COVID-19 CRISIS – HIBERNATE YOUR COMPANY

The majority of Australian businesses will face some sort of business interruption as a result of the Covid-19 crisis.  We know directors and their accountants have been working hard at informal restructuring – simply a “deal” reached between a company and its creditors – as it is the “least drastic” solution.  But if that hasn’t worked then the hard, but necessary, question is:

“if we can legally defer payment of creditors, can the business trade profitably after that?”

  • If the answer to that is “yes” then the Hibernation Deed is a good option.
  • If the answer is “no” then a business is unviable and the only option is liquidation.

THE HIBERNATION DEED

We are seeing good businesses, that have been devastated by the COVID-19 crisis, with an urgent need to hibernate for a period with a view to re-emerging when some semblance of normality returns.

We have developed a Hibernation Deed that allows for the following terms:

  • Suspension of normal business trading during a Hibernation period
  • A compromise deal with employees
  • A moratorium arrangement with creditors
  • Potential specific arrangements with key suppliers and creditors, for example landlords, other lease creditors, the ATO
  • Essential Hibernation tasks to be undertaken to preserve assets
  • A specific Hibernation period, possibly 6 months, after which the business is reassessed
  • Protection for directors against insolvent trading offences
  • Reporting to creditors, by us, to explain the deal and alternative courses of action available
  • Incorporation of any available Government COVID-19 business support packages

Features of the Hibernation Deed include:

  • Fully compliant with the Corporations Act
  • Creditor involvement, run by us, including by vote at a meeting on whether the company should enter the Hibernation Deed
  • Immediate freezing of creditors and a Deed, binding on all creditors, within as little as two weeks
  • Easy kick-off of the process – Directors just sign a document
  • Incumbent directors retain control of the business during the Hibernation period
  • A low up-front, fixed fee quote.

Will it always be that easy? No. There may be complications, but a key feature as that the Corporations Law allows us to be very flexible with the terms.


WARNING:

Businesses will be offered a variety of special purpose loans from their bank, which are Government backed.  The terms of those loans are, as yet, unclear.  Our advice is:

  • be very wary of accepting new loans to pay past creditors, or to cover future trading losses – at the moment you are NOT personally liable for past debts but if you take on a new loan, you will likely be personally liable for that new loan;
  • don’t accept a new loan if a term is that the director must provide a Personal Guarantee (you will be putting your house at risk);
  • if a company is insolvent, the lead strategy is to first stop paying old debts, then negotiate – the Hibernation Deed does just that.

LIQUIDATION

Liquidation is the process of winding up and finalising a company’s affairs. In the current COVID-19 crisis it is often the best option. We have a page on our sister website, Dissolve, explaining why liquidation can lead to the best outcome.

Click for more information:

dissolve-hires

WHY NOT CALL US

Restructuring Works provides a free Advisory Hotline. We provide advice and a range of debt solutions to companies, directors, public accountants, lawyers, creditors and individuals. Restructuring Works may continue to provide advice or may refer you to one of the other specialist business units in the Insolvency Solutions Group to provide the best fit debt solutions.

blue line

Reach out for a free 30 min consultation

Restructuring Law can be a complex area and circumstances vary, so we recommend a telephone call for your initial consultation. We will then gladly meet you or just confirm our advice and quote in writing.

Contact Us

  • This field is for validation purposes and should be left unchanged.