Director soldiers on to find personal recovery through restructuring deal

The director served in the army before setting up a number of cafes in Brisbane to provide veterans employment opportunities and a support network of being part of a working team.

The company began to experience financial and operational difficulties from 2020 onwards following snap lockdowns, social distancing directives, and the ever-changing hospitality environment. A range of extreme business pressures and very difficult personal circumstances followed. These events were:

• Loss of revenue into the millions.
• Loss of staff (and industry staff shortages) and operational efficiencies those staff enabled.
• The director was diagnosed with post-traumatic stress disorder (PTSD).
• The taxation obligations became unsurmountable as COVID-support measures were insufficient to cover amounts owed.
• The director entered into licence agreements for two cafes and sublet the business premises to stem ongoing trading losses and partially meet debt obligations.

The two main debts owed were to the ATO for $627,000 and to WorkCover Qld for $13,000. With tax debt insufficiently addressed, the ATO issued the director with a director penalty notice (DPN) for $424,000. The director had the opportunity to avoid personal liability of $310,000 if one the following occurred in 21 days:

1. Debt is paid in full.
2. Voluntary administrator is appointed.
3. Small business restructuring practitioner is appointed.
4. Liquidator is appointed.

The immediate liquidation and closure of the cafes would have resulted in the landlords holding the director, as guarantor, liable for the remainder of the lease term, amounting some $350,000 in future rent obligations. Closing the cafes would have also resulted in the loss of all goodwill attached to the businesses, and minimal, if any, return to creditors.

Instead, the director appointed Nikhil Khatri as Small Business Restructuring Practitioner. The director sold a personally-owned investment property to satisfy the company’s outstanding superannuation contributions and enable the director to make a contribution to the restructuring plan dividend.

The offer under restructuring plan was director paying $95,000 within one month of plan being approved, giving creditors a 15-cents-in-the-dollar return.

Creditors accepted the offer. The company continues operate the cafes under licence with lease obligations to the landlord continuing. Importantly, the director avoided $300,000 in personal liability for company tax debt and $350,000 in personally guaranteed landlord debt. The company’s tax debt is reduced by $560,000, avoided the store’s closure and the loss of employment for all staff.

As always, the sooner you seek options, the more you’ll have. The Teams at Worrells are ready to help. Our people know how to turn a business around, understand insolvency at the deepest level, and are always keen to find the right answers.

Business can be tough. Before you throw in the towel, we help you consider what can be done to turn around a business first, exploring restructuring options that can buy you valuable time to get back on your feet.