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HOME – Dead Advocancy
Dead Advocancy
Olvera represents investors, fund providers and management in taking strategic advantage of changing economic environments to ensure that they have the ability to maximise or minimise the impact of uncertain change on their businesses.
As Deed Advocates, we work with management and investors to present Deed Proposals, manage creditor support, execution and post Deed accounting and planning.
The advantages of acquiring businesses through a Deed of Company Arrangement are considerable:
lower transaction costs i.e., stamp duty;
speedier transaction period for leased assets; and
utilisation of carry forward tax losses.
Olvera’s private client base and executive management also combine to provide a unique equity and operational solution to complex stress situations when the optimal solution is not always clear.
By reducing uncertainty, hedging risk, and creating a buffer which distinguishes your business from that of your competitors, all contributes to putting you in the best position to take advantage of opportunities when others cannot.
Distressed acquisitions are by their very nature opportunistic purchases, and as such buyers often don’t have the time, or ignore the reasons for the business’s failure in the first place, and in doing so fail to realise the full benefits of the acquisition.
Broadly business failures fall into three categories:
- The Single Issue – these are the one-off transactions that can be quarantined into a specific set of circumstances i.e., a lost litigation, too much debt, an unprofitable location or division, a failed diversification or investment.
- The Scalability Failures – surprisingly, as many businesses fail during a boom as a bust. These are the businesses that cannot fund their own growth, where revenue grows at a greater rate, depleting working capital, or the opposite, where revenue falls at a faster rate than a business can reduce costs.
- Management Failure – into this category falls both the visionaries and the incompetents, where the core issue is the failure of current management.
Too often purchasers only see the financial distress as an opportunity to discount the purchase price of a ‘good asset’ rather than an acknowledgement that the good asset is no longer good.
Achieving a strategic goal is simply “completing the sale”, while financial goals and operational goals require significantly more work. What is clear is that with nearly 44% of all deals being transformational the success of these deals is being considerably overestimated at their outset.
There are usually two ways to acquire a distressed business, the traditional way through an asset sale or through a Deed of Company Arrangement. Acquiring a business through a Deed of Company Arrangement provides additional value and at lower costs than an asset sale and purchase. It is however more often used by incumbent owners rather than external purchasers.
The benefits of acquiring a business through a Deed of Company Arrangement are fourfold:
A deed of company arrangement does not attract stamp duty on asset values.
The Deed of Company Arrangement is a compromise of liabilities and does not consider the value of assets, such that the assets can continue to be carried at the book value.
As there is no transfer of contracts from the company, the time costs and risks around achieving an assignment of customer, supplier and landlord contracts is eliminated or limited.
To the extent the acquirer continues the same business, accrued tax losses less any debt forgiveness will be available to the purchaser.
How we can help
Olvera manages the voluntary administration process for you
Our services include:
Negotiating the selection and or funding for the Administration process;
Preparation of the Deed proposal;
Preparation of business strategy and supplier presentations;
Communication planning with stakeholders;
Voting and proxy management;
Finalisation and Execution of Deed terms; and
Post Deed accounting and management statements.
The Deed once its terms are satisfied affectively creates a statutory bar to company claims which arose before the commencement of the voluntary administration.
Setting aside a resolution or terminating a Deed
Section 600A of the Act provides that the Court has powers to set aside the resolution approving the DOCA in the event that the DOCA has yet to be executed.
Section 600A provides that the DOCA resolution can be set aside if, among other things not relevant, the votes of related creditors are disregarded then the resolution that was in fact passed would not have passed (Section 600A(1)(b)(ii)).
Section 445D of the Act provides that the Court may make an order terminating a deed of company arrangement if satisfied that:
- information about the company’s business, property, affairs or financial circumstances that:
- was false or misleading; and
- can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed;
- was given to the administrator of the company or to such creditors; or
- such information was contained in a report or statement under subsection 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or
- there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding; or
- there has been a material contravention of the deed by a person bound by the deed; or
- effect cannot be given to the deed without injustice or undue delay; or
- the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:
- oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or
- contrary to the interests of the creditors of the company as a whole; or
- the deed should be terminated for some other reason.
Accordingly, an application may be brought under subsection 445B (a), (b), (c), (e) and/or (f) of the Act seeking to terminate the DOCA returning the Company to liquidation.
That application can be brought by an interested party or creditor of the Company (Section 445B(2)).
All these issues can be addressed through careful planning, negotiation, and clear disclosure in the Administrators Report and Deed Proposal.
Key Insight
Speak to the Olvera Expert
PRINCIPAL
Damien Hodgkinson
Damien develops strategic solutions for groups dealing in crisis management and/or distress investment. He has over 30 years of experience working with distressed companies in the financial assessment, recoverability, and sustainability of risk assets.
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