The Road to Insolvency

1. The Road to Insolvency Presented by:Robert Kite CA April 2009

2. Outline This presentation will discuss the following areas:- Insolvency Indicators What Condon Associates can do to help Case Studies

3. Insolvency Indicators Insolvency Defined • A person is solvent, if and only if, the person is able to pay all of the person’s debts, as and when they become due and payable. • A person who is not solvent is insolvent. Cashflow Test • Can’t pay debts as and when they fall due. Balance Sheet Test • Asset rich, but cash poor.

4. Insolvency Indicators Financial signs of, or factors to indicate possible insolvency • Suppliers placing the company on COD or demanding payment before resuming supply. • Ongoing unsustainable losses. • Poor cash flow. • Exceeding overdraft limits and unable to obtain further credit. • Creditors demands and threatened legal action. • Creditors unpaid and outside of usual terms. • Unremitted ATO and Superannuation liabilities. • Falling stock levels/reduction in variety of stock. • Reduction in staff/service levels. • Issuing post dated cheques, rounded payments and dishonoured cheques. • Payment plans with ATO and or suppliers.

5. InsolvencyIndicators - continued Physical signs visible to directors and members of a Club which may be struggling for cashflow Declining services offered to members. Declining membership. Declining attendance at the club. Declining support for interest groups (fishing, bowling and other sports). Possible conflict at Board and or Management level. Postponement of essential maintenance/refurbishments. Withdrawal of catering services.

6. Insolvency - Continued Factors which may contribute to or lead to insolvency Ineffective management style. Director/Management/Member disputes. Lack of working capital. Failure to plan for legislative changes. Inefficient management reporting. Lack of internal controls. Inability to refinance. Lack of business plan/defined goals.

7. What Condon Associates can do to help Condon Associates can help in turnaround strategies and the use of the insolvency legislation to formulate a plan to assist with a Club heading towards insolvency. Turnaround – already addressed. Use of Corporations Act

8. Use of Corporations Act Voluntary Administration/Deed of Company Arrangement. Provides a method where by a proposal may be submitted to creditors to allow the company to continue into the future without the need to be placed into liquidation. The proposal can be of any format, money now, or contributions over a period of time. Provides a moratorium and “locks away” the claims of unsecured creditors, for which such claims will be dealt with in accordance with the Deed of Company Arrangement.

9. Use of Corporations Act Members Voluntary Liquidation – Amalgamation Amalgamation with another Club, by which the assets are transferred to the new Club, and the new Club provides the necessary funds to resolve the debts of the insolvent entity. Once the assets are transferred and the debts are settled the company will eventually be deregistered.

10. Use of Corporations Act Members Voluntary Liquidation – No Amalgamation The assets of the Club are sold, the liabilities are paid, and the remaining funds are paid in accordance with the Club’s Memorandum and Articles of Association. (Usually to a club of similar nature). Once the assets are sold and the debts are settled the company will eventually be deregistered.

11. Use of Corporations Act Creditors Voluntary Liquidation Shortfall of assets to liabilities. Appointment of Liquidator to realise the assets of the company and to pay the claims of creditors. Once the assets are sold and the funds are distributed, the company will eventually be deregistered.

12. Case Study – Deed of Company Arrangement • Company placed into Voluntary Administration. • Total Liabilities for employees and unsecured creditors were in the order of $240,776. • Deed of Company Arrangement (“DOCA”) agreed to by creditors where by the Club made monthly contributions over 3 years totalling $185,100 half of any net profit >$120k per year during the 3 years. • Contributions were paid, and the DOCA was finalised. The result was that the control of the company was returned to the directors and the Club was able to continue into the future.

13. Members Voluntary Liquidation - Amalgamation Insolvent Club was to be amalgamated with another Club (Acquiring Club). Meetings of the members of the Insolvent Club were called to consider the proposed amalgamation and applications were made to the Licensing Court (as it then was) for orders from the Court to allow the amalgamation to proceed. Court approved the amalgamation and a meeting of members was convened to consider the appointment of a Liquidator for a Members Voluntary Liquidation.

14. Members Voluntary Liquidation - Amalgamation Once Appointed Liquidator responsible for the trading of the club. Documents lodged with the Australian Taxation Office to bring remittances up to date, and to receive tax clearance. After the tax clearance has been received, attend to distribution to creditors. After the claims of Creditors have been paid, assets of the Insolvent Club are transferred to the Acquiring Club. Notices are forwarded to the then Licensing Court to advise of transfer of assets and finalisation of Liquidation and the Court puts its final consent on the finalisation of the amalgamation.

15. Thank you Condon AssociatesLevel 687 Marsden StreetParramatta 215002 9893 9499www.condon.com.au