To help your business survive and thrive during these uncertain times, today I want to talk about how you can buy yourself some time using the new “Safe Harbour” laws if your business is experiencing cash flow difficulties.

These Safe Harbour laws help business owners take reasonable steps to restructure and/or allow the business to trade out of its difficulties, without putting the business owner’s personal assets such as your house at risk.

These safe harbour laws are split into 2 key time periods, being:

• Temporary laws in place from 25 March 2020 to 25 September 2020; and
• Original laws in place before 25 March 2020, and after 25 September 2020.

Temporary safe harbour laws in place from 25 March 2020 to 25 September 2020

Under these temporary laws, the normal insolvent trading rules will not apply to any debts incurred in the ordinary course of business in the period 25 March 2020 to 25 September 2020 (unless otherwise changed).  As long as there has not been the appointment during this period of an administrator or liquidator.

Effectively this allows the business to trade, without putting the business owner’s personal assets such as their house at risk.  It is important to note that the debt still has to be paid by the business at some stage in the future.

To qualify for this the debt must be incurred in the ordinary course of business in this period.  A debt can be a debt to a supplier, your landlord, your staff,.

If your supplier invoiced you on 25 March 2020 for goods delivered and accepted by you on 24 March 2020, this is not in the period and these short term laws do not apply.

If the debt was incurred to fund a personal expense of the owner, it is unlikely to be considered in the ordinary course of business and these short term laws do not apply.

And the burden of proof on being in the ordinary course of business and in the time period, is on you as the business owner.

An example of a debt covered by this would be for the business to get a short term loan from the bank on 10 April 2020 to fund paying the $1,500 a fortnight to eligible employees under the JobKeeper Scheme.  The company would owe the bank money, but the bank could not seek recovery from the directors (unless you gave a personal guarantee).

Other duties and potential liabilities of business owners

These temporary safe harbour laws, do not affect the other duties and potential liabilities of business owners such as:

• Acting in good faith in the best interest of the company and for a proper purpose.
• Acting with due care, skill and diligence.
• Not using their position as director, officer or employee to gain an advantage for themselves or someone else, or cause detriment to the company.

Should the worst happen and the business closes, you will need to demonstrate that you did not breach these obligations.

One way to demonstrate that you did not breach these obligations would be to show that you implemented measures consistent with the original Safe Harbour laws, which are detailed below.

Original safe harbour laws

To be eligible to use the original Safe Harbour laws there are two key areas that the business and business owner need to comply.

The first part is very factual.

1. Is your business:

a) Paying all entitlements to your staff by the time they fall due. For example, paying superannuation on time.

b) Meeting all your tax reporting obligations to the Australian Taxation Office.

c) Taking appropriate steps to ensure you have appropriate financial records.

d) Taking appropriate steps to prevent any fraud or misconduct by officers or employees of the company.

e) Obtaining advice from an appropriately qualified entity.

2. And are you, as a business owner, properly informing yourself of the company’s financial position

If you want to avoid breaching your other duties as a business owner, I would recommend that you comply with parts 1(a) to 1(d) and 2 above at a minimum.  Don’t stick your head in the sand and ignore these.  Instead, support these statements with some form of reasonable evidence.

The other area is less factual and more subjective.    This is that you, as the business owner, must be developing one or more courses of action that are reasonably likely to lead to a better outcome for the company within a reasonable time frame.  A better outcome as one that is better for the company than the immediate appointment of an administrator, or liquidator.

You as a business owner need to assess why you are in the current financial situation.

Were you already facing a longer term irreversible decline?  If so, would this decline reverse, once the economic conditions stabilise?  If not, you may not be able to rely on these short term safe harbour laws.

Are you in this financial situation because of government mandatory shut down of your business?  If so, what plans are you implementing to mitigate this?  What plans are you developing once the mandatory shut down is lift?

Once again, don’t stick your head in the sand and ignore what you can and could do in the future.

Summary

If you do all of this you have much stronger chance of coming out of this without your personal assets at risk.

Need to buy yourself some time and use the Safe Harbour Laws? Use the below form to contact me or call me on 0412 227 052.

Contact Wayne Wanders for your FREE Business Survival Session

To ensure I help your business specifically, the best approach I have found is to have an obligation free session with you.  In this session we will review your current business in a factual and objective manner, to better understand the challenges that you face.  And this session does not need to be face to face.

At the end of this session, you will have multiple ideas on how your business can survive and thrive in these uncertain times.

Simply fill in the contact form below or email me at wayne@aRealCFO.com.au or call me on 0412 227 052 to organise one of these obligation free sessions.

To get help you successfully navigate your way through your financial challenges so your business can survive and thrive in these uncertain times, simply use the contact form on the left to email Wayne or call him on 0412 227 052.

Let Wayne Wanders, a fully qualified and experienced CFO, help you successfully navigate your way through your financial challenges so your business can survive and thrive in these uncertain times.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au