How can you fund sales, operations, and administrator costs during insolvency or a voluntary restructure event?
A controller appointed to a company can no doubt be a stressful event. After the controller has been appointed and determines the viability of whether to trade out of the situation or liquidate assets can often be a case of pure liquidity.
Below are some common causes that strangle cash flow:
- Large customer/s becomes insolvent, resulting in non-payment
- Management has significant unpaid ATO debt (payroll + company)
- The unsecured creditor has taken action against unpaid debts
- The gap between aged receivables and payables has increased
- Shareholder dispute results in appointment to manage a buyout
- Various litigation action for liability cases
It quickly becomes apparent that funders in this space are limited due to the complexities and risk attached to arrangments.
Funders working within this space generally have the following traits:
- Larger appetite for risk
- Experience in transactional equity and asset-based investments
- Strong relationships within the restructuring industry
- Ability to navigate through complex legal structures
- A dedicated transactional management team
Funding during insolvency or a restructure is often a very difficult task. Lenders are required to negotiate with insolvency practitioners, lawyers, directors, shareholders, secured and unsecured creditors to ensure it’s a viable venture to inject capital into.
Below are the key items for the utilisation of working capital:
- Funding a Deed of Company Arrangement (DOCA)
- Payment of ATO debts
- Funding key personnel
- Acquisition of equipment
- Funding supplier inventory
- Funding manufacture processes
When property assets or receivables are lacking or insufficient:
At the time a company enters insolvency either voluntary or otherwise it’s common to immediately turn to the Director/s personal property assets.
In a lot of cases, this might be sufficient to raise the capital required, but, what happens when growing sales can’t be serviced due to lack of working capital to procure inventory items or finished goods from suppliers?
Below are two tools used for funding inventory:
- Purchase order finance
- Production finance
Both items listed above fund the purchase of inventory items or finished goods from suppliers. Fundamentally purchase order finance is reserved for finished goods being purchased from a third-party manufacturer and production finance is used for purchasing inventory items related to light assembly or commissioning (software, painting etc) locally and then on shipped to customers.
Injection of profits back into operations
Traditional methods of raising working capital while controllers are appointed centre around property or equipment assets.
Funding pre-sales from profitable customer orders is often overlooked due to lack of providers willing to service this area largely because of the risks associated with insolvent trading and expertise in pre-funding orders.
Profits generated from new or existing sales orders are then used to continue operations to carry it through to the retirement of the controller.
If a company is successful at securing profitable sales from strong buyers, providers such as Stak can provide solutions to trade through, returning companies back to their management team.
Need help funding inventory? Ask Stak.
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Stak provides working capital to clients that sell to some of the largest buyers in Australia & overseas.