Restructuring a Buisness with ATO Arrears

News Flash

Hermes Capital provides Asset Based Loans to businesses in transition. Our funding is typically in the range of $500,000 to $10,000,000

Transition scenarios include business turnaround, start-up, rapid growth, business acquisition or, as demonstrated in this month’s case study below – “informal” restructure.

“Asset Based Lending” is commercial financing to a business with up to two components: a revolving working capital facility supported by accounts receivable, and; a term loan facility that potentially doubles the availability of funds, and is secured by plant and equipment, and or real property (usually via a first or second mortgage).

This month’s case study demonstrates how Hermes fills the gap left by the banks and other institutions in the SME market for commercial finance.

Transitional Situation

How does a mining services business (extraction optimisation) buy time time to restructure its cost base without entering into Voluntary Administrations?

A mining services business consulted their lawyer when a creditor (the ATO) had commenced legal proceedings after the business had failed to adhere to its payment plan.

The underlying cause of the ATO arrears was that the business’s fixed cost base was too high – including equipment leases and rent on two sites too many.

Further, a recently appointed General Manager had recruited too many senior staff that were simply not necassary.

As a result, inspite of its excellent client base and solid revenues, the business had run out of money.

Asset Based Lending Solution

The lawyer advised the client that given the question mark over the businesses solvency a formal administration may be appropriate for the business to buy time to restructure its cost base and its balance sheet.

Hower the client needed to have current accreditations with a number of industry bodies, and formal insolvency jeopardised these accreditations.

Fresh funding was the next best option, however the court action by the ATO had resulted in the businesses banking relationship being shifted to “bad bank” and fresh funding from that arm of the bank or other traditional sources would not be available.

So instead the lawyer consulted Hermes for a financial solution.

The gap in the market for commerical finance

The encumbent bank was secured primarily by property mortgages, but also had a GSA securing the business – including plant and equipment and debtors.

In the short term, the only option for raising capital against the equipment and the debtors would be to pay out the encumbent bank – who was otherwise not going to relinquish any of its security.

Other debtor financiers did not have the capability to lend against the property and equipment. Hermes however provided a “Capital Maximiser” facility comprising a term loan (used to pay out the bank) and a debtor finance facility from which fresh capital was available to fund the restructure.


The business has been able to restructure its work force, paying out entitlements along the way, and has closed two of its sites. Both these measuers were undertaken with in put from a professional business advisor.

At the same time it retained its industry accreditations and avoided inslovency and the financial and emotional costs that might have otherwise been born.

Once the business was stabilised, it was able to engage a mortgage broker to refinance the property related debt.