A medium sized Canterbury firm that had traded well during the post-quake construction boom. However, it had lost several contracts and customers failed and found itself with a much smaller level of demand but with commitments in terms of staff, lease costs and a growing and unsustainable accounts payable ledger.
Under the pressure of an ever expanding balance sheet the director approached Waterstone with the intention of closing the doors and walking away, and accepting bankruptcy given his personal guarantees.
We looked at the business, assessed its viability and the suitability of this business trading on. Not all businesses that can be saved should be saved, but the circumstances that had led this company into its predicament was a combination of director inexperience and misfortune in gearing up for a large amount of work from a significant client who subsequently failed.
The value in this business was largely in the debtor’s ledger and unbilled Work-In-Progress. If the business was to close down this would be lost. So we sold the business to a new entity owned by the director and assisted him to manage the ongoing jobs to ensure that the debtors could be collected.
Section 386A of the Companies Act has a specific provision covering the terms by which a liquidator can sell a business to related parties and we utilised this section. Over two hundred thousand was realised, including enough to pay the IRD’s preferential claim and a secured creditor, allowing the director to avoid bankruptcy.
Canterbury Contractors 2018*
This restructure allowed the director to reorganise his business to a smaller more manageable operation and help ensure that over half of the staff retained their employment and secured and preferential creditors were paid.
*not its actual name