convinced that rescue, rather than termination, will be the better outcome.

The turnaround process is not just about establishing normality. Long-term change and process improvements are essential for future growth, cash flow and profitability.

Emergency phase

The turnaround process is time-critical, requiring urgent cash and strong stakeholder management. It means finding the source of the downward spiral. This can be difficult, as it requires an objective and unbiased approach to diagnosing the business’ financial, operational and strategic positions.

Growth & renewal

At DW Advisory, we can help rebuild confidence between a business and its stakeholders by providing a bridge between any knowledge gaps and reinstating fluency between the parties through appropriate communication. To achieve this, we analyse and understand what is at stake for all parties before starting any negotiations.
Stakeholder management is about gaining and communicating information. Understanding a stakeholder’s impact in the turnaround process through proper analysis is essential and includes working through the areas outlined below.

Where does the financier fit within the business?

Are they a key supplier, debt or equity provider?

What are the implications on the business and its cash flow if they turn off the financial tap?

Are there any alternatives?

A ‘plan B’ provides certain comfort when negotiating in any situation. However, if a ‘plan B’ is not available, negotiate cautiously. Understand what is on both sides of the table, emphasise the benefits and be informed on any downside.

What are the expectations & limitations?

We assess the needs of the business against the expectations of the stakeholder and find some middle ground between them. This can be a long drawn-out process, but an important one. Knowing the limitations of all parties will help gain an understanding of where the compromise may fall.

Is there history?

Armed with a diagnostics review, we can demonstrate that a business is capable of change and that the right team is in place to give effect to that change.

What is the fine print?

A full review of the relevant documentation is necessary to understand what legal steps a stakeholder may take in relation to a defaulted position. What rights does the stakeholder have that could seriously disrupt the turnaround strategy and plans for the future of the business?

Avoid infighting

The management of competing interests is often a complex and delicate task, which requires timely communication of relevant information throughout the turnaround period.

Communication

It is essential that communication is open and honest; clear, concise and continuous; and based on high-quality objective information. This is not just a quick fix. The actions taken in early negotiations will lay the foundations of hopefully a long-term relationship.

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Small Business Restructuring

The Small Business Restructuring (SBR) legislation was introduced on 1 January 2021 as an option for companies with debts of less than $1 million to compromise their debts with creditors.

What is the Eligibility Criteria?

• Total liabilities of less than $1 million
• Company must be insolvent or likely to become insolvent
• Must be able to pay all outstanding employee entitlements
• Must have lodged all outstanding returns with the ATO
• Company has not undergone Small Business Restructuring (SBR) (some exceptions) or Simplified Liquidation (SL) (see page 37) in the past 7 years
• Current or former director (within 12 months) has not been a director of a company that has undergone a SBR or SL in the past 7 years unless it began less than 20 business days before the process commenced
• In order to commence a SBR the directors of a company will need to declare that the company is eligible.

What are the Key Points for a SBR?

• Restructuring practitioner (RP) (which must be a registered liquidator) is appointed by resolution of the company
• Directors maintain powers during SBR including the power to continue to trade the business of the company
• Company must disclose that it is subject to a SBR once a RP is appointed
• Restructuring plan is developed for approval by the company’s creditors
• Related creditors are excluded from participation in the SBR

How Does a SBR Come to an End?

The SBR concludes:

• Where the RP terminated the SBR because they are of the view that the eligibility
  criteria is no longer met or it is no longer in the best interests of creditors
• Where creditors vote against the plan
• The plan is terminated as its terms cannot be complied with
• When the terms of the plan are completed

When the plan is terminated all debts of the company, subject to the plan, become immediately due and payable. If this occurs, you should seek immediate professional advice as to the next steps.

The above is only short summary of the process and therefore professional guidance should be sought as to the full extent of the issues to be addressed.

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Safe Harbour

On 18 September 2017, Royal Assent was granted to the Safe Harbour Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017, and the bill, more commonly known as the Safe Harbour reforms, became law. The reforms were introduced due to the Government recognising the need to better preserve the enterprise value for companies and their stakeholders, by enhancing the ability to continue to trade outside of a formal insolvency process.

The first part of the reforms introduces a carve out of liability for directors from the existing civil insolvent trading provisions, offering Safe Harbour for directors of a company that undertake a restructure in accordance with the new Corporations Legislation.

What is a Safe Harbour Restructuring Plan?

Where a director suspects a company may become or is insolvent, he or she may commence a Safe Harbour plan, a course(s) of action that is reasonably likely to lead to a better outcome than immediately placing the company into voluntary administration or liquidation. This process, subject to evidentiary requirements, will protect the director from civil claims for insolvent trading in circumstances where the company subsequently enters into liquidation.

In ascertaining whether a director be excluded from liability for insolvent trading the Court may have regard to whether, when developing or implementing the Safe Harbour plan, the director:

• was properly informed as to the financial position of the company;
• took appropriate steps to prevent misconduct by officers or employees of the company;
• ensured that the company maintained appropriate books and records;
• obtained advice from an appropriately qualified entity; and
• constructed a plan that had reasonable prospects of improving the financial position of the company.

The director must also ensure that employee entitlements are paid when they fall due during the period of the Safe Harbour plan and that all tax lodgements are made on time.

Safe harbour is a useful restructuring tool to be used to provide protection for directors while making a genuine attempt to implement a turnaround. However, it is essential to obtain proper advice throughout the process, being legal and accounting advice.

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MVL

A Members Voluntary Liquidation (MVL) is a simple and cost effective means of finalising a company’s affairs and distributing its assets to creditors (if any) and shareholders. It does not necessarily entail the realisation of assets, as assets can be distributed in specie.

When is an MVL Suitable?

The procedure may be used when:

• a company has come to the end of its useful life
• it is anticipated that the company has sufficient funds to meet all of its liabilities in full within 12 months of the date of liquidation
• in some circumstances a MVL can distribute pre-CGT assets (prior to September 1985) held by the company, tax free

What Happens During the Liquidation?

Following the appointment of a liquidator:

• the powers of the directors cease (except where delegated by the Liquidator)
• ASIC will be informed of the liquidation
• notice to potential creditors to submit any claims will be advertised on ASIC Published Notices
• the liquidator will collect and realise the assets of the company where appropriate and seek to agree and pay any outstanding claims of all creditors, including the ATO
• the liquidator will obtain clearance in respect of the company’s tax affairs up to the date of the liquidation

Following tax clearance being obtained from the ATO, the liquidator will distribute any surplus assets to the company’s shareholders, which may be done by distributing them in specie or by way of a cash distribution.

Once all of the assets of the company have been realised and/or distributed to shareholders, the liquidator will lodge an end of administration return with ASIC, 3 months after which ASIC deregisters the company.

What are the Steps to Liquidation?

An MVL can be initiated by circular resolution executed by the directors and shareholders or by holding separate meetings of directors and shareholders. In either case, there are two key steps to appoint a liquidator to an MVL.

1. Passing of resolutions by the directors and execution of Declaration of Solvency
2. Passing of resolutions by members

The liquidation commences from the time of passing the special resolution by shareholders. From that time, the directors’ powers cease and the liquidator controls the affairs and assets of the company.

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Voluntary Administration

What is a Voluntary Administration?

A Voluntary Administration (VA) exists to provide for the business, property and affairs of an insolvent company to be administered in a way that:

• maximises the chances of the company, or as much as possible of its business, continuing in existence
• if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company VA is an insolvency procedure where a voluntary administrator (administrator) is appointed by:
• the company after its directors resolve that the company is insolvent or likely to become insolvent
• the company’s financier who holds a registered general security interest
• the company’s liquidator

What is the effect of a VA?

The effect of the VA is to provide the company with time and protection from creditors while the company’s future is resolved.

There is a stay of proceedings issued against the company and a restriction on owners and lessors recovering property used by the company. However, a creditor with a general security interest may enforce its security interest within 13 business days after receiving notice of the appointment (as required by the Corporations Act) or within 13 business days after the day the administration begins.

Will creditors be paid during the VA?

Creditors will not receive payment of unsecured claims during the VA as they are statutorily frozen. If there are sufficient funds available for creditors, dividends will be paid after the VA; during either the subsequent deed of company arrangement or liquidation.

Any debts that arise from the administrator purchasing goods or services, or hiring, leasing, using or occupying property, are paid from the available assets as costs of the VA. If there are insufficient funds available from asset realisations to pay these costs, the administrator is personally liable for the shortfall.

Who is in control of the company?

While a company is under administration, the administrator:

• has control of the company’s business, property and affairs
• may carry on that business and manage that property and those affairs
• may terminate or dispose of all or part of that business, and may dispose of any of that property
• may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration. The powers of other officers are suspended, except to the extent that the administrator has given written approval to the contrary.

What is the role of the administrator?

The role of the administrator is to investigate the company’s affairs, report to creditors and recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.

Can an alternate administrator be appointed?

A creditor who wishes to nominate an alternative administrator must approach a registered liquidator before the meeting of creditors, with a written consent from an insolvency practitioner, stating that they would be prepared to act as administrator.

What Are The Steps Involved in a VA?

*Unless the Court allows an extension of time. Source: http://asic.gov.au/regulatory-resources/insolvency/insolvency-for-creditors/creditors-voluntaryadministration/

What information is given to creditors?

The administrator will notify creditors of the VA and convene the first meeting of creditors within three business days of the appointment.

The first creditors’ meeting is held within eight business days after the VA begins. The purpose of the first meeting is for creditors to decide two questions:

• whether they want to form a committee of inspection, and, if so, who will be on the committee
• whether they want the existing administrator to be removed and replaced by an administrator of their choice

At the second meeting, creditors are given the opportunity to decide the company’s future. This meeting is usually held about five weeks after the company goes into VA (six weeks at Christmas and Easter).

In preparation for the second meeting, the administrator must send creditors the following documents at least five business days before the meeting:

• a notice of meeting
• the administrator’s report on the business, property, affairs and financial circumstances of the company
• a statement about any proposals for a deed of company arrangement

Administrator’s report to creditors

The administrator is required to:

• report on the company’s business, property, affairs and financial circumstances
• provide a statement setting out the administrator’s opinion about the future of the company and reasons for those opinions

The administrator’s report should contain sufficient information to provide creditors with an understanding of:

• the history of the company and the reasons leading up to and the need for the appointment of an administrator
• the administrator’s prior involvement with the company
• the historic financial performance and position together with the current financial position of the company
• any offences, voidable transactions or insolvent trading claims
• the estimated return from winding up the affairs of the company
• any proposal for a Deed of Company Arrangement and the estimated return from same
• the administrator’s recommendation
• any other material information

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Deed of Company Arrangement

What is a Deed of Company Arangement?

A deed of company arrangement (DOCA) is a binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with following a Voluntary Administration (VA). It aims to maximise the chances of the company, or as much as possible of its business, continuing, or to provide a better return for creditors than an immediate winding up of the company, or both.

What can be Proposed to Creditors?

Any arrangement can be proposed to creditors. Commonly the proposal will provide for the payment of funds either as a lump sum after the signing of the DOCA, or by periodic payments over some time period. It may also include the sale of assets owned by the company or the payment of part of the profits generated from continued trading or via third party funding.

What are the Effects of a DOCA?

Upon execution of the DOCA:

• the powers of an officer of the company are revived, subject to the terms of the DOCA
• a secured creditor may realise or otherwise deal with its property except where prevented under the DOCA, and then only where the secured creditor has voted in favour of the DOCA
• an owner or lessor of property or secured creditor is only bound by the terms of the DOCA if they voted in favour of the DOCA
• a creditor bound by the DOCA cannot make an application for an order to wind up the company
• a creditor bound by the DOCA cannot begin or proceed with a proceeding or enforcement process in relation to any of the company’s property
• a creditor may proceed to enforce a guarantee provided by a director
• the company is released from a debt only insofar that the DOCA provides for the release and the creditor is bound by the DOCA

When Must the DOCA be Executed?

The company must execute the DOCA within 15 business days of the second creditors’ meeting, unless the Court allows a longer time.

If this doesn’t happen, the company will automatically be placed into liquidation, with the administrator becoming the liquidator.

Can the DOCA be Varied?

A DOCA can be varied by a resolution passed at a meeting of creditors convened for that purpose but only if the variation is not materially different from the proposed variation set out in the notice of meeting.

What is the Role of the Deed Administrator?

The deed administrator (administrator) usually monitors the DOCA to ensure that the provisions are fulfilled and distributes dividends, where available. Control of the company usually reverts to the directors, but the DOCA will provide the deed administrator whatever powers are necessary to fulfill the terms of the DOCA.

How Does a Creditor Get Paid?

All creditors are required to submit a proof of debt, including copies of any relevant invoices or other supporting documents, to the deed administrator. Where funds are available, a dividend will be paid to all creditors whose claims have been agreed and admitted to rank for distribution. The order in which creditor claims are paid depends on the terms of the DOCA.

What Happens if the Comapny Does Not Comply with the DOCA?

If the DOCA terms are not satisfied, it is considered to be in default. The deed administrator would usually issue a default notice, and if the default is not rectified within the period set out in the notice, the DOCA will be breached.

The DOCA may contain enforcement provisions or the deed administrator may have access to guarantees given in support of the DOCA. The DOCA may also be terminated by:

• the provisions of the proposal, automatically terminating the DOCA
• passing a resolution at a creditors’ meeting
• an application to court and the subsequent granting of an order

How Does a DOCA End?

A DOCA will end:

• when the provisions of the DOCA are fulfilled or if the DOCA specifies circumstances in which it is to terminate and those circumstances exist
• if it is terminated under the terms of the DOCA due to a default not being rectified or if the creditors resolve to terminate the DOCA because of default
• if the court orders that the DOCA be terminated because of a default or any other reason the administrator executes a notice of termination

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Section 66G Trustee

What is the trustee appointed over?

Section 66G of the Conveyancing Act allows the Court to appoint trustees for sale over real estate (property) where the co-owners of the property are in dispute.

How do you make an application?

The Court will consider the appointment of trustees following an application by one of the co-owners. The application sets out the nature of the dispute with the other co-owner(s), seeks the appointment of trustees to control the sale of the property and orders for the distribution of the surplus. The application must also include the proposed trusteess consent to act and an affidavit of good character of the proposed trustees.

Who does the property vest in?

The property vests in the trustees and the trustees can effectively take steps to market and sell the property once an order is made.

What happens to the sale proceeds?

Any secured debt and the costs of sale are deducted from the sale proceeds. The remaining funds are held on trust to be distributed by the trustees to the co-owners.

When is the procedure used?

The procedure is often used in bankruptcy proceedings, family law disputes and general property disputes.

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