As featured in the latest edition of Bowler Magazine
Are you finding it hard to keep your Club financially afloat? Determining whether your Club is facing significant financial problems or just experiencing a temporary cash shortage can be challenging. If you suspect that the warning signs suggest a more severe financial issue, it’s crucial to understand that there are options to rectify the situation or reduce its impact.
In many cases, it’s necessary to look beyond your Club’s financial statements and records to determine if it’s facing significant financial difficulties. Consider whether the Club’s expected cash flow, both presently and in the future, will be enough to settle outstanding and upcoming debts. Alternatively, investigate if the Club can sell assets or obtain loans to repay future debts when they become due. If neither of these scenarios are possible, seeking guidance to minimise further losses and exploring options for re-establishing your Club’s financial stability might be necessary.
SEEK PRE-INSOLVENCY ADVICE
Recognising the early signs of financial difficulty and responding promptly can make a significant difference in the survival of your Club. It’s crucial to take proactive measures to prevent insolvency or continuing to operate while insolvent. To ensure that your Club receives appropriate advice that caters to the Club’s unique circumstances, we suggest consulting with an independent expert.
Engaging the services of a qualified accountant or an external pre-insolvency or turnaround specialist can be immensely beneficial. They are well-equipped to offer guidance on restructuring strategies, suggest potential solutions to business challenges, and recommend changes to enhance your current business practices. With their wealth of knowledge and experience, they can help you navigate the complexities of financial distress and develop a plan to address the situation effectively. By seeking the advice of an independent expert early on, you can take the necessary steps to protect your Club’s financial stability and prevent further issues arising.
KNOW YOUR OBLIGATIONS UNDER THE ACTS
It is essential for directors or committee members of a Club to be aware of their responsibilities under the Acts and whether they could be held personally responsible for the Club’s debts.
For Clubs run by companies limited by guarantee, directors have a clear obligation to ensure that the Club does not trade while insolvent. As a result, if directors fail to carry out their duties, they may be liable for debts incurred during the period of insolvency. The liability of directors in these circumstances extends beyond the debts owed to creditors and can include unpaid PAYG tax or superannuation entitlements.
For Clubs managed by incorporated associations, the liability of individual committee members has been less well-defined historically. However, committee members, like company directors, now have a duty to prevent the association from trading while insolvent.
Breaching these duties or failing to disclose conflicts and benefits will incur a penalty and be administered by the Office of Fair Trading. There will be defences against an alleged breach of these duties in certain circumstances.
ASSUME AN ACTIVE ROLE
If you believe that excuses about your lack of participation in the Club’s management can serve as a defence against trading while insolvent, it’s time to reconsider. Directors or committee members cannot simply turn a blind eye to their club’s financial condition as they are bound by positive duties. As a result, ignorance is not an excuse for them.
To protect themselves from potential liability, directors and committee members must take an active role in their Club’s operations by asking questions, participating in meetings, and considering issues. By doing so, they can demonstrate that they had a reasonable basis for believing that the Club was solvent, thereby mitigating their risk of exposure.
If you are concerned about your Club’s financial situation but are not sure where to start with investigating this, or if you have any queries in relation to these matters, please call me on 07 3224 0353.
