Quick Snapshot
- Industry: Construction (Electrical Fit-Outs)
- Location: Queensland
- Total Debt: Millions in contractual and tax liabilities
- Outcome: Unprofitable contracts exited, business continued under new entity
The Situation
A Queensland-based electrical company specialising in building fit-outs approached de Jonge Read® after experiencing increasing financial pressure despite appearing to generate solid revenue.
On the surface, the business was performing, however a detailed review revealed that a number of contracts were unprofitable, with margins being eroded across multiple projects.
As these contracts progressed, the financial position continued to deteriorate.
The Problem
The business was locked into a series of unprofitable contracts that could not be renegotiated.
As a result:
- Contractual liabilities continued to increase
- Tax debts became unmanageable
- Cash flow was too tight to support alternative options such as a Voluntary Administration (VA) or DOCA
Despite these challenges, the director’s priority was to continue trading and preserve the business.
The Solution: de Jonge Read®’s Expertise
We assessed all available options to balance the need to:
- Exit unprofitable contracts
- Address mounting liabilities
- Preserve the viable parts of the business
A Pre-Pack restructure (business restructure involving liquidation) was identified as the most appropriate strategy.
This approach allowed:
- The unprofitable contracts and associated liabilities to remain with the old entity
- The profitable parts of the business to be transferred into a new structure
- The original company to be placed into liquidation to deal with its obligations
The Outcome
The Pre-Pack restructure enabled a clear separation between unprofitable contracts and viable business operations.
Key results:
- Millions in contractual and tax liabilities addressed through liquidation
- Unprofitable contracts exited
- Business operations preserved in a new entity
- Director able to continue trading profitably from day one
Key Lesson
Revenue alone does not determine viability. Contracts that appear valuable can erode margins and create significant financial exposure over time.
Where a business is locked into unprofitable work, a structured solution may be required to exit those obligations and preserve the viable parts of the operation.
If your business is dealing with unprofitable contracts, mounting liabilities, or ongoing cash flow pressure, the team at de Jonge Read® offers confidential, no-cost initial advice to help you understand your options before the situation escalates.
This case highlights how construction businesses in Queensland facing unprofitable contracts and mounting liabilities can use a Pre-Pack restructure to exit loss-making work and continue trading.
Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1776434732c.arj1776434732d@ofn1776434732i1776434732
Did you know?
Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
