Situation:
dVT Group were contacted by an accounting firm where one of their major fee paying clients was facing some difficult trading conditions and a potential liquidation. The client was in the mining services industry and a market decline had resulted in significant turnover reductions which, with high existing debt levels, meant serious cash flow issues. The client’s primary funder (‘The Bank’) had transferred this file into its high risk area and appointed a large city based accounting firm to conduct a review. The resulting report cast doubts on the firms viability, questioning the firm’s financial management and disputing their ability to meet forecasts. Through the company’s accountant, dVT Group were engaged to conduct a viability review and determine what options were available to the company.
Actions:
In conjunction with the accountant, dVT Group conducted an Investigating Accountant’s report focusing on the cash position of the company and its ongoing viability. The findings of the report recognised the serious situation the client faced as well as a significant cash shortfall. The report also highlighted some favourable market conditions that would support increased business and a return to profitability. It also identified that the banks would likely lose a substantial amount if a liquidation event were to occur.
dVT identified three options available to both the company and the bank, with the most favourable option involving introducing a secondary funder to increase the working capital facilities and help de-risk the bank’s current position. The refinancing concept was able to be identified using dVT’s vast banking, accounting and restructuring experience and was able to be introduced and facilitated through our extensive networks. This most favourable option was structured to consider all parties involved and meant a number of trade-offs to create a win-win situation for all parties.
dVT presented the substantiated findings in the report to the bank’s high risk area which differed from the findings of the bank’s appointed accountants. dVT Group also presented the three available options to the bank including the recommended most favourable option.
Outcomes:
The major funder agreed to the recommended option as presented, freeing up their security structure to facilitate the provision of additional working capital. The action saved the company and over 100 jobs. The bank retained the client on a close monitoring program and is likely to recover all of its outstanding debts whereas previously it was likely to incur a large loss. The accountant, through its actions to engage dVT Group, not only saved its major fee generating client, but managed to increase their level of billable work as the company in question continues to trade well and pay down its debts. The owners are now looking to work with dVT Group on how to prepare a succession plan.
