The CEO had been concerned for some time that the business was not traveling as well as he would like it. Being an optimist and entrepreneur by nature, he wanted to think that all it took was a turnaround in the next month to ‘set things right’.

This view was now being repeated for the 6th month in a row and cashflow was getting tight.

The business has, for any number of reasons, become unviable and it is no longer possible to continue trading without incurring more debt, which is unlikely to be repaid.

The business was a clothing importer selling its product range to the major retailers in the clothing market. The bank was considering appointing a well known insolvency firm from their panel as Receivers. Instead, they thought they would give the client ‘one last chance’ with a restructuring firm, BIR Solutions.

Each year management found a ‘new’ distribution channel or a ‘new’ product range which ultimately distracted management and funds away from the profitable core of the business to what turned out to be high risk areas for the business.

The business needed a fresh set of eyes to look at the problem and give clear objective advice to management which they could follow.

• A private equity firm had invested in a food manufacturing business in Melbourne, Victoria.
• The business was ostensibly in turnaround mode when the bought it a year earlier.
• The turnaround had not changed the financial performance of the business.
• Michael Royal, Founder of BIR Solutions, was called in to investigate.
• After the discovery of fraud, Michael was appointed MD to get in and see what could be done to save the business.
• In the first two months, Michael got to work with the management team preparing re-costings as well as completing a revised product and marketing strategy and cashflow forecasts. (Refer to Case Studies under Strategy).
• It became apparent that without the injection of further funds from the shareholders (a private equity firm and the original owner), the company would run out of funds in approximately 6 weeks despite the changes in direction being proposed.
• Further, if the business ceased to trade and was wound up, all creditors would suffer financially and unsecured trade creditors would receive no return on their debt.

There were 4 options:

1. Cash need to be generated quickly from the sale of surplus assets. These included the operations in New Zealand which were profitable but not directly related to the Australian business. This would take months, not weeks.
2. The shareholders had to put in more funds. They had already indicated that this was unlikely to occur until the business performance had been stabilised.
3. The secured creditor (which was the private equity shareholder) could put the business up for sale (more than likely by a Receiver acting for the private equity shareholder). This would realise fire sale values for the business.
4. The secured creditor could appoint a Voluntary Administrator to allow a Deed of Company Arrangement to be proposed. This would allow the business to continue trading and try and achieve cashflow breakeven.

The shareholders opted for Option 4.