It's not all bad news: the positives of a friendly chat with a liquidator.
Acknowledging financial distress in a business and seeking help can be daunting, especially for SME owners deeply invested in their ventures. This often results in advice not being sought until matters reach a crisis point. However, the truth is that when it comes to seeking advice for business financial problems, the sooner advice is sought, the better—particularly if the goal is to find a way through the issues. Options narrow as the financial situation worsens.
Many subscribers to our e-newsletter are likely to have never taken part in a formal meeting with an insolvency practitioner and one of their distressed clients, and may be unaware of what actually happens at these meetings. This article provides an overview of what a business owner—and their advisor—can expect from an initial meeting with Worrells.
Objectives
First and foremost, our goal is to ensure the parties leave feeling confident about their options. We prioritise respect and simplicity, ensuring the process isn't harder than necessary for the business owner. Importantly, most of our meetings do not end in an insolvency appointment, rather we serve as an educational resource, helping clients understand their options, and the risks.
Initially we work to understand the issues at play, and what the parties hope to achieve as an ideal outcome—whether that's a closure while minimising collateral damage, downsizing or restructuring legacy debt to find a way forward. We then walk through the options, and how the insolvency laws apply in those specific circumstances. We aim to provide accessible, logical options to ensure an informed decision can be made; whilst ensuring there is an awareness of potential risks.
Prior to a meeting
Most of our introductions to businesses in distress come from advisors such as accountants or solicitors—like many of the readers of this newsletter. Typically, therefore, we receive some high-level background information from an initial conversation or email exchange. Before a meeting with a business owner however, we often seek basic financial documents like balance sheets, profit and loss statements and an aged payables ledger. This information is kept confidential, but without it, it is difficult to provide a meaningful opinion. We also conduct preliminary searches on ASIC and PPSR registers. This helps us understand the stakeholders involved and guides the discussion.
The meeting
Meetings typically start with a brief introduction to Worrells, followed by the business owners sharing their story. We gather facts and focus on the owners' goals. During the meeting, we build a realistic financial snapshot, often revealing a picture different from the financial records. We assess things like the cash-flow position, cash burn rate, financial forecasts, and historical trading results and consider whether issues are long-standing or event-specific (e.g., COVID-19).
Every business is unique, and so are its options. We consider and discuss the application of:
- Informal options: Refinancing, business sale, creditor negotiations, or debt restructuring (possibly with safe harbour protection).
- Formal insolvency options: Small business restructuring, voluntary administration, Deeds of Company Arrangement, or liquidation.
We also explore the implications of doing nothing, ensuring business owners understand risks like insolvent trading and personal liability for tax debts.
Often, people come to us with a pathway in mind—which may well be the best option for the business—but we believe it is important that all options be on the table and given consideration so that an informed decision can be made.
Reach out
Insolvency events are sometimes unavoidable, and advisors will occasionally encounter clients in distress who could benefit from understanding the pathways forward. We aim to provide that guidance. Our meetings are at no-cost, no-obligation, and conducted with respect and empathy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.