Albert Side took over his father's funeral business in the early 1990's and soon set

about updating its products and image. He changed the name of the principal operating

company 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 from

Albert and his wife and three subsidiaries as follows:

Dearly Departed Pets Pty Ltd (Pets);

Creative Coffins and Stonemasonry Pty Ltd (Coffins); and

TOS Embalming and Cryogenics (Cryogenics).

As the increased influence of online shopping has changed consumer behaviour in the

second decade of the 21st century it has been much harder to persuade people to spend

money on funerals for pets so Pets has been running at a loss for several years. This is

unlikely to change in the foreseeable future.

Coffins is a very profitable business and operates out of a factory in Geelong that it

owns outright. However, most of the profits have been drained off to cover the losses

in Pets and to fund the start-up costs in Cryogenics. Those start-up costs have been

substantial so, for the time being, Cryogenics is a significant drain on the rest of the

TOS group. But independent marketing consultants have reported that the future for

the Cryogenics industry is very promising and, as one of the few suppliers of these

services in Australia, there is a realistic prospect that in one or two years, the investment

in Cryogenics will pay substantial dividends.

TOS itself is profitable but only just. It too is suffering from the drain on funds caused

by Pets and Cryogenics and its image, which was popular in the 1990's but is now

considered out-of-date is starting to turn away customers.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' factory

site. The local manager of Eastpac agreed to release this from the bank's security

interest when Albert told him the group was planning to enter into a sale and leaseback

arrangement to raise more funds. This has not yet been implemented. The loans from

Eastpac are also secured by a personal guarantee from Albert and his wife (who is also

a director of TOS).

Albert is concerned that he may not be able to keep things afloat long enough for the

profits from Cryogenics to come on stream. He is particularly worried about his

personal exposure under the guarantees he and his wife have given and about the

welfare of his employees who have been very loyal during difficult times. TOS has

been late in the payment of rent on its main funeral parlour in Sydney each month for

the last seven months but has managed to find the necessary funds, usually at about the

time the second threatening letter has arrived. On more than two occasions the transfer

of funds by TOS to the landlord to cover rent has been rejected for lack of funds. A

debt 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 a

statutory demand. The 21 days expired yesterday.

10

Albert has approached an insolvency practitioner who has in turn sought your

assistance in advising him about what he should do. One option he is considering is

selling 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 the

ultimate outcome of any decision he takes. In particular, your advice should consider

what Eastpac Bank is likely to do.