With the current combination of significant economic uncertainty and the changes in work practices post-COVID it is an appropriate time to consider options available.
This is especially prevalent for Boards of Directors (“Boards”) and management whose businesses are experiencing financial underperformance, maturing debt profiles or where significant decisions are required regarding the future strategy.
Additionally, Directors should be concerned around personal liability and responsibility for the company’s liabilities along with ensuring there is independent review of the options available/proposed.
So, for businesses experiencing any of the above, a discussion regarding the Safe Harbour regime and how it can help you and your business is recommended.
Why is Safe Harbour relevant for you?
The Safe Harbour Regime was introduced in 2017 and has become an important restructuring tool to explore options whilst protecting the position of Directors.
It enables Boards the ability and time to develop and implement a restructure plan that provides a better outcome that would be the case if there was an immediate appointment of an administrator or liquidator.
The Safe Harbour regime also provides Directors with protection from personal liability for debts incurred whilst developing and implementing the plan.
Most importantly our experience is that Safe Harbour enables transparent discussions regarding the comparative of options available and the development of restructuring (formal and informal) to resolve structural or business issues.
The key tenants of the Safe Harbour regime are centred on establishing the following:
1. Where are we? What is the real position?
What is the current strategic, operational and financial position of the company? The current financial position includes bringing financial accounts and lodgements up to date that correctly quantify income tax liabilities, superannuation, PAYG withholding and other debts as well as possible.
2. The Plan – Building options for a way out
Documentation of how the position of the company will be maintained and/or improved while a solution to issues is determined.
This would include weekly cash flow forecast including funding requirements and ensure tax lodgements are current, but this can be managed by arrangement. Proactive management of the ATO and bank positions is most likely to achieve a better outcome.
3. What needs to be done – How the options are explored and executed
Implementation of the plan in a timely manner and ongoing monitoring of the actual benefits verses the planned benefits and outcomes.
Experience with the Process
Since the Safe Harbour process was enacted in 2017, we have assisted Boards with numerous Safe Harbour engagements.
In general, our advice to Boards that embark on this process is to:
- Understand the current state of the business, the forecasts and key drivers of it;
- Be conservative and clear on future requirements to continue to operate; and
- Communicate these requirements clearly and concisely to key stakeholders.
The Safe Harbour Process has proven to be an effective mechanism providing Director’s time to:
- Identify issues;
- Consider available options;
- Undertake appropriate planning; and
- Facilitate the turnaround of their business or take appropriate action to protect creditors and other stakeholders.
The process enables Boards clarity regarding the decision-making process on key business issues and mitigation of Directors personal liability. It allows for creation of a clear Plan to produce better outcomes for stakeholders.
Examples of issues faced in Safe Harbour engagements
We have undertaken the following development, implementation and monitoring of restructure plans for Businesses with the following key issues:
- Significant reduction of costs resulting from exit of major unprofitable contracts.
- Stabilisation of unprofitable business and securing of funding to allow time for resolution of shareholder dispute.
- Assessment of business position from loss of major consumers due to regulatory changes including assessment of informal and formal restructure options.
- Stabilisation of Business while Board engaged in discussions with major customers to renegotiate contracts in order for business to return to profitability.
- Assessing debt restructure options and equity raising to enable business to continue with a realistic debt/equity structure.
- Short term trading and sale programs for distressed or unstable businesses to maximise the opportunity for a going concern sale.
- Review of forecasts around revenue impacted/delayed due to various matters including COVID, to establish timeline for Board to seek further debt/equity investment in order to complete a sale process.
These engagements have provided the company’s Boards with greater clarity on the issues for better decision making and continuation of operations or other actions in accordance with a strategy. It also allows for Boards and other key stakeholders to consider the the options available and the potential impact of each option.
Should your business be facing issues, dealing with issues proactively and taking pragmatic, professional advice can assist Directors to make informed decisions with respect to available recovery options while protecting their personal position.