Safe Harbour Non-Profit Case Study

A long established not for profit organisation providing child foster care and support services was badly impacted by government reforms aimed at forcing consolidations within the sector. Due to many factors, the organisation estimated that it needed 6 to 12 months to find a suitable ‘partner’ to consolidate operations.

The Board were mostly volunteers, however, there was a full-time professional executive team and many long running staff.

The Board attempted to find a suitable partner however with redundancy payouts estimated to be significant should the organisation be forced to close down, the Board were advised that they would likely be challenged by a liquidator for trading insolvently if they did not find a suitable organisation to merge with and to continue with many of the staff.

After a frantic search and with only a slight chance of a definite merger the Board could not take the risk of trading insolvently and placed the organisation into voluntary liquidation. The primary motivation was to avoid insolvent trading.

Had safe harbour been in existence, the Board could have triggered those provisions and quite possibly gained sufficient time to fully explore merger options with a better prospect of securing a transfer of the operations and a large percentage of the staff.

Unfortunately, the organisation was closed, and all employees made redundant. The Government ended up paying many of the employees their entitlements through the employment redundancy scheme.

Safe Harbour Company Exit Case Study

The Board of a long-established marketing agency found themselves faced with generational change within the management structure along with a material alteration to the market conditions due to the constantly changing demands placed upon marketing consultancies in the era of digital disruption.

The company was quite competent with its financial management and it had produced many financial scenarios based on how the business navigated the changing environment.

The shareholders/directors were conscious of the uncertain future and were seeking comfort and confirmation as to the solvency of the company and their personal exposure should the worst-case scenarios eventuate.

If that were to happen then the company could have been technically insolvent from the time they sought external advisers to assist them in determining their likely exposure.

This situation and the uneasiness the Board felt because of the potential insolvency could have been dramatically alleviated had ‘safe harbour’ been a reality at the time the Board sought assistance.

As it turned out the company decided to fold and sell off what it could, so the Board could never be accused of insolvent trading at the late stages of their careers. This was a poor outcome as there were many in the company who would have taken the business over and driven it back to profitability, however, the Board did not want to risk an uncertain transition period and the candidates wanted a business with a clean bill of health and hence decided to fold.

Safe harbour could have saved the business and the directors may have secured a premium for their share of the business, however, instead they received very little from their business they had built up and worked in for over 20 years.