More than just comfort and peace of mind – the wider benefits of engaging a turnaround expert

By Scott Butler

‘Directors refer to having peace of mind, feeling comfort, being less stressed, sleeping better at night, having greater confidence, being back on track, getting their mojo back and enjoying business again.’

Think of COVID-19 and its impact on business and there are winners and losers. COVID-19 has been great for some: online retail of home goods, clothes and exercise equipment and food delivery. But it has been harder on others. CBDs are a shadow of their former selves, with many workers electing to work from home or being prevented from working other than from home for extended periods. Many hospitality businesses in the CBDs are struggling. Some have already closed. Take a walk through any CBD and you will see the cafes and restaurants that have shut up shop. The recent and ongoing lockdowns across the country will only exacerbate this.

Businesses in the tourism sector that rely on international or inter-state tourism are hurting. Every lockdown leads to cancelled bookings and a greater reluctance for those who made it to their holiday accommodation before being ordered to return home at short notice from booking again. Most of us have given up on planning any interstate leisure travel for the foreseeable future. COVID-19 also impacts different states in different ways. A lockdown in Melbourne or Sydney hurts hospitality businesses in those cities, but also hurts tourism businesses in Queensland where most southerners like to holiday during the winter months.

The health of businesses can be viewed as a spectrum, with high performers on one end and those failing on the other. Many businesses are somewhere in the middle to bottom half of this spectrum – they are underperforming to different degrees but have not yet failed, and the difference between survival and failure is a fine line.

The thought of losing everything that you have worked hard for over many years is incredibly stressful; but that is what directors of struggling companies face. The majority of Australian businesses are small to medium sized businesses run by family owned and operated companies. Often the businesses have been in the family for generations. Those that have built them are proud of what they have achieved. To lose the business is not only to lose their livelihoods, but to lose their identity. This high level of stress can have serious consequences – mental health issues, relationship break downs, illness and sometimes suicide.

Despite the stress and pressure they are under, most directors don’t seek professional help to deal with their businesses’ financial difficulties early enough, or at all. This is for reasons including pride, denial, a misconception that they shouldn’t spend precious resources on the cost of expert help (even though most turnaround experts work on a success fee model) and just not knowing what help is available. But there are many skilled business turnaround and restructuring professionals who can help directors navigate their way through these tough times and enable businesses not only to survive, but thrive again.

Other professional advisors, such as accountants and lawyers who assist businesses on a regular basis and have a close relationship with their directors and owners, need to play their part. They often become aware that a client is under financial distress and its directors are struggling, but don’t do anything about it. It is important that such advisors have the courage to speak up and let their clients know that help is available.

The benefits in getting expert turnaround assistance are evident when speaking to those that have been brave enough to seek it. Directors refer to having peace of mind, feeling comfort, being less stressed, sleeping better at night, having greater confidence, being back on track, getting their mojo back and enjoying business again. Turnaround professionals are experts at stabilising businesses in the short term by controlling and freeing up cash – critical for business survival. They are skilled in dealing with angry or frustrated stakeholders, such as suppliers, customers and financiers who gain comfort in the fact the business has sought independent expert help. This allows critical time to develop and then implement a business turnaround plan.

A turnaround expert will also ensure, if possible, that directors have the benefit of the safe harbour against insolvent trading (‘safe harbour’) during the turnaround. The safe harbour protects directors from the risk of subsequently being found to have traded the company while insolvent if the turnaround should unfortunately fail. This knowledge that they are protected from the risk of personal liability while attempting the turnaround is another key factor in giving directors peace of mind during the process. In order to qualify for the safe harbour, a director should:

  • engage an appropriately qualified advisor – ie a turnaround professional.
  • begin formulating a course of action which is reasonably likely to lead to a better outcome for the company than the company going into voluntary administration or liquidation – ie develop a viable turnaround plan.
  • have evidence to support the director’s view that the turnaround plan is reasonably likely to lead to a better outcome.
  • pay all employee entitlements when due – ie wages and super.
  • lodge all documents required by taxation laws on time.
  • continue to assess whether the plan is still reasonably likely to lead to a better outcome as circumstances change, and modify the plan as necessary.
  • be properly informed about the company’s financial position, and maintain proper books and records.
  • maintain controls to ensure employees can’t commit fraud which would lead to failure of the turnaround.

These are all sensible steps, many of which would be undertaken in any turnaround. In particular, turnarounds require a very good understanding of a business’s current and predicted cash flow and so good financial reporting is imperative. Finance teams are often bolstered so they can produce this detailed financial information. Continual assessment of a business’s progress against the turnaround plan requires stricter governance. Directors and senior management need to meet more often and need to have good information – both financial and operational – in order to understand how the business is tracking against the plan. Many directors who have been through a turnaround decide to keep most or all of these increased governance frameworks and companies benefit from these improved systems in the long term. They maintain increased visibility over their financial performance and are better able to detect and quickly address any issues which arise.

The benefits for directors of under-performing companies in seeking professional turnaround and restructuring help as soon as they can are clear – being able to sleep at night with the knowledge that someone has their back and is looking after their livelihood.

Hall & Wilcox’s team of turnaround and restructuring experts are skilled in assisting companies and their directors with the legal aspects of turnarounds and restructures.


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