A manufacturing business

13 Dec A manufacturing business

Capability: Restructuring & Turnaround
Industry: Manufacturing
Appointment: Voluntary Administration / Deed of Company Arrangement

Restructuring a financially distressed company

Overview

• A family-owned manufacturing business in Sydney, set up in 2000, with 35 employees.
• It owed the ATO $2.5m in PAYG and GST.
• It also owed trade creditors $500k.
• The business had paid employee wages and entitlements in full, with no arrears.
• A financier held most of the plant and equipment under hire purchase agreements.

Challenges

• Profits fell, mainly because of low productivity, higher labour costs and flat turnover.
• However, ongoing supply contracts with major customers still made up a large share of revenue.
• In addition, the business relied heavily on the productivity of its manufacturing division and the success of its sales representatives.

Solutions

• We traded the business for a short period so it could be restructured. During that time, trading improved through better production efficiency and lower variable costs.
• We also rationalised the workforce and cut labour costs, mainly overtime. As part of this, we made four roles redundant.
• Then we introduced an incentive-based bonus scheme for high-performing manufacturing and sales staff.
• We asked the company’s external accountant to review and correct its tax lodgements. As a result, the tax liability fell by $900k (36%), from $2.5m to $1.6m, which increased the return to ordinary unsecured creditors.
• Finally, the director restructured the business through a deed of company arrangement (DOCA) and kept the major supply contracts.
• The director also contributed $350k to the DOCA, which paid creditors a dividend of 20 cents in the dollar.

How Greengate Advisory can help

We review trading performance and non-financial factors to find the options that improve every stakeholder’s position. Acting early often decides whether an SME restructures successfully or fails, and it protects the business’s value. We can develop and carry out a restructuring strategy with you.

Read more: our guide to voluntary administration.