Renowned demographer Bernard Salt has called the Sunshine Coast the entrepreneurship capital of Australia and with more than 32,000 small businesses, accounting for 90 per cent of all businesses in the region, it is easy to see why.
But despite so many Coast residents owning and operating their own businesses, it is not always smooth sailing.
According to ASIC, 8105 Australian companies entered into a form of external administration for the first time in 2018-19, up from 7747 in 2017-18.
The director of Coast-based business mentor company Holiwell, Andy Vautier, says a lot of small- to medium-sized entities (SMEs) on the Coast do not realise the government introduced Safe Harbour legislation two years ago that effectively gives struggling businesses space to breathe, re-assess their business strategy and seek help to avoid liquidation.
Under the legislation, personal liability does not apply “if at a particular time after the person starts to suspect the company may become or be insolvent, the person starts developing one or more courses of action that are reasonably likely to lead to a better outcome for the company; and the debt is incurred directly or indirectly in connection with any such course of action during the period starting at that time”.
Mr Vautier says directors are excluded from the safe harbour if their organisation hasn’t paid all employee entitlements, has outstanding tax lodgements or hasn’t kept up-to-date records.
As a business mentor who steps in to prevent businesses from reaching the critical point where they have to consider calling in an administrator or liquidator, Mr Vautier wants to educate Coast business owners that the legislation exists and can actually be used in conjunction with a sound strategy to help business owners stay on their feet and continue on with their businesses.
According the report Safe Harbour in Practice in the Australian Restructuring Insolvency & Turnaround Association Journal, 2019, two years after the safe harbour legislation took effect, boards of about half of all large and listed businesses that have a “liquidity event” have taken steps to ensure they can meet the safe harbour eligibility criteria. However, that drops down to about five per cent for SMEs.
“Overall, safe harbour advice was evident in fewer than 15 per cent of external administrations. This figure increased to almost 50 per cent for ASX-listed and large proprietary companies,” the report states.
Mr Vautier says a lot of business owners who are unaware of the support services available can tend to “put their head in the sand and think there’s no way out” other than to close the doors and call a liquidator.
“Timing is critical in seeking assistance,” he says.
“You cannot claim Safe Harbour if you are already insolvent. We are working to educate not only business owners but accountants and other professional services that this exists because my advice to someone that is starting to struggle is to talk to your accountant about how things are going, look at what assistance is out there on a consultancy and mentoring level and enlist them to help you put a plan together. There are some guidelines around accessing Safe Harbour, but it can become part of that plan.
“In Safe Harbour, businesses can continue to trade, negotiate with creditors and suppliers while implementing a plan to recovery, without the legal ramifications previously associated with insolvent trading.”
There is no doubt that successfully restructuring a distressed business is hard to do and this is why Mr Vautier advocates for all business owners to stay on top of their numbers as well as their mental health.
“You don’t need to be in a state of stress about your business. There are people who will help you relieve that stress,” he says.
“The Sunshine Coast Council’s B-Well and Prosper program is free and all about helping small business. The best thing is to be proactive about a solution and seek assistance and guidance.
“We are living in an age where there is a lot more awareness about mental health, which is great, but when the going does get tough, don’t just put your head in the sand. There are many organisations like Holiwell that have affordable services that can help.”
Holiwell offers a free business health check called Talk free – Stress free. Visit holiwell.net.au for more information. You can also access the council’s B-Well and Prosper program at bwell.mindstar.com.au.