ABOUT US OUR PEOPLE Peter Krejci

Meet Our People

Peter Krejci

Peter Krejci

Principal,

My aim is to deliver commercial outcomes for the mutual benefit of all principal stakeholders of a distressed corporation. By combining a holistic approach to addressing underlying issues with my substantial experience in key industry sectors, I strive to deliver innovative and commercial solutions. When achieved, it is extremely rewarding.

Peter is a registered liquidator and is a founding principal of BRI Ferrier with over 20 years’ experience in corporate recovery and turnaround management.

Peter’s breadth of experience expands across a diverse portfolio of industries including agribusiness, financial services, logistics, mining, property and retail. He also has specific experience working with managed investment schemes and manufacturing companies.

Peter provides innovative solutions through strategic problem solving, negotiations and corporate advisory. His holistic approach in understanding the nuances of his client’s strategic, financial and overall operations define his ability to provide commercial options and reach the best outcome for all stakeholders.

Outside of work, Peter enjoys spending time with his young family and walking their two poodles. He likes to keep fit and has a keen interest in all sports, particularly rugby league and golf. Peter is also an avid follower of politics.

Experience
  • Bevillesta
    Owned and operated a Sydney shopping centre, Bevillesta was restructured using a Voluntary Administration (“VA”), Deed of Company Arrangement (“DOCA”) and Creditors Trust, facilitating unsecured creditor claims being paid in full.
  • Forest Enterprises Australia
    The third largest forestry managed investment schemes to collapse in Australia; Forest Enterprises Australia was restructured using a DOCA, delivering significant returns to stakeholders.
  • AE&E
    A provider of thermal power generation and environmental technology, AE&E was placed in VA whilst a strategy was developed to facilitate the completion of major projects including a $550+ million power plant for end client BHP.
  • Infa Products
    Former child seat manufacturer in long-running litigation resolved and company returned to solvency, using a VA and DOCA, incorporating a Creditors Trust.
  • Lesso Building Material
    Exhibition and warehousing business restructured, and shareholder dispute resolved, using a VA and DOCA, incorporating a Creditors Trust.
Qualifications And Memberships
  • BBus (Accounting and Legal Studies) – Charles Sturt University
  • Registered liquidator
  • Member, Chartered Accountants Australia and New Zealand
  • Member, Australian Restructuring Insolvency and Turnaround Association
  • Member, Turnaround Management Association

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Insights by Peter Krejci
Update: Director Penalty Notices (DPN)
Tue Sep 20Industry Insights

Update: Director Penalty Notices (DPN)

The ATO is now issuing out over 200 Director Penalty Notices (DPN) each day and accordingly it is time for a quick refresher course.

What are DPNs?

Company directors are responsible for ensuring that the company's tax and super obligations, including pay as you go withholding (PAYGW), GST and super guarantee charge (SGC), are reported and paid on time. Where a company does not pay certain liabilities by the due date, the ATO can recover these amounts from a director personally as a current or former company director once a director penalty notice (DPN) is issued. DPNs outline the unpaid amounts and remission options available. The ATO can recover the amounts by:
  • issuing garnishee notices;
  • offsetting any tax credits against the director penalties; and
  • initiating legal proceedings against directors to recover the director penalty.
Where a company has more than one director the ATO may recover director penalties equally from all the directors. If an individual director pays the DPN in full they have the capacity to reclaim that money from the company and in the event the company can not repay the funds then the director can claim the funds from their fellow directors in equal shares. There are two types of director penalty notices which the ATO can issue:
  • traditional notices - 21 days to remit; and
  • lockdown notices - immediate remittance.

Remittance of the director penalty

Unpaid PAYGW or GST reported to the ATO within 3 months of the due date may lead to the issuing of a traditional DPN and the penalty can be remitted by: An unpaid amount reported later than 3 months after the due date may result in a lockdown DPN being issued and the only way to remit the director penalty is to pay the debt in full. For SGC, remission of the DPN depends on when the ATO has been notified about SCG amounts. If the unpaid SGC is reported by the due date for the SGC statement, the penalty can also be remitted by taking one of the actions set out above. If a valid DPN has been issued, and 21 days has passed since it was issued and none of the actions set out above have been taken then, the remittance provisions are no longer available to a company or director, and either the company or the director must pay the amount due to the ATO in full.

Where will the ATO send the Notice?

The ATO is only required to send a notice to the address of a director recorded by the Australian Securities and Investments Commission (ASIC), regardless of the currency of the address. The ATO may alternatively send a notice to a director at his or hers registered tax agent’s address. Additionally, the DPN will appear on the company’s ATO portal that tax agents and directors can access. The ATO is able to issue a Lock-Down Director Penalty Notice, even after an Administrator or Liquidator has been appointed to a Company, if applicable taxation debts that were not reported to the ATO within three months of the Due Day remain unpaid.

What defences are available to a Director issued with a DPN?

There are only limited defences available to company directors issued a DPN these are:
  1. Illness or Incapacity (A director was unable to take part in the management of a company).
  2. All Reasonable Steps (All reasonable steps were taken by a director to comply with his or her obligations, or no such steps were )
  3. Superannuation Guarantee Charge – Reasonably Arguable Position (A director adopted a reasonably arguable interpretation of Superannuation Guarantee Charge legislation.)

What if I’m a Former or New Director?

Former Directors? Director Penalty Notices can be issued to former directors if the relevant debt was incurred during their term as a director. New Directors? Newly appointed directors have just 30 days to establish whether any existing ATO liabilities are outstanding and capable of being the subject of a DPN. If it is determined that there are relevant overdue liabilities, the new director must either:
  • Resign as a director of the company.
  • Appoint a liquidator, administrator to the company or a small business Restructuring practitioner.
  • Be satisfied the company can pay the debt.
If any of the above do not occur, a new director may be subject to a DPN.

What if the Company has been deregistered by the ASIC?

This situation presents a significant problem as it is unlikely a director will be able to have the company re-registered with the ASIC within the 21 days available from the date the DPN is issued and consequently the only way to have a DPN remitted will be to repay the debt in full.

Are Payment Plans a Good Idea?

The ATO may request that the company or a director enter a payment plan to repay the outstanding debt as a way of resolving the DPN. Prior to entering in to a payment plan the following issues require consideration:
  • A payment plan with the ATO does not cause the tax debt which was due and payable to cease to be due and payable, further there is a risk the Company may trade whilst insolvent and potential personal liability for directors due to insolvent trading may arise;
  • In some circumstances, a director can become personally liable for ATO payments made under a payment plan, where they weren’t previously liable for those underlying tax debts. If a Company enters a repayment for PAYG and Superannuation Guarantee Charge and is subsequently placed into liquidation, the Liquidator may be able recover monies paid under the payment plan as an unfair preference. Any amount repaid by the ATO for PAYG and SGC as an unfair preference can then be claimed by the ATO against the directors personally pursuant to Section 588FGA of the Corporations Act.
  • Secured Payment Plan – The ATO may seek a Payment Plan that is secured against the assets of the Company or the Directors. As noted above professional advice should be sought.
  • Accordingly, prior to entering a payment plan professional advice should be sought.

Are Traditional and locked down DPNs separate actions by the Tax Office?

The ATO may issue you with both a traditional DPN and a Lockdown DPN in the one notice for different debts. It is important to examine the DPN to understand potential personal liability. Below is an example of the column headings of a DPN which combines both a traditional and a Lock Down DPN:
Traditional DPN Lock Down DPN
Amount the commissioner thinks is the unpaid amount of the company’s unpaid liability Amount the commissioner thinks is the unpaid amount of the company’s unpaid liability not notified on or before the end of 3 months after the due day
Accordingly, it is important to pay particular attention to the notice you receive to determine the action required.

Garnishee On Director’s Bank Accounts

Garnishees allow the ATO to compel payment from a third party that holds amounts due to, or on behalf of, a taxpayer that is indebted to the ATO. Once a Director Penalty Notice has been issued, and the 21 day period has expired, the ATO is entitled to seek a garnishee order against any third party that owes money to, or holds money on behalf of, the relevant director, including a director’s personal bank accounts.

Key Takeaways for Directors

Some key takeaways for you to consider:
  • Do not think the problem will go away if you ignore it!
  • Pay your yearly ASIC fee and keep the data of your company current with their offices.
  • Make sure you are lodging all required statements with the ATO within their due periods, even if you can’t pay the debt straight away.
  • Seek extensions where necessary, it is far better to contact the ATO to notify them of delays or request an extension than to wait it out
  • Treat your position with care and diligence, know your obligations and potential liabilities. If you are new or resigning as director than ensure you are fully aware of all current and outstanding ATO liabilities.
  • Consider the SGC and ATO liabilities of deregistered companies.
  • Prior to entering a payment plan professional advice should be sought.
  • We understand the ATO intends to increase the number of DPN’s they are sending and when a director receives a DPN the 21 days from the day it is issued may not be sufficient to take the necessary advice to deal with the problem.
If a company cannot pay the debt due to the ATO under the DPN then the DIRECTORS MUST SEEK PROFESSIONAL ADVICE WITHOUT DELAY! The appointment of an administrator to a company that cannot pay the ATO debt subject to the DPN may result in an outcome that saves the company and directors money compared to paying the DPN debt in full.  When your clients receive a DPN please call BRI Ferrier so that we can assist you in determining the best course of action for your client.
Economic Update – RBA Interest Rate Hike and Inflation
Thu Jun 9Industry Insights

Economic Update – RBA Interest Rate Hike and Inflation

Peter Krejci and John Keenan, Principals in BRI Ferrier’s Sydney practice along with Stephen Koukoulas, one of Australia's leading economists and Managing Director of Market Economics discuss the impacts on our economy and where they see upcoming challenges for various sectors of the Australian market. BRI Ferrier is a unique affiliation of expert business recovery, insolvency, forensic accounting, and advisory firms. Our experts specialise in services that help financially distressed businesses to recover, change and renew. We help insolvent businesses to minimise the fallout of formal administration. We also use our forensic accounting skills to support clients who face litigation, arbitration and regulatory scrutiny.
Changes to Director Penalty Notice (DPN) regime:
Wed Mar 16News and Opinions

Changes to Director Penalty Notice (DPN) regime:

Payment arrangements no longer part of the plan and appointment of a Small Business Restructuring Practitioner (SBRP) included.  Director Penalty Notices The ATO suspended most overdue tax collection during the COVID-19 pandemic however, it has recently recommenced collection activity. This includes the issuing of DPNs. Under the DPN regime directors become personally liable for a penalty equal to the value of certain company tax obligations, including superannuation, PAYG withholding and GST, if they are not paid when due. Prior to commencing proceedings to collect these amounts, from a director, the ATO must first issue the director with a DPN. The options available to a director when they receive a DPN depends on the type of DPN. The two types of DPNs are briefly summarised below: 1.  A ‘Non-Lockdown’ DPN, may be issued where:
  1. a company has lodged business activity statements (BAS) and instalment activity statements within three months of the due date; an
  2. has lodged superannuation guarantee charge (SGC) statements within one month and 28 days after the end of the quarter that contribution relates to; but
  3. has not paid the relevant amounts owed.
2.  A ‘Lockdown’ DPN, may be issued where a company has not lodged their BAS or SGC statements within the timeframes referred to above and have not paid the relevant amounts due. Directors that receive a ‘Non-Lockdown’ DPN can avail themselves of one of the options set out in the notice within 21 days to avoid the penalty, the options available to a director are now:
  1. the company complies with its obligation to pay the unpaid amount to the ATO;
  2. the company goes into administration.
  3. the company appoints an SBRP; or
  4. the company goes into liquidation.
The SBRP option has now been included. Set out below is a brief summary of the  SBRP process. The option for the company to enter a payment arrangement has been removed. Significantly, this means that directors can no longer avoid personal liability for a penalty under a Non-Lockdown DPN by causing the company to enter a payment arrangement in relation to the outstanding liability within the 21 days. The removal of the payment arrangement option, from the regime, will result in more directors who receive DPNs placing their companies into administration or liquidation or appointing an SBRP. SMALL BUSINESS RESTRUCTURING - AN OVERVIEW Mceu 67506845411647409714992 Mceu 10712755211649661151044 Key Elements
  • Less than $1m in liabilities, employee entitlements and tax reporting obligations are up to date;
  • SBRP does not manage the company’s business;
  • Debtor in possession model i.e. the director/s maintain control and continue to trade the business;
  • SBRP is a streamlined and cost effective debt restructuring process.
Please contact BRI Ferrier if you are concerned about your tax debt or require assistance with debt restructuring.
Safe harbour: A potential lifeline for retail in the New Year
Thu Feb 1Industry Insights

Safe harbour: A potential lifeline for retail in the New Year

2018 looks set to be a competitive retail environment. Retailers facing financial distress will be able to avail themselves of recently introduced safe harbour laws in formulating a strategic turnaround plan for the business. To benefit from the safe harbour laws, directors will need to comply even more rigorously with some requirements than would be the case for a solvent company.
Oroton entering voluntary administration (VA) in early December 2017; intense media coverage of Amazon’s launch in Australia and its predicted impact on local retailers; media reports of major retailer Myer’s poor Christmas sales; a forecast drop in consumer spending due to softening house prices; these all point to troubled waters ahead for retailers leading into 2018.
As well as these strong concerns for the sector, the recent sale of the international operations of Westfield by the Lowy family to a European firm is also an indication of an outlook for the retail sector in the New Year.
As many readers will be aware, retail market conditions can be a challenge even at the best of times; they continue to be so, owing to the structural changes faced by the sector from online retail and related services.
Many industry observers and pundits predict that a number of retailers will experience financial distress brought about by the rapidly changing retail market conditions moving into 2018 and beyond. While a number of market participants will adapt, it is forecast that many others will either close or be forced into VA, as was the experience in several major cases in the US after Amazon formally launched there.
Faced with this distress, some businesses will have a balance sheet sufficient to fund trading losses in the short term, however destruction of shareholder value is never received well unless there is a strategic plan to stem the losses and bring the business back to viability, that is, via restructuring or turn around management.
The unique retail restructuring experience
In general, there are four main drivers of cost in retail:
  • cost of stock
  • labour
  • rent
  • marketing and promotions
Any restructuring plan for a distressed retailer needs to find ways of combing successful optimisation of these costs in a flexible, robust, and sustainable way.
Restructuring will usually involve negotiation with representatives of key staff, landlord, supplier and marketing groups, as well as stakeholders unique to each business. Increasingly, those representatives are aware of the deteriorating position in which both they and the businesses with which they deal operate; we have observed increasing sophistication in the approaches adopted.
More than ever, it is necessary to be able to demonstrate commitment and capacity to restructure: no stakeholder is likely to accept tentative or ambiguous plans.
Safe harbour: A refuge for retailers?
In this environment retailers may be able to avail themselves of recently introduced safe harbour laws in formulating a strategic turnaround plan for the business, while at the same time affording the board of directors protection from an insolvent trading liability, should the turnaround plan not come to pass.
In summary, the safe harbour legislation was introduced to address the problems for directors that arise when they learn about their company’s financial difficulties. The legislation provides for a ‘breathing space’ during which directors, with the assistance of professional external advisers, are able to work through a plan or plans for the turnaround of the company.
The breathing space is not ‘carte blanche’. To benefit from the safe harbour laws, directors will need to comply even more rigorously with some requirements than would be the case for a solvent company. Those requirements will include the lodgement of activity statements and adherence to principles of proper corporate governance.
The aim of safe harbour is to allow both directors, and equally as importantly, those who are advising and funding them (for example, bankers, ‘angel investors’ or shareholders), to respond responsibly but assertively to a company’s difficulties, instead of reaching for immediate means of limiting the directors’ liability.
The stated reasons for the reform are reflected in the following comments made by those close to the policy:
‘This will drive cultural change amongst directors by encouraging them to keep control of their company, engage early with possible insolvency and take reasonable risks to facilitate the company’s recovery instead of placing the company prematurely into VA or Liquidation.’
‘… These amendments will reduce instances of a company proceeding to a formal insolvency process prematurely and where companies do enter into particular formal insolvency procedures, they will have a better chance of being turned around or of preserving value for creditors and shareholders.’
‘This in turn will promote the preservation of enterprise value for companies, their employees and creditors, reduce the stigma of failure associated with insolvency and encourage a culture of entrepreneurship and innovation.’
To be able to enter the safe harbour period, companies and their boards need to:
  1. have a plan that is ‘reasonably likely’ to achieve a better outcome for the company than an immediate appointment of a voluntary administrator or liquidator
  2. ensure that all entitlements to employees are up to date and paid when they fall due
  3. ensure all statutory lodgements are up to date under tax law and ensuring all employee entitlement are paid up to date
How to address a DPN
After forming the view that the company in financial difficulty, the board needs to formulate a plan that is reasonably likely to lead to a better outcome for the company. To be able to use the safe harbour legislation, directors need to consider the provisions that set out what a liquidator, retrospectively, may consider relevant, including that the board is:
  • properly informing themselves of the company’s financial position
  • taking appropriate steps to prevent any misconduct by officers or employees that could adversely affect the company’s ability to pay all its debts keeping appropriate financial records consistent with the size and nature of the company
  • obtaining advice from an appropriately qualified entity who is given sufficient information to give appropriate advice
  • developing or implementing a plan for restructuring the company to improve its financial position
Safe harbour application in the retail sector
In formulating a restructuring plan, understanding the unique experience of the cost drivers of a retail business, directors of a retail operation will have regard to the following.
  1. The company’s financial position. A retailer is likely to be more than one store. In most cases, certain stores will be performing better than others and the board ought to have access to detailed management accounts that show the historical performance of each store at a granular level. The management reports ought to show key metrics for each store including: monthly phased sales and gross margins for each store sales per square metre number of units per transaction average customer spend stock turnover rate sales by category
  2. While in safe harbour, the board will need to be regularly provided with detailed accurate financial information of the business commensurate with the retailers operations and to track the performance of the operations as compared to the plan being pursued. It is important for the company’s directors that they have absolute confidence in the financial reports, as they will provide: evidence of the better outcome plan being pursued in safe harbour a defence to directors from an insolvent trading claim if the better outcome plan being pursued is not achieved and the company subsequently enters into VA or liquidation comfort to stakeholders that a plan is being pursued which facilitates stakeholder ‘buy in’ in order to meet the plans objectives.
  3. A better outcome. In most cases, a retail operation will be in financial distress owing to a number of reasons including the following. Mismanagement of balance sheet. Growing too quickly by expanding into new lines, new departments or new locations. Controlling expenses. Major expenses such as rent are fixed (that is, premises, permanent staff salaries, etc.) and are covered by gross margin; however failing to reduce variable expenses in a declining market will lead to distress. Failing to manage gross margin. As a general rule margins are dropping and reducing margins too low to compete in the market will often result in financial distress. Inventory turns. Inventory not turning over will often create cash-flow issues.
In formulating a plan to achieve a better outcome in safe harbour, it is likely that one or more of the points will need to be addressed as to meet the objective of achieving a better outcome for the company. Examples of initiatives include, but not limited to the following.
  • Bank standstills. Most retailers will have bank facilities secured by the bank over the company’s assets. Unless the bank enters into a standstill agreement, pursuing a better outcome plan whilst in safe harbour may be futile given that the bank will have the right to appoint an administrator or receiver and manager. Communication with the bank will be imperative to provide comfort around the Plan being pursued.
  • Rent reductions/abatements. Landlords of the various stores seeking rental abatements whilst other efforts are made to rationalise the business. Rent abatements could be temporary or permanent. Depending on the size of the retailers store footprint it may be that landlords are prepared to agree to a rental abatement on the basis that a cogent outcome plan is supported with a view of limiting store closures.
  • Inventory procurement improvements. If inventory is not turning over sufficiently then inventory procurement must be explored to unlock cash tied up in stock.
  • Store closures (controlled wind-downs). It is more than likely that there will be stores that are not performing which will be required to be closed. An analysis of each stores individual performance will quickly determine which should be closed and the impact this will have on the retailers operations.
  • Cash flow issues. Seeking better terms from suppliers may be explored in terms of cash flow relief.
Again, the take away from this should be in the requirement that ‘the company is taking advice from appropriately qualified entity’. Applying safe harbour initiatives require a reasonably high level of financial skill, and directors considering availing themselves of a safe harbour regime should ensure they choose a financial advisor with both the qualifications and experience to ensure that all issues are carefully considered and adhered to.
Time will tell how the retail sector weathers the storm, as well as how the new safe harbour amendments to the Corporations Act 2001 apply.
This Industry Insight was first published in Governance Institute magazine.
What’s normal to the spider is chaos to the fly…
Wed Mar 15Industry Insights

What’s normal to the spider is chaos to the fly…

The Federal Government’s mid-year budget update in December 2016 included an announcement that will have certain SME business owners (and their advisors) concerned and thinking carefully about using the Australian Tax Office (ATO) as an unofficial overdraft to cover their corporate tax obligations. In this article, we discuss the ATO’s changes and the implications for small and medium-sized enterprises (SMEs).
Reigning in SME debt To help reign in escalating corporate debt, the Federal Government has given the ATO the powers to report delinquent debtors to credit rating agencies (such as Dunn & Bradstreet) unless they have “effectively engaged with the ATO to manage their debts”. Escalating tax debts of around $20 billion are putting considerable pressure on the Government’s budget revenue. By improving SME compliance with their tax payment obligations, the Government hopes to relieve some of this pressure. Historically, tax law secrecy provisions prevented the release of such information to credit rating agencies (CRAs). This now appears to have been abandoned to help drive debtor collections.
What does this mean for delinquent SME debtors? Once aware of a debtor’s tax issue, banks and other credit suppliers, may take steps to restrict the debtor’s access to credit. They may also pursue recovery of outstanding accounts. This can quickly cripple a business. The Government is banking on the threat of reporting to credit rating agencies to improve the collection of SME debts. We believe this strategy will probably work. The ATO’s latest annual report disclosed total collectable debt of around $20 billion. SMEs accounted for $12.5 billion of this debt. This accumulation of debt is the result of a previous ATO policy which allowed an SME to owe more than $345,000 in back taxes before any legal action was taken. Whilst there are no available statistics, it is likely that many of these corporates went into some form of external administration. The question being asked by the business community is: why is the Government not taking firmer action to limit ATO losses? In response, under the new measures announced by the Government, the ATO will be pursuing debts as low as $10,000 and reporting those debtors to credit rating agencies.
Chaos (and concern) Early feedback from accountants, who are at the coalface of SME compliance, is that the new measures are unfair for business. They believe it is unlikely the ATO will consider the cyclical nature of many SMEs who will, from time to time, delay payment to the ATO before the business cycle changes in the SME’s favour. They’re worried the measure has the potential to bring a business to its knees should trade suppliers stop providing credit to an otherwise sound business after becoming aware of a default being recorded with a CRA. Also, a failure to meet statutory obligations will likely constitute a breach of covenant under most bank facilities. Ordinarily, when seasonal factors are at play, such a breach may never come to the attention of a company’s bank. A report to a CRA by the ATO will now mean that a bank will have reason to review a company’s performance and reassess their risk profile. This could include instructing an investigating accountant to review the business. The bank may increase penalty interest rates or indeed, request that the company refinance with another bank. This would likely be problematic for the SME. A ‘default record’ with a CRA will mean the refinancing of a debt facility, if at all possible, will likely be with a 2nd or 3rd tier lender that charges significantly higher interest rates.
Key Takeaway The ATO’s new measures are designed to increase compliance and force SME business owners to meet their statutory obligations. The ATO has indicated that these measures will initially apply to those debtors who have not actively engaged with the ATO in managing their debts, where their debts are at least $10,000 in value and more than 90 days overdue. The best insurance for an SME owner experiencing cyclical cash shortfalls or is undercapitalised, is to get in contact with the ATO immediately. Discussing their circumstances and the timing of their outstanding payment(s) should provide comfort to the ATO. Should circumstances change and the business is unable to pay its ATO debt (which may lead to insolvency), at least then the business owner can seek advice about restructuring its affairs either informally or formally. This is better than the ATO ‘pulling the rug out from under’ a SME by reporting them as delinquent to a CRA. I believe the ATO will be successful in achieving the Government’s goal of reigning in escalating debt and may limit the losses incurred by those non-viable businesses. However, the key to success for this public policy will be the finesse demonstrated by the ATO to avoid unfairly harming viable SME businesses. Whilst the ATO seeks to weave its web and catch delinquent SMEs, it’s not hard to see how chaos can ensue if the measure is mismanaged, forcing viable SMEs into external administration unnecessarily. Download this Industry Insight.
Personal Properties Securities Act: Protecting your business
Mon Oct 24Inside Edge

Personal Properties Securities Act: Protecting your business

Case study
An entity based in the USA made a $50 million mistake by failing to register on the PPSR four gas turbines leased to an Australian mining company, which subsequently was placed in receivership.

What is the Personal Property Securities Register (PPSR)? The PPSR is a real time online national register on which secured parties such as financiers and suppliers can register their security interests in personal property that forms part of their common business dealings. A ‘security interest’ is defined in the Personal Property Securities Act 2009 (PPSA) as an interest in personal property that secures the payment of monies or other obligation.
Types of personal property covered by PPSR The PPSA applies to personal property that forms part of a business transaction with a securable interest. Table 1 summarises the common personal property and business transactions affected by the PPSA. Please note that personal property excludes land, building, fixtures and other exemptions such as water rights. Table 1: Common personal property and business transactions affected by the PPSA
Personal property Business transactions with securable interests
  • Goods / stock
  • Plant and equipment
  • Cars, boats, planes
  • Crops, livestock
  • Art
  • Licences, shares, accounts receivable, contract rights
  • Intellectual property
  • Fixed and floating charge
  • Chattel mortgage
  • Conditional sale agreement
  • Hire purchase agreement
  • Pledge
  • Trust receipt
  • Consignment
  • Lease of goods
  • Assignment
  • Transfer of title

Registration is the easiest way of protecting and perfecting your personal property If suppliers fail to register or, more precisely, ‘perfect’ their security interest over personal property on the PPSR, they run the risk of losing ownership of their personal property to an insolvency practitioner or a secured party (e.g. financier) in a number of ways. Traditional concepts of ownership now have little effect without registration on the PPSR. Secured parties are able to perfect their security interests and the key ways are outlined in Table 2. Table 2 – Key ways of perfecting a security interest
Registration Perfection by registering security interest on the PPSR. The most common type of perfection.
Possession Perfection by possession of personal property. Importantly, relying on this can expose secured parties to the risk of losing their priority interest in personal property in cases where other parties, such as secured creditors, have a general security agreement (charge) and perfect their security interest first.
Control Perfection by exercising control over certain types of personal property.

Purchase money security interest (PMSI) A PMSI is a particular type of security interest that gives a ‘super-priority’ over other security interests in specific personal property, including security interests (that are not PMSIs) created and registered before the PMSI. A PMSI will typically occur in common commercial transactions or agreement such as:
  • Sales on retention of title or consignment: Secured party advances personal property (stock) to a customer (grantor) on credit terms or consignment
  • Finance agreements: Secured party provides funding to a company (grantor) for the purchase of property at point of sale (i.e. financed motor vehicles or plant and equipment)
  • Lease agreements: Secured party leases personal property to a company (grantor) including motor vehicles exceeding a term of three months and other types of personal property exceeding a term of one year.
Secured parties need to be aware that certain registration requirements must be met to validly register a PMSI. If these requirements are not met, the secured party risks losing its security interest completely. For example, a registration may be lost due to a seriously misleading defect in the registration form. To receive super-priority, a PMSI must be registered within specific timeframes which vary according to the type of personal property (i.e. tangible or intangible) and the intended use by the grantor (i.e. inventory or otherwise).
How the PPSA affects common commercial transactions The PPSA affects retention of title (ROT) clauses in contracts whereby a purchaser has possession of property, however does not acquire title from the vendor until the full purchase price is paid. Under the PPSA regime, ROT or consignment agreements are considered securable interests that must be registered on the PPSR to be effective for goods supplied after 30 January 2012. This means that manufacturers and suppliers selling property on a ROT basis run the risk of losing ownership if they did not register on the PPSR. Generally, only one registration will be required for a ROT interest provided that there is a contract to supply between the parties with terms and conditions that govern all transactions between the parties. A supplier will need to prove the validity of its ROT claim (even if registered) by ensuring:
  • underlying documentations such as credit applications and terms and conditions of invoices have ROT clauses
  • the goods are identifiable to the source of supply
  • the goods have not significantly changed character and/or become a fixture of another product.

Third party finance agreements and lease agreements The PPSA applies to most property subject to finance or lease agreements other than certain short-term rental arrangements under three months. If a business lends or finances plant and equipment to a company and does not register its security interest, the business may lose its title over the plant and equipment to a third party secured creditor that has registered its security interest, or to a liquidator or administrator appointed to the company.
BRI Ferrier’s comments: protecting your security interest Some tips to help mitigate the risks for suppliers:
  • When in doubt always register. Make sure you register correctly on the PPSR as errors or omissions may invalidate your security interest
  • ROT supply terms comply with the statutory requirements under the PPSA. Ensure:
    • ROT clauses are incorporated within contracts, invoices and credit applications
    • Written evidence of signed agreement
    • Registration on the PPSR as a PMSI prior to delivering goods
  • Ensure all finance agreements and lease agreements are registered on the PPSR. Otherwise the potentially secured property may land in the hands of liquidators or another secured party with a valid registration
  • Develop policies to ensure effective and accurate registration with required timeframes. Ensure registrations are completed within specific timeframes and registration details are correct. A secured party with a PMSI must register before the grantor takes possession of goods
  • Upskill your staff on the PPSA regulations. All staff (including administration staff responsible for managing registrations and sales staff transacting with customers) should be trained on the basic principles of the PPSA.

How BRI Ferrier can help BRI Ferrier recognises that, while the PPSA is designed to provide greater certainty for stakeholders to manage their security interests in personal property, it does require technical experience and training to properly assess the risks specific to each business and comply with the PPSA. We have extensive experience dealing with distressed businesses and formal insolvency appointments. Our dedicated team is well placed to provide strategic restructuring and insolvency advice to financiers, directors, suppliers, lessors and other key stakeholders. We can assist with determining options available to you and creating a practical solution for your circumstances. Contact us today to find out how we can help. Download this Inside Edge Bulletin.
Saving businesses using a deed of company arrangement
Wed Sep 14Industry Insights

Saving businesses using a deed of company arrangement

As the Australian Government considers insolvency law reforms as part of its Innovation and Science Agenda, it’s worth reflecting on the existing law relating to corporate restructuring via voluntary administration (VA) and deeds of company arrangement (DOCA). While the VA regime has existed since 1993, not all insolvency practitioners have embraced the legislation to achieve its primary objective – saving businesses. Those practitioners who have adopted a commercial approach to their appointments as administrator of a going concern have had, at their disposal, a unique instrument in the form of DOCA to restructure distressed businesses and salvage value for stakeholders. Indeed, such outcomes are insisted upon by the current market, which is jaded by the value destruction that occurred with bygone practices where some stakeholders would win at the expense of others. This cultural shift in the market insists on salvaging value for all stakeholders of distressed companies, and ideally results in saving the distressed business. A DOCA is the ideal instrument to achieve these outcomes.
How a DOCA is achieved? A DOCA is one option that can follow a VA appointment. The VA process normally takes 3-5 weeks, although the court can extend it to run for some months if investigations or the scale of the issues dictate. During a VA, an independent administrator takes control of the business. This administrator can make any decision about the business and is personally liable for liabilities incurred. At the same time, a range of enforcement steps and creditors’ rights are temporarily suspended. If additional time is required, the administrator can use a ‘holding DOCA’. This is a DOCA entered into for the purpose of holding the status quo, pending a final solution, although DOCAs can be amended by creditor approval. The primary outcomes of a VA are an administrator’s report (which provides recommendations about options) and a creditors’ meeting. The creditors’ meeting considers three options:
  1. returning the company to the directors (i.e. ‘leave as is’),
  2. put the company into liquidation, or
  3. accept a DOCA.
The outcome must command the support of majorities in terms of both value and number. If no majority is obtained, the administrator exercises a casting vote in the best interests of the creditors generally.
The pillars of a successful reconstruction To use a DOCA to save a business, an administrator should keep in mind the principles, or ‘pillars’, of a successful reconstruction. These four pillars are:
  1. The business must be potentially viable. For example, there has to be identifiable opportunities to achieve operating surplus cash flows, a market must exist for the company’s products or services, and the business mustn’t be speculating with someone else’s money.
  2. The business must have honest, competent managers.
  3. The business must have the trust of key stakeholders (so far as trust is necessary), including the trust of financiers, suppliers, customers and employees.
  4. All stakeholders, including the directors, must be open to a fundamental change in the way the business operates. There has to be an acknowledgement from all parties that something needs to change.
Without these pillars in place, any attempt to restructure the business will invariably fail.
Using a DOCA as a reconstruction tool A deed of company arrangement, as a mechanism for business reconstruction under the Corporations Act, can achieve many objectives and/or provide solutions to the challenges a corporation may face. Applied in a variety of circumstances, a DOCA is a dynamic and flexible legal solution for commercial problems. As such, its implementation must focus on inherently commercial outcomes. Where an administrator tries to implement an inappropriate DOCA, misunderstands the commercial problems, or attempts to impose a legal solution where there is no commercial solution, the outcome will lead to failure for stakeholders. Implementing a DOCA is not straightforward. There will be issues to be dealt with, including:
  • creditors’ claims
  • retaining control
  • selective termination of leases and other contracts, and their conversion into money
  • salvaging contractural rights that may otherwise be forfeited and avoid incurring interruption penalties.
I’ll address these issues in future articles. Used astutely, a DOCA can provide the best opportunity to maintain the enterprise value of a trading entity. Trading businesses recover the greatest value by trading, and not breaking up. Selling off a company’s assets separately will destroy the enterprise value, result in less for stakeholders and may trigger additional claims (e.g. employee redundancy, loss of customer contracts, and loss of favourable supply terms). A DOCA, therefore, can be an effective way to restructure the viable business of a troubled company under Australian law. It’s a proven mechanism for saving companies when applied by skilled practitioners with a mix of relevant commercial and technical expertise. If your business is experiencing financial difficulties, contact BRI Ferrier for a confidential and obligation-free discussion. Download this industry insight.
Insolvency law reforms and the implications for Australian business
Thu Jun 23News and Opinions

Insolvency law reforms and the implications for Australian business

Two new sets of insolvency law reforms will be instituted in Australia over the next couple of years:
  1. The Insolvency Law Reform Act 2016 
  2. Proposed reforms outlined in the National Innovation & Science Agenda (NISA) ’Improving bankruptcy and insolvency laws’ proposals paper.

The Insolvency Law Reform Act 2016
The first set of laws are contained in the Insolvency Law Reform Act 2016, anticipated to commence in March 2017. The changes incorporated by the Insolvency Law Reform Act 2016 are relatively simplistic, and are frankly, window dressing compared to the wholesale reforms contained in the NISA proposal. The laws amend some administrative functions in the insolvency industry. They increase the powers of ASIC to regulate corporate insolvency and aim to improve confidence in the insolvency profession. The Act focuses on the registration of insolvency professionals, insurance, discipline, referrals involving the Australian Restructuring, Insolvency & Turnaround Association (ARITA) and practitioners, and the prohibition of improper benefits. It also improves the position of creditors, in terms of their powers of removal, requests for information, reviews of estate or external administration, and directions. Overall, however, the laws will make little difference to the Australian insolvency regime. While they may streamline the insolvency industry a little, and commoditise the industry to an extent, they will not have a major impact on how business insolvencies in Australia are addressed.

The NISA proposed reforms 
Of greater significance are the reforms proposed proposed by the Australian Government’s National Innovation & Science Agenda. The NISA proposals paper, issued in April 2016, outlines three key measures:
  1. reducing the current default bankruptcy period from three years to one year
  2. introducing a 'safe harbour' for directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company
  3. making ‘ipso facto’ clauses, which allow contracts to be terminated solely due to an insolvency event, unenforceable if a company is undertaking a restructure.
The Government’s submissions process – enabling interested stakeholders to provide feedback on the proposals paper – closed on 27 May 2016.

Implications of the proposed reforms
The ultimate objectives of the NISA proposed reforms are to encourage entrepreneurship in Australia, protect creditors and generate business growth. Some commentators have suggested they may ‘incentivise’ bankruptcy, with the numbers of people filing for bankruptcy each year likely to skyrocket. We believe, however, that these suggestions are over-stated and that, even if a small rise in consumer-related bankruptcies occurs, this uptick should be outweighed by the benefits generated through increased entrepreneurial activity. Although not every new business opportunity will thrive, these reforms should encourage more businesses to take calculated risks and hopefully succeed. This, in turn, will help grow the economy and will benefit the nation as a whole.

Preserving value
The changes focus on restructuring businesses, improving their prospects for survival and preserving value. If successful, this is a positive outcome for all stakeholders, including customers, employees, shareholders and creditors. Of course, only viable businesses with competent management teams that are open to change and have the support of key stakeholders are capable of being saved. The proposed reforms will enable a board of directors, where a business is distressed, to take steps to ensure it doesn’t go down the path of a formal insolvency appointment, where value destruction is generally perceived to occur. The law will give the directors the necessary breathing space to understand what actions the business needs to take to preserve value, without penalty of trading a company while insolvent. Importantly, these reforms aim to provide the directors with protection from claims whilst they explore the available recovery options.

Transparency of restructuring efforts
While insufficient details are currently available as to how this might work, in a practical sense, there is likely to be an obligation on the part of boards to inform creditors that the business is financially distressed, and that they are reviewing operations and are acting to improve the situation. The directors will likely be required to make this information public before renegotiating with customers and suppliers. This should encourage belief in the somewhat transparent process in the hopes of garnering the support of key stakeholders.

Encouraging directors to act early
The reforms should encourage businesses to act much earlier, when facing financial distress, than is often currently the case. In the existing regime, evidence shows that many directors, when business faces financial distress, are first concerned for their personal, professional reputations. In this situation, where they don’t have legal protection, rather than exploring the turnaround options available and be exposed to trading losses and insolvency, they might simply resign. As a consequence, the best people available to effect a turnaround are no longer available. In such cases, a formal insolvency appointment is the only viable option to preserve the remaining value for creditors. The proposed reforms will create a ‘safe harbour’ where directors are protected and are given time to explore options for restructuring the business and hopefully avoid a formal insolvency appointment.

The ‘restructuring adviser’
The proposed reforms centre on the appointment of a ‘restructuring adviser’ to lead the proposed turnaround activity. A major question that remains to be answered, therefore, is the type of professional this adviser is likely to be. The success of a business restructure is contingent upon a competent professional giving a view as to whether the company is ‘capable’ of being saved based on its financial circumstances. This ensures that time and effort are not wasted on businesses that are lost causes. The NISA proposals paper hasn’t stipulated who the authorised professional should be. Industry discussion has suggested the individual might come from an insolvency, accounting, banking or legal background. We certainly don’t believe the person in this position should only be an insolvency practitioner. Value may be added by other specialists, so the pool of available professionals should be broader rather than narrower, as long as the ultimate appointees are appropriately qualified. It has been mooted that the person must have appropriate experience and a track record in successfully rehabilitating distressed businesses back to financial viability. This lends itself to those professionals, such as ourselves, who have historically focused on saving businesses where possible. Whatever the case, there will need to be an entirely new accreditation regime that reassures all stakeholders, including creditors and other external parties, that someone competent is in the business working to change the way it operates. Download this industry insight.
What company directors need to know in today’s volatile market
Fri May 27Industry Insights

What company directors need to know in today’s volatile market

With Australia experiencing a volatile market environment, it’s up to company directors to deliver the rigorous corporate governance required to protect shareholder and creditor value. Market volatility is a situation in which markets are liable to change rapidly and unpredictably, especially for the worse. No matter how robust a company may appear, adversity or disaster can strike quickly, particularly in times of volatility. Directors and management can soon find themselves on a precipice. A sound corporate governance regime is fundamental to ensuring the rights of all stakeholders (including financiers, customers, management, employees and the community) are adequately protected.
Corporate governance and directors’ duties in times of volatility The clichéd perception of company directors goes something like this:
  • They attend four meetings each year
  • They listen carefully to presentations
  • They sit on committees and collect their fees
Today there’s nothing simple about directorships in an environment in which the formality and complexity of board roles and interactions with management have increased dramatically. Directors now know their roles will be active, business matters will be urgent, and their decision-making will be highly scrutinised. In the face of financial challenges, it’s useful to consider the fates of companies like HIH and One-Tel. Amidst scrutiny, criticism and potential liability, what should a board do? The answer – be vigilant. In two ways. First, directors need to fundamentally understand the business. They have to learn every nuance of the company’s operations as if they had to manage it one day. Consequently, in times of volatility, a board needs to take a more active role in challenging management. Directors can achieve a deeper understanding by reading relevant publications, following trends, asking the right questions and understanding the business’s key metrics. They can also study the competition, to understand their company’s strengths and weaknesses in a comparative context. The second way directors can be vigilant is to assume they’re only receiving partial information from the company’s management. They should presume that management is providing them with information selectively and that they’re not getting the full picture. They will then be inclined to ask more questions and make more requests. At the same time, they should avoid putting the CEO and management on the back foot. Boards need to achieve a delicate balance with management. Companies rarely benefit from a situation in which a CEO believes the directors are not in his or her corner. This can be problematic. While board vigilance may produce a degree of tension with management, it should be a healthy form of tension. Directors should avoid crossing the line and creating an antagonistic environment. Checks and balances can serve to foster a sense of mutual respect that, along with trust and candour, are the essential ingredients of healthy corporate governance.
How a board should respond when the business faces challenges When a company’s performance begins to decline, particularly in times of volatility, directors must be (and must be seen to be) even more vigilant and engaged. Businesses in this situation can unravel at lightning speed. The timing of a board’s intervention in this situation may mean the difference between a soft landing (business reconstruction) and a hard landing (insolvency). When signs of trouble appear, directors need to answer four fundamental questions:
  • Do we have the right management team?
  • Do we have the right strategic plan?
  • Have we protected our access to capital?
  • Should we hire an outside adviser?
The first question involves initially assessing the performance of the chief executive. The character and actions of the CEO are the most important factors that determine a company’s success or failure. The board needs to identify, therefore, whether the current CEO and his team are the right people for the task ahead. The CEO has to demonstrate the agility and decisiveness required to lead the company through difficult times. Directors should also recognise there are different types of CEO. Some are sales-focused, which is appropriate when the business is growing and performing in a positive environment. In a weak market, however, companies need to aggressively reduce the overhead cost base that was built during the growth cycle. The CEO, in this case, must demonstrate a survivalist temperament, focusing on liquidity and cash flow. They need the fortitude to stretch out payments, renegotiate contracts and reduce employee head counts to reduce overheads. The second question boards must ask when the company faces financial distress – ‘Do we have the right strategic plan? – involves the viability of the core business. In this situation, rather than the problems reflecting a broad-based decline of an industry, the individual company’s strategy may be flawed. The board must therefore ask detailed questions, challenge assumptions and perhaps recommend outside consultants or advisers to help guide the planning process to improve the company strategy and core business direction. The third question – ‘Have we protected our access to capital?’ – requires the board to direct management to ensure sufficient liquidity to sustain the business in a worst-case scenario. This activity can take various forms, potentially including new debt or a capital raise. Directors must therefore be familiar with the company’s long-term liquidity situation. For financially distressed companies, it’s not uncommon for management’s relationship with lenders to become strained or fatigued. The intervention of directors in such situations may prove beneficial. To answer the fourth question – ‘Should we hire an outside adviser?’ – directors must collectively decide on the extent to which they feel comfortable with the information they’re receiving from management and other sources. If the board is hesitant about the quality of this information, it should engage an outside adviser for an alternative opinion. Management may resist, of course, citing costs as a reason. However, the board should be aware of the potentially catastrophic costs of acting on incomplete or unreliable information. Asking for a second opinion should therefore be viewed as a sound investment. An outside adviser can provide objectivity, credibility and experience in similar situations, all of which can be reassuring through the decision-making process. An external consultant can also negotiate effectively with banks and creditors, who typically become antagonistic with financially distressed businesses. Disaster cannot always be avoided, but it can be managed. At the first signs of trouble, by maintaining a proactive posture, practicing vigilance and focusing on the four questions outlined above, boards can be in the best possible position to avoid a collapse. Download this industry insight.