Albert Side took over his father’s funeral business in the early 1990’s and soon setabout updating i

Albert Side took over his father’s funeral business in the early 1990’s and soon setabout updating its products and image. He changed the name of the principal operatingcompany to “The Other Side Pty Ltd” (TOS) and, within a few years, TOS had:- 10 funeral parlours throughout Australia, all of which are rented;- a substantial quantity of equipment (including hearses and cremators)leased from finance companies and secured by personal guarantees fromAlbert and his wife and three subsidiaries as follows:Dearly Departed Pets Pty Ltd (Pets);Creative Coffins and Stonemasonry Pty Ltd (Coffins); andTOS Embalming and Cryogenics (Cryogenics).As the increased influence of online shopping has changed consumer behaviour in thesecond decade of the 21st century it has been much harder to persuade people to spendmoney on funerals for pets so Pets has been running at a loss for several years. This isunlikely to change in the foreseeable future.Coffins is a very profitable business and operates out of a factory in Geelong that itowns outright. However, most of the profits have been drained off to cover the lossesin Pets and to fund the start-up costs in Cryogenics. Those start-up costs have beensubstantial so, for the time being, Cryogenics is a significant drain on the rest of theTOS group. But independent marketing consultants have reported that the future forthe Cryogenics industry is very promising and, as one of the few suppliers of theseservices in Australia, there is a realistic prospect that in one or two years, the investmentin Cryogenics will pay substantial dividends.TOS itself is profitable but only just. It too is suffering from the drain on funds causedby Pets and Cryogenics and its image, which was popular in the 1990’s but is nowconsidered out-of-date is starting to turn away customers.The group is financed by loans totalling $10 million from Eastpac Bank (Eastpac).Eastpac has security over all the assets of each company, except the Coffins’ factorysite. The local manager of Eastpac agreed to release this from the bank’s securityinterest when Albert told him the group was planning to enter into a sale and leasebackarrangement to raise more funds. This has not yet been implemented. The loans fromEastpac are also secured by a personal guarantee from Albert and his wife (who is alsoa director of TOS).Albert is concerned that he may not be able to keep things afloat long enough for theprofits from Cryogenics to come on stream. He is particularly worried about hispersonal exposure under the guarantees he and his wife have given and about thewelfare of his employees who have been very loyal during difficult times. TOS hasbeen late in the payment of rent on its main funeral parlour in Sydney each month forthe last seven months but has managed to find the necessary funds, usually at about thetime the second threatening letter has arrived. On more than two occasions the transferof funds by TOS to the landlord to cover rent has been rejected for lack of funds. Adebt of $2,090 to the local church choir, who often sing at the funerals, is way overdue.One of the choristers is a law student and has helped the vicar to prepare and send astatutory demand. The 21 days expired yesterday.10Albert has approached an insolvency practitioner who has in turn sought yourassistance in advising him about what he should do. One option he is considering isselling the Geelong factory site to his family company for less than its full market value.You are asked to advise Albert about his options and what factors might influence theultimate outcome of any decision he takes. In particular, your advice should considerwhat Eastpac Bank is likely to do.

 

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