Wrapping up a failed children’s ware retail business to our client’s best advantage

Background/ Situation

MACHUS Solutions was approached by a shareholder of a failed children’s ware retail chain regarding closure of the business. In addition, there were a number of disputes between all shareholders of the business as well as financial guarantors. The business was insolvent and had accumulated extensive debt, some of which included loans with financial institutions which were guaranteed by its shareholders. MACHUS was to act for the one shareholder in the business.

Initial Findings

Upon engagement, MACHUS solutions undertook a preliminary investigation of the business. The investigation revealed:

• The market for children’s ware was being serviced by large national chains and discounters which a small operation could not compete with
• The business, which included five retail stores in Queensland, had deteriorated financially beyond recovery and had stopped trading
• The liabilities of the business included a bank debt, several secured and guaranteed loans as well as a large number of unsecured creditors
• There was considerable animosity between the shareholders, who had contributed cash and work effort towards the venture
• All shareholders were related and disagreed about the value of each other’s contribution to the business
• The shareholders differed regarding the action that should be taken to close the business

Solutions, Strategies and Recommendations

MACHUS Solutions recommended the following strategies:

• Appoint a liquidator to wind up the business as soon as possible
• Negotiate directly with each secured creditor for an arrangement which could be serviced by the shareholders
• Negotiate settlement of alleged debts between shareholders
• Document all agreement for future reference

Implementation and Results

A liquidator was appointed and took over the winding up of the company. Given the level of disputes between the parties, the matter was referred to mediation. MACHUS was instructed by its client to proceed with negotiations without regard for the other shareholders. Over an extended period MACHUS was able to negotiate a heavily discounted settlement of all secured debts. Settlement was also achieved between the client and one other shareholder.