Background
A specialist marine services business had experienced rapid growth, followed by a downturn in trading conditions and pressure on cash flow. The business operated within a group structure and provided employee, expense management and support services to related trading entities. It employed a small team and remained operational, but a significant ATO debt created immediate financial pressure.
The key issue arose after an ATO audit identified incorrectly claimed Fuel Tax Credits. This resulted in a substantial tax debt, largely caused by incorrect bookkeeping procedures during a period of growth and internal resourcing pressure. The business had cooperated with the ATO investigation and provided conservative calculations, which assisted in reducing penalties and interest.
The issues
The business was facing several problems at once:
- A significant ATO debt that could not be paid immediately.
- Limited cash reserves and pressure on working capital.
- Historic losses caused partly by insufficient margin being charged on management fees within the group.
- Inadequate internal processes around fuel rebate claims and tax lodgements.
The challenge was that the business still had a viable future, but it needed time, discipline and a formal structure to deal with legacy debt.
What we did
AS Advisory was appointed to assist with a Small Business Restructuring process. The SBR process allowed the company to continue trading while a formal restructuring plan was put to creditors.
Under the restructuring plan contributions were made by the director and the business over time resulting in a return to creditors that was significantly higher than liquidation.
Importantly, the restructure was not just a payment plan. Operational and financial changes were implemented to improve the future viability of the business, including:
- Introducing a policy to correctly record Fuel Tax Credit claims.
- Adjusting payroll requirements to match the company’s financial position.
- Improving the transfer pricing process for services offered between group entities.
- A system to ensure future statutory lodgements were completed on time.
Outcome
The restructuring plan was approved by creditors enabling the business to reset its balance sheet, trading to continue and the ongoing employment of staff.
This matter demonstrates how Small Business Restructuring can be used where a business is under pressure but still fundamentally viable. The process gave the business breathing space, provided creditors with a materially better outcome than liquidation, and forced the operational changes needed to improve future performance.
Key takeaway
A Small Business Restructure is not simply about compromising debt. Used properly, it can be a practical turnaround tool: stabilising the business, improving systems, rebuilding cash flow discipline and giving owners a pathway to continue trading.