There are many reasons why a business may want to reconstruct or "restructure"as it is commonly known:
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the present business model may no longer be suitable in the changing business climate
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the existing structure may be too convoluted and is incurring a lot of administration cost
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the business may require funding from venture capitalist or business angel for future growth
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the business may be considering bringing in other investors or public listing in order to raise capital
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in a family owned business, the shareholders may wish to consider asset protection which was not thought of at the start of the business
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there may be other financial and/or taxation considerations
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simply, the business is facing financial difficulties
A business may be profitable today but it depends on the business cycle and could face difficulties in the future. It is important for the business to maintain and update its business plan so that it can be prepared for any contingencies.
In any reconstruction, it is important to consider:
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current cash flow and profitability issues
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existing business plan
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adequacy of the existing management
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the desired business structure (see also Business Structure)
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federal taxes such as capital gains tax and state taxes, such as stamp duty, etc
If the business is in financial doldrums, then it will have to consider:
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whether to refinance existing debt
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whether to raise further debt from internal and external sources (see also Company Finance and Mortgages)
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who are the secured and unsecured creditors of the business
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whether any arrangements can be made with the creditors for a short term moratorium on repayment of the debt
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whether there was insolvent trading by the directors
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whether the directors had given personal guarantees
If a company does go into voluntary administration, then:
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whether the company is able to continue trading under a Deed of Company Arrangement ("DoCA")
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directors and shareholders have to consider their rights vis-à-vis the company and their own financial circumstances
Inevitably, if the company goes into liquidation and winding-up, not only would the shareholders have lost their investment, the directors of the company would have to seriously consider their future as:
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the directors could face prosecution for insolvent trading
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creditors and shareholders could bring action against the directors
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the directors could face a ban from acting as directors of a company
Should you require legal advice on any of these matters please do not hesitate to contact LAC Lawyers Pty. Ltd.
Contact us now for Fast, Accurate and Timely legal advice
Phone LAC Lawyers on NSW 1300 799 888 or VIC 1300 734 638 or send us an email