Company “X” had commenced operating some five years earlier as a Used Car  Dealership in western Sydney. Some two years earlier, the Directors moved the Dealership, and then one year earlier opened another Dealership in outer western Sydney. The two separate Dealerships were now operating concurrently. The Directors had cash flow problems, and  increasing pressure from Creditors (including the Australian Taxation Office). The business had been funded using a typical Automotive Floor Plan; and like many businesses in their condition, their  record-keeping was terrible. Following advice that Company “X” had received from their solicitors, the Directors had been instructed to go into Administration.

Following our appointment, we were advised that the Company had purchased items of stock from several Auction Houses and Motor Vehicle Wholesalers that the Company had not paid for. Not withstanding this the Company had also “Floor Planned” some of these vehicles to assist with  cash flow. Upon receiving notification of the possible Retention of Title claim, we gave immediate instructions to secure all the vehicles such that they were no longer for sale (and the vehicles were not to be used). This was an important process in order to protect the Company (and its former Directors) from any further exposure.

We subsequently sought advice as to the validity of the ROT claims confirming that in some instances valid ROT claims existed. This issue was therefore
resolved by merely contacting the ROT claimants and permitting them to collect their vehicles. Finally, and in order to maximize the potential recoveries for Unsecured Creditors, we decided to continue to trade the business on during the administration period. The main benefit of continued trading is the preservation of the value of the business, in particular, maintaining the Floor Plan which was secured. The value of the Floor Plan stock was able to be maintained; our continued trading prevented the need for sending the stock to auction, which could result in proceeds which were less than the total funds outstanding to the FPF.

During the course of the administration period, we were able to realise an excess of $239,000 from vehicle sales; and based on the projected future sales and expenses, in certain circumstances, we would have ordinarily expected the Company to generate sufficient funds to enable continued trading. However, given the lack of faith many of the Creditors had developed in the Directors (and no independent purchaser in the wings), it was ultimately resolved to place the Company into Liquidation.

Since the date of our appointment, we had received the support of a number of key Trade Suppliers, Wholesalers, Auction Houses and the FPF. It is noted that without this ongoing support, the cash flow projections as forecast would not have been achievable and the ongoing trading performance would be severely impacted.

Our decision to continue to trade the business enabled all of the claims by Priority Employee Creditors to be paid in full. This is an excellent result, compared to the prospects that faced this class of Creditor at the time of our appointment.

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