Olvera Deed of Company Agreemenet

Aquire

Too often purchasers overlook the benefits of acquiring a business

through a Deed of Company Arrangement. This often creates a statutory bar to creditors effectively drawing a line in the sand negating or limiting the need for extensive due diligence and reducing the subsequent costs and delays of asset transfers to a new entity.

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.

Acquiring a Business through Debt

The impact of new capital adequacy regulations on the balance sheets of Australian retail banks has resulted in some significant changes in the way they deal with stressed and distressed loan assets.

Since the GFC, we have seen a growth in debt divestments by Australian banks of both loan portfolio and single credit assets at discounts to par value. While debt trading has been limited to large corporate debtors, significant discounting has not been widespread in the single credit market.

Bank lender moratoriums will often seek to prevent secondary debt trading, but more often than not, banks will seek to realise their debt at a discount rather than participate in a drawn-out restructure plan which will absorb the bank’s management resources.

Buyers can control a restructure outcome by acquiring the senior debt position and then convert that debt to equity. The same position can be obtained by shareholders agreeing to purchase the bank’s debt at a discount and using that debt to control the outcome in any proposed Deed of Company Arrangement.