The City of Sydney Innovation and ideas grants program supports projects that foster innovation, showcase local expertise and test new ideas to address local and global issues across the city’s social, cultural, sustainability and business sectors.

The winter 2024 applications open 23 July 2024 and close 20 August 2024.

Funding can support:

• research and feasibility studies relating to the funding priorities listed below
• pilot projects that test new approaches for addressing local and global issues
• demonstration projects that promote market awareness and adoption of innovations
• development and implementation of best practice approaches and toolkits
• new technologies and platforms that support sector development.
• ideas that explore the circular economy.

What funding is available?

Cash matched funding from $10,000 to $50,000 per year is available, for a one-year program or multi-year funding (up to 3 years). 

Funding priorities

The City of Sydney Innovation and ideas grants program will prioritise innovative projects that contribute to making Sydney a city:

• that is a leading environmental performer
• that is equitable and inclusive
• with resilient and diverse communities
• with a thriving cultural and creative life
• with a transformed and innovative economy.

Eligibility

To be eligible, applicants (both for profit and not for profit) must:

• operate within the City of Sydney’s local government area or be able to demonstrate significant benefits for the area’s residents, workers and/or visitors
• have acquitted any previous City of Sydney grants or sponsorships and met all contractual obligations
• demonstrate the grant will be used for a purpose in the public interest
• demonstrate capacity to deliver the project
• be financially viable.

The project must not duplicate existing services or programs and must be for future expenditure.  Will not cover existing overheads of the business.

How to apply

Note applications for the 2024 Winter City of Sydney Innovation and ideas grants program close 20 August 2024.  This covers projects starting from 1 January 2025.

To learn more and apply online click here

Contact Wayne on wayne@arealcfo.com.au or 0412 227 052.

Click on the below buttons to access free Resources developed by Wayne Wanders, A Real CFO to help your business scale and grow profitably

Want a confidential discussion on your business situation, help with your grant application or to learn more about my Outsourced CFO Services, simply email me at wayne@aRealCFO.com.au or call me on 0412 227 052

Introduction

Business suffering from financial distress – What are your options?

If you are not worried about the impact on your staff, suppliers and customers, you can simply put the business into liquidation.

If you potentially want to lose your house and other assets, just do nothing.

But if you want to save your business from its financial distress, and protect your personal assets, you need to look at other options.  The 3 key options are:

• Voluntary administration / DOCA
• Safe Harbour
• Debtor in possession debt restructure

A brief overview of how each can deal with your financial distress, including the pros and cons, is covered below

Voluntary Administration

Introduced in the 1990’s, the purpose of voluntary administration is to attempt to turn a business with financial distress around to maximise its chances of continuing.  Or if that is not possible, to provide a better return to creditors and owners than if there was an immediate liquidation of the company.

The process

The owners of the business effectively appoint an independent third party (the “administrator”) to run and manage the business.  The administrator, not the business owner is liable for debts incurred once the business is in administration.

The administrator reviews the business to determine if it is able to continue trading or not.  They do not have to listen to the business owner and can implement different actions than what the business owner would prefer.

If the administrator believes the business can continue trading, they put to creditors a deed of company arrangement (“DOCA”) as a process of getting the business out of administration.  The typical deed will ask creditors to accept less than 100% of what is owed.

If the creditors approve the DOCA, the administrator will hand the business back to the owners and they have to work within the confines of the DOCA.

If the creditors don’t approve the DOCA, the business is effectively shut down and assets sold.  Any goodwill the business had is usually lost in this process.

This should all happen with six weeks.

Pros

• Provides protection for your personal assets in the period the business is controlled by the administrator. But no protection in the period before the administrator was appointed.
• Your DOCA may involve creditors accepting less than 100% of what is owed.

Cons

• A third party is in control of the business.
• Administrator’s job is to get the best return for creditors, not the business owner.
• As this third party is liable for debts when the business is in administration, they may take the risk adverse decision to stop trading, effectively closing your business and destroying any goodwill.
• Historically very few business’s come out of voluntary administration. Hence why new safe harbour laws (see below) were introduced in 2017.
• Public – large amount of information about your financial circumstances will be made public. Your customers may also become aware of this and get scared and source alternate suppliers.  Your competitors may also become aware of this and use this to their advantage.
• If the creditors don’t vote in favour of the DOCA, the business will be forced to close.
• You may still be found liable for trading whilst insolvent in the period before the administrator was appointed
• Can be costly.

Safe Harbour

Because so few companies were coming out of the voluntary administration process, it was not really achieving its objective of maximising the chances of a business with financial distress recovering and continuing to operate.

As a result, a different approach was required and the new Safe Harbour Laws were introduced in 2017.

These Safe Harbour laws allow eligible business owners to take reasonable steps to restructure and / or allow the business to trade out of its difficulties, without being personally liable for debts that the business runs up in the period you are trying to improve the financial position of the business.

In other words, if you are eligible for these Safe Harbour laws, you, as the business owner, without placing the business into voluntary administration, can buy some time to fix the financial problems of your business without putting your personal assets such as your house at risk.

It is important to remember Safe Harbour covers you for debts that are “incurred directly or indirectly in connection with” developing and taking the course of action.   Safe Harbour does not protect you for any other debts incurred where they are not for a proper purpose.  For example, you take on a debt to pay yourself a dividend, or pay for personal expenses.

The process

The business with financial distress needs to:

• obtain advice from an appropriately qualified entity to determine if it is eligible to use the Safe Harbour laws; and,
• be developing one or more courses of action that are reasonably likely to lead to a better outcomefor the company within a reasonable time frame.

You do not need to communicate this with creditors, customers or staff

Eligibility rules

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

The first part is very factual.  Is your business:

1. Paying all entitlements to your staff by the time they fall due. For example, paying superannuation on time.
2. Meeting all your tax reporting obligations to the Australian Taxation Office.
3. Taking appropriate steps to ensure you have appropriate financial records.
4. Taking appropriate steps to prevent any fraud or misconduct by officers or employees of the company.
5. Obtaining advice from an appropriately qualified entity.
6. Developing or implementing a plan for restructuring the company to improve its financial position.

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

These are all factual questions and you as the business owner need to support these statements with some form of reasonable evidence.

The other area is less factual and more subjective.

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.  In other words, a business rehabilitation plan.

What is a Better Outcome?

The Safe Harbour law defines a better outcome as one that is better for the company than the immediate appointment of an administrator, or liquidator.

Some of the things that you as the business owner need to consider to determine if you can achieve a better outcome include:

1. Are the financial difficulties facing the business from short term issues or a longer term irreversible decline? If it is a long term decline, then will a rehabilitation plan be reasonably able to improve the business outcome in an appropriate time frame?  Maybe in this situation you have no choice but to appoint an administrator.
2. Are the financial difficulties facing the business a result of factors outside your control? If the factors are outside you control, will you be able to implement changes for the better?  If not, maybe you have no choice but to appoint an administrator.
3. Can any rehabilitation plan be implemented in a reasonable time frame?

Pros

• Provides protection for your personal assets against properly incurred business debts (as long as you meet all other director duties).
• You, as the business owner are in control of the restructuring process.
• No defined time period, just needs to be undertaken in a reasonable time frame.
• Private – customers, creditors and suppliers don’t need to be notified.
• Flexibility in what you are doing as not just limited to a debt restructure.
• Available to you right now so can start to protect your personal assets straight away.
• Businesses today are using these laws to save their business.

Cons

• You need to meet the eligibility criteria which includes making sure all staff payments including superannuation are up to date.

Debtor in Possession Debt Restructure

As a result of the adverse impact on businesses of the shutdowns from COVID-19, the Federal Government introduced new laws, effective 1 January 2021.  The aim of the process is to have a debt restructuring plan in place for the company to repay its existing debts, thereby enabling the company to stay in business and avoid being wound up.  I have called these the “Debtor in Possession Debt Restructuring” laws.

The Debtor in Possession Debt Restructuring laws, allows eligible business owners with liabilities of less than $1 million, to trade in the ordinary course of business whilst they are taking steps to restructure their debts.  They can do this without being personally liable for debts incurred in the ordinary course of business, in the period you are trying to implement this debt restructure

The process

It is important to note that only the directors of the business can commence this debt restructuring process.  Creditors and other third parties cannot commence the process or force the company to enter the process.

The very first step is for the directors to have reasonable grounds for suspecting that the company is insolvent, or is likely to become insolvent at some future time.  And this will need to be documented by way of board resolution.

The next step is to determine if the business meets the eligibility requirements (see below).  Note the determination of the eligibility requirements would usually be done with the assistance of a small business restructuring practitioner” (“SBRP”), but at this stage they are not formally appointed as such.

The third step is to formally appoint the SBRP.  The SBRP must be a registered liquidator..

This appointment is announced to creditors.

This announcement then prevents unsecured and some secured creditors from taking action against the company.

The business and the SBRP then have 20 business days to prepare a debt restructuring plan to be sent to creditors.  Associated with the debt restructuring plan is sufficient information about the business’s financial affairs to allow the creditors to make an appropriate assessment of the debt restructuring plan.

Once the debt restructuring plan and associated information is provided to creditors, the creditors have 15 business days to vote on the plan (after proof of debt is confirmed).  Related party creditors can’t vote on the plan and secured creditors can only vote to the extent their debt exceeds the recoverable amount of their security.

If more than 50% of the creditors who voted, vote in favour of the debt restructuring plan, then the debt restructuring plan can proceed under the control of the business owners and they can do this without being personally liable for debts incurred in the ordinary course of business.

If this is not achieved, the business owner has limited options.  Either place the business into voluntary administration or use the proposed simplified liquidation process.

Eligibility rules

The key eligibility criteria as currently proposed include:

• The business must be insolvent, or likely to become insolvent. But it can’t already be under administration, in liquidation or operating under a deed of company arrangement
• Business must have liabilities of less than $1 million on the day that the small business restructuring practitioner” (“SBRP”) is appointed.
• You must retain a “small business restructuring practitioner” (“SBRP”).
• Paying all entitlements currently due and payable to your staff by the time they fall due. For example, paying superannuation on time.  This does not mean you have paid unused annual leave for example.
• Your tax lodgements are up to date, but does not mean they have to be paid if you have a payment arrangement with the ATO
• You can’t have used these laws previously (may be some flexibility in the regulations when finally issued).
• You have taken appropriate steps to ensure you have appropriate financial records and you are properly informing yourself of the company’s financial position.
• The restructuring plan can only deal with debts incurred by the company prior to entering debt restructuring

Pros

• Provides protection for your personal assets against properly incurred business debts (as long as you meet all other director duties).
• You as the business owner are in control of the restructuring process, providing the creditors vote in favour.
• Your debt repayment plan may involve creditors accepting less than 100% of what is owed.
• A simpler, cheaper and possibly quicker option than voluntary administration.

Cons

• Your business is taken to be insolvent if it proposes a restructuring plan to its creditors.
• Your business liabilities must be below $1 million to access this.
• Public process where creditors, staff, customers and competitors can see your financial information. Also, on all business paperwork such as invoices, you need to disclose “restructuring practitioner appointed”.
• You need to meet the eligibility criteria which includes making sure all staff payments including superannuation are up to date.
• Fixed time frames

Summary – what to do if your business is suffering from financial distress

If your business is suffering from financial distress and you want to try and save your business, without putting your personal assets at risk, what should you do?

You could consider voluntary administration.  But very few businesses actually come out the other side of this and continue to trade.  You may be lucky and be like Virgin Airlines and have a white knight come and save your business.  What are the chances of this for your business?  And my personal view is that if you know of a white knight, why do this in the public arena?  You could achieve the same object through the Safe Harbour laws.

You could consider a Debtor in Possession Debt Restructure, but you are still beholden to the views of creditors.  And if your business liabilities are over $1 million, you can’t use these anyway.

This leaves for many businesses the Safe Harbour laws.  But it takes time to ensure you comply with the eligibility criteria..

If you are thinking about utilising the Safe Harbour Laws, contact us for a confidential and obligation free initial assessment.

Contact Wayne Wanders for to see if you can access the Safe Harbour Laws

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 some clarity around whether you can access the Safe Harbour Laws..

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

If your business is currently in financial distress, a misplaced 3 letter word in the legislation may mean the temporary safe harbour may be ineffective.  As a result, your personal assets such as your house are at risk.

Pre Covid-19, if your business traded whilst insolvent, you as the director may have been personally liable for the debts of the business.  As such, business creditors may force you to sell your home to pay back the debts.

With the start of Covid-19, the government attempted to create a temporary safe harbour with the suspension on the ability of creditors to access your personal assets.

But a simple misplaced “and” in the legislation may mean this temporary safe harbour is ineffective.

As a result of this seemingly misplaced “and”, you, as the director of the business may be personally liable for debts that the business has incurred during the Covid-19 period.

Now various parties are trying to get this rogue “and” removed, but who knows if this will actually occur before 1 Jan 2021.

Hence why, if you are currently in financial distress, it is imperative that you get appropriate advice asap to:

• determine if you are trading insolvent; and
• If you are trading insolvent, what can you do about it.

If you want a confidential discussion on your business situation, contact me below

Contact Wayne Wanders for your FREE Business Survival Session

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.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au

What is a Statutory Demand?

Statutory demands are documents issued by a creditor seeking repayment of moneys owed to them.

If the company within the required time frame after the demand is served, fails to:

• pay the debt;
• come to a suitable arrangement with the creditor; or,
• make an application to set the demand aside within that time period,

then the company is presumed to be insolvent.

Once there is a presumption of insolvency, then it is open to the creditor to commence proceedings to wind up the company.

The Federal Government had put in some temporary rule changes to statutory demands as part of its response to Covid-19.

But these temporary rule changes are ending on 31 December 2020, making it easier for creditors to issue a statutory demand.

From 31 December 2020, a creditor, owed just $2,000 could get a statutory demand issued, and you have 21 days to either pay the debt, come to an agreement with the creditor so they withdraw the statutory demand, or incur legal costs to defend the creditors claim.

If you are suffering from financial distress, what do you do before you get the statutory demand?

If you are not worried about the impact on your staff, suppliers and customers, you can simply put the business into liquidation.

If you potentially want to lose your house and other assets, just do nothing.

But if you want to save your business, you need to look at other options.  The 3 key options are:

• Voluntary administration / DOCA
• Safe Harbour
• Debtor in possession debt restructure

The pros and cons of these are below.

And we are happy to come and have an obligation free chat with you to see if utilising the Safe Harbour laws are the best option for your business.

Contact Wayne Wanders for to see if you can access the Safe Harbour Laws

At the end of this session, you will have some clarity around whether you can access the Safe Harbour Laws..

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.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au

If you are trading insolvent, your business is continuing to trade and incur new debts and bills when there are reasonable grounds for suspecting your business is unable to pays its debts and bills when they were due.

For example, you owe supplier A $10,000 and they put you on a trading halt because you can’t pay them, and you then buy from Supplier B, knowing you may struggle to pay them as well.

Currently, there are no penalties for trading insolvent, as long as you are not breaching your other director’s duties.

But in just 37 business days, this changes

If you continue trading insolvent from 1 January 2021 onwards, you as the director may face civil and criminal penalties as well as being personally liable to pay back business debts.

One way to avoid these penalties and avoid being personally liable for the business debts is to make sure you are eligible for the “Safe Harbour” laws that will be in effect from 1 January 2021.

But this takes time.  You can’t turn up on 31 December 2020 and assume you will be eligible.

You need to take action now.

If you want to learn more about the Safe Harbour laws please contact me below for an obligation free discussion.

Contact Wayne Wanders to see if you can access the Safe Harbour Laws

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 some clarity around whether you can access the Safe Harbour Laws..

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

The list below compares these proposed laws with the existing safe harbour laws.  That way, if your business is in financial distress, you can make a more educated decision of which of these approaches you want to take.

So, which one should you use?

If your liabilities are over $1 million or you have used the debtor in possession debt restructuring laws in other business, you can’t use the debtor in possession debt restructuring laws for this business.  You either use the safe harbour laws, or place your business into voluntary administration and lose control of your business

If you need more time than 35 days, want to keep your financial affairs private, or are looking at more than a debt restructuring, the safe harbour laws appear to be more appropriate for you.

If you are looking for a simple extended debt repayment plan across all creditors, then the debtor in possession debt restructuring laws may be appropriate.

If you are suffering from financial distress and you want to try and save your business, without putting your personal assets at risk, we are happy to come and have an obligation free chat with you to see if utilising the Safe Harbour laws or the new debtor in possession process is the best option for your business.

Contact Wayne Wanders for to see if you can access the Safe Harbour Laws

At the end of this session, you will have some clarity around whether you can access the Safe Harbour Laws..

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.

Wayne Wanders, A Real CFO

wayne@aRealCFO.com.au

Introduced in the 1990’s, the purpose of voluntary administration is to attempt to turn a financially distressed business around to maximise its chances of continuing.  Or if that is not possible, to provide a better return to creditors and owners than if there was an immediate liquidation of the company.

The process

The owners of the business effectively appoint an independent third party (the “administrator”) to run and manage the business.  The administrator, not the business owner is liable for debts incurred once the business is in administration.

The administrator reviews the business to determine if it is able to continue trading or not.  They do not have to listen to the business owner and can implement different actions than what the business owner would prefer.

If the administrator believes the business can continue trading, they put to creditors a deed of company arrangement (“DOCA”) as a process of getting the business out of administration.  The typical deed will ask creditors to accept less than 100% of what is owed.

If the creditors approve the DOCA, the administrator will hand the business back to the owners and they have to work within the confines of the DOCA.

If the creditors don’t approve the DOCA, the business is effectively shut down and assets sold.  Any goodwill the business had is usually lost in this process.

This should all happen with six weeks.

Pros

• Provides protection for your personal assets in the period the business is controlled by the administrator. But no protection in the period before the administrator was appointed.
• Your DOCA may involve creditors accepting less than 100% of what is owed.

Cons

• A third party is in control of the business.
• Administrator’s job is to get the best return for creditors, not the business owner.
• As this third party is liable for debts when the business is in administration, they may take the risk adverse decision to stop trading, effectively closing your business and destroying any goodwill.
• Historically very few business’s come out of voluntary administration. Hence why new safe harbour laws were introduced in 2017.
• Public – large amount of information about your financial circumstances will be made public. Your customers may also become aware of this and get scared and source alternate suppliers.  Your competitors may also become aware of this and use this to their advantage.
• If the creditors don’t vote in favour of the DOCA, the business may be forced to close.
• You may still be found liable for trading whilst insolvent in the period before the administrator was appointed
• Can be costly.

In our opinion, if you are suffering from financial distress and you want to try and save your business, without putting your personal assets at risk, utilising the Safe Harbour laws is likely to be the best option for you. 

And we are happy to come and have an obligation free chat with you to see if utilising the Safe Harbour laws are the best option for your business.

Contact Wayne Wanders for to see if you can access the Safe Harbour Laws

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 some clarity around whether you can access the Safe Harbour Laws..

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

There was a new formal debt restructuring process announced by the Federal Government recently.   What I call “Debtor in Possession Debt Restructuring”.  The ultimate aim of the process is to have a debt restructuring plan in place for the company to repay its existing debts, thereby enabling the company to stay in business and avoid being wound up.

Based on the draft legislation, here are the key components of the proposed Debtor in Possession Debt Restructuring process which is planned to commence on 1 January 2021.

The Debtor in Possession Debt Restructuring process as currently proposed, allows eligible business owners, to trade in the ordinary course of business whilst they are taking steps to restructure their debts.  They can do this without being personally liable for debts incurred in the ordinary course of business, in the period they are trying to implement this debt restructure.

The process

It is important to note that only the directors of the business can commence this debt restructuring process.  Creditors and other third parties cannot commence the process or force the company to enter the process.

The very first step is for the directors to have reasonable grounds for suspecting that the company is insolvent, or is likely to become insolvent at some future time.  And this will need to be documented by way of board resolution.

The next step is to determine if the business meets the eligibility requirements (see below).  Note the determination of the eligibility requirements would usually be done with the assistance of a small business restructuring practitioner” (“SBRP”), but at this stage they are not formally appointed as such.

The third step is to formally appoint the SBRP.  The SBRP must be a registered liquidator.  Existing registered liquidators are therefore eligible.  There is supposed to be a new class of registered liquidators who can become a SBRP, but very little details of this currently exist.

This appointment is announced to creditors.

This announcement then prevents unsecured and some secured creditors from taking action against the company.

The business and the SBRP then have 20 business days to prepare a debt restructuring plan to be sent to creditors.  Associated with the debt restructuring plan is sufficient information about the business’s financial affairs to allow the creditors to make an appropriate assessment of the debt restructuring plan.

Once the debt restructuring plan and associated information is provided to creditors, the creditors have 15 business days to vote on the plan (after proof of debt is confirmed).  Related party creditors can’t vote on the plan and secured creditors can only vote to the extent their debt exceeds the recoverable amount of their security.

If more than 50% of the creditors who voted, vote in favour of the debt restructuring plan, then the debt restructuring plan can proceed under the control of the business owners and they can do this without being personally liable for debts incurred in the ordinary course of business.

If this is not achieved, the business owner has limited options.  Either place the business into voluntary administration or use the proposed simplified liquidation process.

Am I eligible to use the Debtor in Possession Debt Restructuring Laws?

The key eligibility criteria as currently proposed include:

• Only operational from 1 January 2021, assuming the legislation is passed.
• The business must be insolvent, or likely to become insolvent. But it can’t already be under administration, in liquidation or operating under a deed of company arrangement
• Business must have liabilities of less than $1 million on the day that the small business restructuring practitioner” (“SBRP”) is appointed.
• You must retain a “small business restructuring practitioner” (“SBRP”).
• Paying all entitlements currently due and payable to your staff by the time they fall due. For example, paying superannuation on time.  This does not mean you have paid unused annual leave for example.
• Your tax lodgements are up to date, but does not mean they have to be paid if you have a payment arrangement with the ATO
• You can’t have used these laws previously (may be some flexibility in the regulations when finally issued).
• You have taken appropriate steps to ensure you have appropriate financial records and you are properly informing yourself of the company’s financial position.
• The restructuring plan can only deal with debts incurred by the company prior to entering debt restructuring

Note these may change once the legislation is passed by Parliament and the associated regulations formalised.

Pros

• Provides protection for your personal assets against properly incurred business debts (as long as you meet all other director duties).
• You as the business owner are in control of the restructuring process, providing the creditors vote in favour.
• Your debt repayment plan may involve creditors accepting less than 100% of what is owed.
• A simpler, cheaper and possibly quicker option than voluntary administration.

Cons

• Your business is taken to be insolvent if it proposes a restructuring plan to its creditors.
• Your business liabilities must be below $1 million to access this.
• Public process where creditors, staff, customers and competitors can see your financial information. Also, on all business paperwork such as invoices, you need to disclose “restructuring practitioner appointed”.
• You need to meet the eligibility criteria which includes making sure all staff payments including superannuation are up to date.

If you are suffering from financial distress and you want to try and save your business, without putting your personal assets at risk, we are happy to come and have an obligation free chat with you to see whether utilising the new Debtor in Possession Debt Restructuring or the existing Safe Harbour laws is the best option for your business

Contact Wayne Wanders for to see if you can access the Safe Harbour Laws

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 some clarity around whether you can access the Safe Harbour Laws..

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

What is Safe Harbour?

Historically in Australia, if there are reasonable grounds for suspecting your business was unable to pays its bills when they were due (what the lawyers call trading insolvent), the directors could be held as personally liable for any debts that the business ran up in this period.

What this meant that if your business was having financial difficulties, often the only decision that the business owner could take to protect their personal assets and avoid potential penalties, was to place the company into voluntary administration.

But the problem with this is that very few businesses ever recover from being placed into voluntary administration.  At least 9 in 10 businesses in voluntary administration end up being shut down with the administrator on average getting paid around $55,000.  The creditors get cents in the dollar and the business owner left with nothing from the business and may end up losing their house and other assets.

 A really drastic outcome from what could just be a potential short term down period.

Thankfully the Australian Government realised that this was stifling business and in 2017 introduced new laws to help business owners take reasonable steps to restructure and/or allow the business to trade out of its difficulties, without resorting to closing, what could be, a great long term business.

These laws are known as the “Safe Harbour” Laws.

If you are eligible to use these Safe Harbour laws, these laws can allow you as the business owner, to avoid being personally liable for debts^(#) that the business runs up in the period you are trying to improve the financial position of the business.

In other words, if you are eligible for these Safe Harbour laws, you, as the business owner can have some time to fix the financial problems of your business without putting your personal assets such as your house at risk.

Am I eligible to use the Safe Harbour Laws?

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

The first part is very factual.  Is your business:

1. Paying all entitlements to your staff by the time they fall due. For example, paying superannuation on time.
2. Meeting all your tax reporting obligations to the Australian Taxation Office.
3. Taking appropriate steps to ensure you have appropriate financial records.
4. Taking appropriate steps to prevent any fraud or misconduct by officers or employees of the company. 
5. Obtaining advice from an appropriately qualified entity.
6. Developing or implementing a plan for restructuring the company to improve its financial position.

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

These are all factual questions and you as the business owner need to support these statements with some form of reasonable evidence. 

The other area is less factual and more subjective. 

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.  In other words, a business rehabilitation plan.

What is a Better Outcome?

The Safe Harbour law defines a better outcome as one that is better for the company than the immediate appointment of an administrator, or liquidator.

Some of the things that you as the business owner need to consider to determine if you can achieve a better outcome include:

1. Are the financial difficulties facing the business from short term issues or a longer term irreversible decline? If it is a long term decline, then will a rehabilitation plan be reasonably able to improve the business outcome in an appropriate time frame?  Maybe in this situation you have no choice but to appoint an administrator.
2. Are the financial difficulties facing the business a result of factors outside your control? If the factors are outside you control, will you be able to implement changes for the better?  If not, maybe you have no choice but to appoint an administrator.
3. Can any rehabilitation plan be implemented in a reasonable time frame?

Pros

• Provides protection for your personal assets against properly incurred business debts (as long as you meet all other director duties).
• You, as the business owner are in control of the restructuring process.
• No defined time period, just needs to be undertaken in a reasonable time frame.
• Private – customers, creditors and suppliers don’t need to be notified.
• Flexibility in what you are doing as not just limited to a debt restructure.
• Available to you right now so can start to protect your personal assets straight away.
• Businesses today are using these laws to save their business.

Cons

• You need to meet the eligibility criteria which includes making sure all staff payments including superannuation are up to date.

# It is important to remember Safe Harbour covers you for debts that are “incurred directly or indirectly in connection with” developing and taking the course of action.   Safe Harbour does not protect you for any other debts incurred where they are not for a proper purpose.  For example, you take on a debt to pay yourself a dividend, or pay for personal expenses.

In our opinion, if you are suffering from financial distress and you want to try and save your business, without putting your personal assets at risk, utilising the Safe Harbour laws is likely to be the best option for you and your business. 

And we are happy to come and have an obligation free chat with you to see if utilising the Safe Harbour laws are the best option for your business.

Contact Wayne Wanders for to see if you can access the Safe Harbour Laws

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 some clarity around whether you can access the Safe Harbour Laws..

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

You can listen to the full show here 

Alternatively read below for my preparation notes for the show

Preparation notes for the Interview on Safe Harbour

Introduction

Before we start talking about the Safe Harbour Laws, I first want to put some context around this.

One of the reasons many people set their business up in a company structure is that this separates their business assets and liabilities from their personal assets.

In theory, the creditors of your business can not seek to get repaid out of your personal assets.   For example, if your business went broke owing your landlord, suppliers and staff their leave entitlements, they generally could not force you to sell your house to pay these debts.

You have a wall between your business liabilities and your personal assets.

But in Australian law, they have put a gate in that wall for what the lawyers call insolvent trading.

Insolvent trading is when a business continues to trade when there are reasonable grounds for suspecting your business was unable to pays its bills when they were due. For example, you owe supplier a $10,000 and they put you on a trading halt because you can’t pay them, and you then buy from Supplier B, knowing you may struggle to pay them as well.

In this situation, you as the director, could be personally liable for any debts that the business ran up in this period.

Statutory Demands

And the threshold for a creditor to open the gate is very low.

A creditor owed just $2,000 could seek recovery of their debt by issuing a statutory demand against the company.  And unless within 21 days you:

• paid the debt;
• came to a suitable arrangement with the creditor; or,
• made an application to set the demand aside within that time period,

then the company is presumed to be insolvent.

Now this statutory demand does not need to be completed by a lawyer and is relatively straight forward to complete and lodge at your registered office.   By the way, this is a very good reason to ensure your registered office address with ASIC is up to date.  It is no excuse if they sent this to an out of date address and you did not get this.

A simple piece of paper from a creditor owed as little as $2,000, can open the gate, and depending on your actions as a business owner, can open that gate for all business creditors to walk straight through and force you to sell your house to pay them back.

What did business owners do?

And because it was so easy for creditors to open this gate, many business owners when they were suffering financial difficulties were very concerned that they could lose their personal assets.   This was even more evident if the business had independent directors.

They felt they had no choice but to put the business in administration.

But the problem with this is that very few businesses ever recover from being placed into voluntary administration.  At least 9 in 10 businesses in voluntary administration end up being shut down with the administrator on average getting paid thousands of dollars.  The creditors get cents in the dollar and the business owner left with nothing from the business and may end up losing their house and other assets.

A business that could possibly trade out, may close because they could not survive the stigma of being in administration.  For example, customers got scared and stopped ordering, so revenue fell even more, reducing the risk of recovery.

Safe Harbour Laws

A really drastic outcome from what could just be a potential short term down period.  A bit like what is happening now with COVID-19.

To stop this, the government gave the business owner the ability to put a lock on the gate when they enacted a couple of years ago, what is called the “Safe Harbour” laws.

If you are eligible to use these Safe Harbour laws, these laws can allow you as the business owner, to avoid being personally liable for certain debts that the business runs up in the period you are trying to improve the financial position of the business.

In other words, if you are eligible for these Safe Harbour laws, you, as the business owner can have some time to fix the financial problems of your business without putting your personal assets such as your house at risk.

Temporary Safe Harbour Laws

Because of the business impacts of COVID-19 shutdowns, the federal government put some temporary safe harbour laws, or barricades on the gate in the wall between your business liabilities and personal assets.

Firstly, a creditor had to be owed more than $20,000 to lodge a statutory demand (up from $2,000) and you had 6 months to respond (up from 21 days).

Secondly, they temporarily suspended the normal insolvent trading rules we spoke about previously in relation to any debts incurred in the ordinary course of business.

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 a specific period (currently 25 March to 31 December 2020).  A debt can be a debt to a supplier, your landlord, your staff, etc.  But, 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.

What happens on 1 January 2021?

On 1 January 2021, the temporary safe harbour barricades the government put up on the gate in the wall between your business liabilities and personal assets comes down.

A creditor owed just $2,000 could lodge a simple piece of paper, a statutory demand for repayment of their debt and unless you deal with this in 21 days, you could be presumed to be insolvent.  Now there is agitation to change this from Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman to $5,000 and 30 days.

This means that there is an increased risk of your business being placed into administration from 1 January 2021.

This can be devasting on your business as very few businesses actually survive being placed into administration.  The winner is the administrator who gets paid in full.  The creditors get cents in the dollar and you as the business owner left with nothing from the business.

I even heard a story the other day of an administrator refusing to take the appointment unless the business owner gave a charge over their house to pay the administrator.

As part of this, you get the mental health toll on you, your family and your staff, customers and suppliers.

Once your business is placed in administration, unless you have properly locked the gate in the wall between your business liabilities and personal assets, your personal assets such as your house may also at risk.

What should the business owner do?

If you want to buy yourself some time to trade through your financial difficulties, and lock the gate in the wall between your business liabilities and personal assets, you need to take steps to make sure you are eligible for the “Safe Harbour” laws that will be in effect from 1 January 2021.

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

The first part is very factual.  Is your business:

1. Paying all entitlements to your staff by the time they fall due. For example, paying superannuation on time.
2. Meeting all your tax reporting obligations to the Australian Taxation Office.
3. Taking appropriate steps to ensure you have appropriate financial records.
4. Taking appropriate steps to prevent any fraud or misconduct by officers or employees of the company.
5. Obtaining advice from an appropriately qualified entity.
6. Developing or implementing a plan for restructuring the company to improve its financial position.

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

These are all factual questions and you as the business owner need to support these statements with some form of reasonable evidence.

The other area is less factual and more subjective.

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.  In other words, a business rehabilitation plan.

What is a Better Outcome?

The Safe Harbour law defines a better outcome as one that is better for the company than the immediate appointment of an administrator, or liquidator.

Some of the things that you as the business owner need to consider to determine if you can achieve a better outcome include:

1. Are the financial difficulties facing the business from short term issues or a longer term irreversible decline? If it is a long term decline, then will a rehabilitation plan be reasonably able to improve the business outcome in an appropriate time frame?  Maybe in this situation you have no choice but to appoint an administrator.
2. Are the financial difficulties facing the business a result of factors outside your control? If the factors are outside you control, will you be able to implement changes for the better?  If not, maybe you have no choice but to appoint an administrator.
3. Can any rehabilitation plan be implemented in a reasonable time frame?

A better outcome may be even selling all or part of the business as a going concern.  This is exactly what one of my clients did.

This takes time

The steps to ensure you are eligible for the Safe Harbours laws to buy yourself some time to trade through your financial difficulties, and lock the gate in the wall between your business liabilities and personal assets take time.

Don’t think on New Year’s Eve you will be able to tick all these boxes.

If you are currently under financial difficulties, or expect to be under financial difficulties on lower JobKeeper and possibly higher rents, you need to do something now to start to put that lock on.  It is less than 15 weeks to 1 January 2021.

Engaging a resource?

The law requires you to obtain advice from an appropriately qualified entity.  Appropriately qualified is viewed more with a sense of “fit for purpose” and is not limited merely to the possession of particular qualifications.

This includes whether the adviser is appropriate considering:

• the nature, size, complexity and financial position of the business;
• the adviser’s independence, professional qualifications, good standing and membership of appropriate professional bodies. This could be a lawyer, insolvency practitioner, accountant;
• the adviser’s experience; and
• whether the adviser has adequate levels of professional indemnity insurance to cover the advice being given.

It is up to the business to determine this.

Other duties and potential liabilities of business owners

Just one last thing I want to mention to business owners.  You may have the temporary barricades up and the gate locked, but the government through ASIC and / or the ATO can bring a big pair of bolt cutters to the wall and cut straight through any locks if you are not complying with your 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.

Summary

In summary, right now the government has put some temporary barricades on the gate in the wall between your business liabilities and personal assets.

These barricades will be taken down in less than 15 weeks on 1 January 2021.

If you are having financial difficulties, you have a choice once these barricades come down.

You can either buy yourself some time and lock the gate between your business liabilities and your personal assets and ensure you are eligible for safe harbour.

Or do nothing and leave the gate unlocked, ready for your creditors to close your business and claim your house to pay off your business debts.

I know which option I would take.  And I would start doing something about it now.

If you want a confidential discussion on your business situation and whether safe harbour may be for you, contact me below

Contact Wayne Wanders for your FREE Business Survival Session