Debt Restructuring Options

Three pathways to resolve $357,000 in total debt across Lumi Finance ($144,800), Westpac commercial ($88,400), and an undocumented intercompany loan ($124,000). Based on Hospitality Debt Restructuring Research (Perplexity, April 2026).

The core problem is serviceability, not leverage. The 35.7% debt-to-revenue ratio is manageable, but annual debt service (~$111,000) likely exceeds EBITDA ($80,000–$120,000 per ATO hospitality benchmarks). The business is structurally cash-flow negative while the Lumi facility is in place.

Decision Framework

Can you provide property security for a bank consolidation loan?
│
├─ YES → Pathway 1: Consolidate Lumi + Westpac via bank/Judo at 7.5–9.5%
│         Save $52,000–$68,000/year in repayments
│         Formalise intercompany loan separately
│
└─ NO  → Is the business cash-flow positive excluding Lumi debt service?
          │
          ├─ YES → Explore unsecured consolidation at 12–16%
          │         Still saves $40,000+/year vs current structure
          │
          └─ NO  → Pathway 2: Small Business Restructuring (Part 5.3B)
                    Resolve $357K debt for ~$90,000–$115,000 total
                    Business continues trading; directors retain control

Pathway 1: Refinance/Consolidate (Preferred)

Consolidate Lumi + Westpac ($233,200) into a single bank-secured facility at 7.5–9.5%.

Savings Model

Rate	Term	Monthly Payment	Annual Saving vs Current (~$9,264/mo)
7.5%	5 years	$4,673	$55,092/year
8.5%	7 years	$3,693	$66,852/year
9.5%	7 years	$3,811	$65,436/year

Recommended Lenders

1. Westpac (existing relationship): BizEdge platform can process loans under $500k in under 4 hours for existing customers. Frame as “cash flow optimisation through debt consolidation.”
2. Judo Bank (specialist): Dedicated hospitality lending team in Melbourne. Terms up to 15 years. Minimum $250k fits if all debts consolidated or working capital headroom added.
3. Green Finance Group (broker): Loan Market Commercial Broker of the Year 2024 and 2025, working exclusively with pubs, clubs, and hotels. No borrower fee.

Security Requirements

Sub-10% rates require property security — residential at 80% LVR or commercial at 65–70% LVR. Without property, non-bank unsecured rates will be 12–20%+ p.a. The hospitality risk premium is real: Food & Beverage Services has the highest business failure rate in Australia (10.03% over 12 months to January 2026).

Pathway 2: Small Business Restructuring (Part 5.3B)

If refinancing is not achievable. The business qualifies comfortably ($357k is almost exactly the median SBR debt level of $359,082 per ASIC REP 810).

How It Works

Phase	Duration	What Happens
Pre-appointment	1–3 weeks	Lodge all outstanding BAS/tax returns; pay due employee entitlements; engage SBRP
Restructuring period	20 business days	SBRP appointed; moratorium on creditor enforcement; directors retain control
Creditor vote	15 business days	Written vote only; approval requires >50% by value
Implementation	Up to 3 years	Plan payments; remaining debt legally extinguished

Indicative Plan

At 20–25¢ in the dollar:

• Plan payment to creditors: $71,400–$89,250
• SBRP fees: ~$20,000–$25,000
• Total outlay: ~$90,000–$115,000 to resolve $357k
• Net saving vs original debt: ~$242,000–$267,000

Track Record

• Plan approval rate: 87% (ASIC REP 810)
• Plan fulfilment rate: 92%
• Business survival at 1 year: 92%
• Accommodation & Food Services: 2nd most common SBR industry (23% of appointments)

ATO Considerations

The ATO is a creditor in 93% of SBR plans. Stricter stance from mid-2025 — rejection rate rose from 9% to 14%. Common rejection triggers: unpaid director loan accounts, poor compliance history, ATO as only creditor. Submit draft plans to ATO at least 5 business days before issuance.

Pathway 3: Informal Workout

Negotiate directly with Lumi for early settlement (they may accept 70–85¢ discount on remaining interest) while formalising the intercompany loan separately. Variable outcome.

The Intercompany Loan ($124,000)

Handle separately from any bank consolidation. The undocumented interest-free loan is a compliance risk under ATO’s post-July 2023 thin capitalisation rules. Required actions:

1. Create formal loan agreement
2. Set arm’s length interest rate
3. Establish repayment schedule
4. Engage tax adviser for thin capitalisation review

Do NOT include in bank consolidation — would add ~$9,300–$11,800/year in new interest cost on a currently zero-cost facility. See Interest Expense Recognition.

Lumi: Immediate Actions

The $144,800 “outstanding” includes ~$28,000–$35,000 in embedded future interest — the true principal is ~$116,000.

1. Call Lumi (1300 005 864) — request formal payout figure with early settlement discount
2. Confirm whether Rate Ease has been applied (auto-reduces rates above 29% if all payments on time)
3. If Lumi is uncooperative: file AFCA complaint (1800 931 678) — suspends all collection action

Safe Harbour and Director Duties

If there is reasonable suspicion the company may already be insolvent, directors should invoke safe harbour (s588GA) now by engaging a registered liquidator and documenting the restructuring course of action. No court approval or public disclosure required. 78% of companies that engaged safe harbour avoided formal insolvency. See Governance Gaps and Risks.

Action Sequence

Immediate (This Week)

1. Call Lumi — payout figure with early settlement discount
2. Check ATO compliance — all BAS/tax returns lodged, super current, no DPNs
3. Engage registered insolvency practitioner — free consultation (Worrells, Jirsch Sutherland, Rapsey Griffiths)

Short Term (2–4 Weeks)

4. Meet Westpac business banker — consolidation case
5. Approach Judo Bank hospitality team — second quote
6. Engage tax adviser — intercompany loan, thin capitalisation compliance
7. Contact Green Finance Group — access multiple bank hospitality desks

Medium Term (4–8 Weeks)

8. Obtain 3+ competing term sheets
9. If refinancing not achievable → commence SBR with practitioner from step 3
10. Formalise intercompany loan — arm’s length terms, documented agreement

Key Facts

• Total debt: $357,200 across 3 facilities
• Annual debt service: ~$111,000 (exceeds estimated EBITDA of $80,000–$120,000)
• Lumi is the primary cash drain: ~$83,400/year at ~30% APR
• Lumi payout figure likely $28,000–$35,000 less than stated $144,800 (embedded interest)
• Refinancing saves $52,000–$68,000/year if property security available
• SBR resolves full $357k for ~$90,000–$115,000 total
• Intercompany loan must be formalised independently — compliance risk under thin capitalisation rules
• Safe harbour should be invoked if insolvency is suspected

Related Pages

• Lumi — loan facility details and payout analysis
• Westpac — existing banking relationship and consolidation pathway
• Square Capital Loans Issue — why further Square draws should be avoided
• Cash Forecasting — serviceability analysis
• Interest Expense Recognition — intercompany loan formalisation
• Governance Gaps and Risks — safe harbour and director duties
• Compliance Obligations — ATO thin capitalisation, DPN risk
• Financial Sustainability Strategy — debt as component of financial recovery
• Capital Raise Strategy — debt resolution as prerequisite for credible raise
• Hospitality Debt Restructuring Research — source document