Our client operated a hotel/pub in Victoria with around 40 staff. Like many businesses in the hospitality sector, it suffered greatly from the imposed lockdowns resulting from the COVID pandemic, with average monthly sales reducing by around 75% with little to no reduction in fixed and operating costs.
Prior to our appointment, the client was taking steps to recover from the COVID pandemic but its debt owed to the Australian Taxation Office (“ATO”) was threatening its ability to continue to trade.
The client owed its staff $90,000 in unpaid superannuation. Excluding related parties (who did not claim in the SBR), there were unsecured debts totalling $323,000 of which the majority was owed to the ATO (circa $250,000). In a liquidation scenario, there was a potential unfair preference claim against the ATO for up to $130,000 and there was a director loan of $50,000, however, the director had no personal capacity to repay it.
While the director had no personal capacity to repay any claims in a liquidation scenario, they could borrow funds from family members to pay out the outstanding superannuation in full, which is a requirement to be eligible for the SBR process.
The client then put a proposal to creditors of 10.82 cents in the dollar ($35,000), repayable via 7 monthly instalments of $5,000 generated from ongoing trading and the client together with their accountants prepared a cashflow forecast to support the ability to make the payments.
The unsecured creditors voted in favour of the proposal.
As a result of undertaking the SBR process, employees received their full superannuation entitlements and retained their ongoing employment. The contributions were received in full ahead of schedule and unsecured creditors received their full dividend under the proposal. This is in contrast to a liquidation where employees would likely have been terminated and would be unlikely to receive any of their superannuation back and certainly there would have been no return to unsecured creditors.
Following the SBR process, the client can look forward to improving its business and profitability without the burden of the unmanageable debt and without the significant costs of being placed into Voluntary Administration to achieve a similar outcome.
Download a Print Version