Business turnaround

Forensic accounting reviews involve finding anomalies as well as tracking and preparing evidence of possible misdeeds or misrepresentations in a company’s accounts.

McDonald Vague has a great deal of experience in this field, and has a number of highly experienced investigators in its team. These include a former Serious Fraud Office investigator. Over the course of literally thousands of liquidations and other assignments we have developed valuable skills in critically reviewing accounting records to determine whether they accurately reflect the full state of a company's affairs.

We are frequently able to identify assets or claims which are not recorded in a company's accounts and which the directors are either unaware of, or choose not to disclose. These include overdrawn shareholder current accounts, voidable preferences, insolvent set-offs, voidable charges, uninvoiced transactions, sales at undervalue, theft, misappropriation of assets and fraud. Recoveries can also arise from items such as bonds paid but not reclaimed, and GST reclaims.

Forensic and investigative accounting forms a major part of our daily work on liquidations and receiverships. We are also able to apply the same skills on stand-alone assignments, for clients who need an independent investigator to review a company's affairs and records. We recognise the need for discretion and confidentiality in conducting such assignments.

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Financial due diligence is an investigation into a business or person prior to signing an unconditional contract.

A financial due diligence checklist usually includes:

1. General company data
2. Financial information
3. Corporate agreements
4. Legal documents
5. Intellectual property rights and product information
6. Insurance coverage
7. Litigation history and documents
8. Employees & human resources (HR)
9. Environmental matters
10. Tax filings and documents
11. Marketing and customer information
12. Internal controls & information systems
13. Sales operational information
14. Support services & product pricing

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Did you know that not using the Personal Property Securities Register (PPSR) could expose your business to unnecessary risk?

Despite the fact that the online PPSR register celebrated its 10th anniversary in May 2014, a surprising number of small business owners are not aware of the reduced financial risk that comes with registering security interests on the PPSR.

Why register on the PPSR

PPSR registration may give you a better chance of recovering a debt if your debtor defaults on payment. What are lot of people don’t realise is registering on the PPSR is a valid defence against insolvent transactions (voidable preference) claims.
If you or one of your clients has never had to pay money back to a liquidator a debt you have already collected you may not realise the risk you are at. If you do it’s going to hurt as it feels like you are being penalised for doing your job properly!

How McDonald Vague can help

We can assist you in registering for the PPSR correctly by taking you through the correct process and registering you in a timely fashion to reduce your business risk.

As insolvency practitioners, we regularly see the results of companies not registering on the PPSR correctly or not undertaking the PPSR registration at all. By ensuring you have registered correctly we can assist to mitigate the risk of insolvent transactions for you or your client and losing priority to another creditor who has a PPSR policy.

We can also review your Terms of Trade to ensure there is a right to register a PMSI or a General Security Agreement before goods are supplied.

McDonald Vague specialises in restructuring and insolvency. We see first-hand what happens when things go wrong. If the clauses in your terms of trade don’t allow you take the appropriate security over your goods it may be very costly in the event of insolvency.

Together with lawyers we can help write Terms of Trade that will give you a super priority over other creditors in a liquidation or receivership.

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Few New Zealand businesses will have heard of Voidable transactions – more recently called Insolvent Transactions - unless they've been unfortunate enough to be involved in one.

An insolvent transaction is where a liquidator goes back and reclaims a payment made by a company prior to its collapse. The liquidator then compels the company to pay back the money paid. The logic behind the process is that Insolvent transactions allow another person or business to receive more payment towards satisfaction of a debt owed by the company than the person would receive, or would be likely to receive, in the company’s liquidation.

In a liquidation all creditors should have equal access to the pool of funds available to payment of the companies debts to be shared rateably amongst all creditors of the same class.

Protecting yourself from an Insolvent Transaction claim

Insolvent Transactions are a contentious but necessary feature of insolvency law. Creditors should review trade terms, and ensure that they have policies and debt collection processes and procedures in place that minimise the ability for liquidators to claw back valuable funds.

How McDonald Vague can help if you are facing an Insolvent Transaction claim

We have found that some liquidators seem to be taking the approach of challenging all payments made, rather than first considering whether there has been an actual preference to the creditor. As a result, we are increasingly being asked to assist in reviewing Insolvent Transaction challenges taken by other liquidators.

If you or your client receives an Insolvent Transaction claim from another liquidator we can assist in discussing possible defences or to negotiate a settlement on your behalf.

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Whether you are considering finance for expansion, an acquisition, refinancing or assessment of an existing facility, we provide practical pre-lending advice to both borrowers and financiers.

We understand that the dynamics of finance depend on the profile of the business and the type of funding required.
Our pre-lending reviews focus on more than the numbers. We review and comment on management skill, structure, the business plan and market trends.

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There are a variety of valuation methodologies that have to be considered when valuing a business. The appropriateness of the methodology will depend on the:

- Performance of the company

- Availability of forecasts

- Nature of the firm’s business

The discounted cash flow method (“DCF”) is the most common tool used and is based on future cash flows discounted back to present value at an appropriate discount rate or weighted-average cost of capital (“WACC”), which is simply the required rate of return to service debt and equity providers.

The other methodology widely used is the capitalised earnings method, where enterprise value is calculated using EBITDA and EBIT multiples that determine the implied discount rate. The appropriate earnings multiple is derived from a list of multiples of publicly-listed comparable companies. These comparable firms are selected based on similarities to the business that is being valued. There are a number of factors that are considered differently when valuing private businesses vs public companies. Some of these are:

- Market liquidity

- Capital structure

- Profit measurement

- Risk profile

- Operational control

Our team is well versed in private company valuations and issues on discrepancies between private/public company multiples and valuations.

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