4 options to consider if your NSW Club is in financial trouble
If you’re a Director, Secretary, Board Member or Adviser of a NSW Club, you have certain legal responsibilities when it comes to administering its affairs and finances. And it’s important to know what those responsibilities are.
By law you must act competently, honestly, in good faith, and in what you consider the best interests of the organisation and the duties of the club. To comply with these obligations you should:
- Monitor the club’s management and policies
- Understand the club’s business, and stay informed about its activities
- Regularly review the club’s financial position, performance and status
- Look into matters where necessary.
Here’s an example of what can happen when officers don’t comply with their legal obligations. As you can see, the consequences can be quite severe.
When a club is in financial trouble, the actions (or inactions) of its officers are often placed under scrutiny. So if you think your club is in trouble, you need timely and accurate advice about your options.
Even if you’re a Director of a small community club and aren’t being paid, you still run the risk of insolvent trading.
So what can do you do when your club is having financial trouble? Here are four options to consider:
In this informal process a specialist turnaround consultant is engaged to review the club with a “fresh eye”. They identify problems and create solutions club insiders may not have thought of.
This is where a liquor licence is transferred from one club to another club under Section 60 of the Liquor Act 2007. It generally involves a financially viable club (the parent club) acquiring the assets and liabilities of the club in financial trouble (the target/dissolved club). Following the amalgamation, the target club (the legal “shell”) is placed into Members Voluntary Liquidation—a formal process to wind up the affairs of a solvent company.
Voluntary Administration/Deed Of Company Arrangement
If the turnaround or amalgamation options aren’t viable, completing a Voluntary Administration (VA) / Deed of Company Arrangement (DOCA) is a formal option. This is where the club’s board resolves the club is insolvent (or likely to become insolvent) and appoint an administrator to take control of the club, and assess the club’s viability moving forward. The board proposes a DOCA (a legally binding agreement between the club and its creditors to satisfy the club’s debts) which is then considered at a meeting of the club’s creditors. This may involve either:
A third party injecting cash into the club to partially repay creditor claims
The club contributing to a fund (managed by a deed administrator from trading profits) to partially repay creditor claims.
If the creditors accept the DOCA, the board generally resumes control of the club. Once the DOCA terms have been complied with, the club is released from administration and creditors can no longer recover any unpaid debts.
Finally, there’s liquidation—a formal appointment that terminally winds up the affairs of a club that can’t pay its debts when they fall due. This is generally a shutdown scenario. Club staff employment is terminated, and the club’s assets sold to repay creditors.
Of course, the strategy you take will depend on your club’s particular circumstances.
If your club (or a client’s club) is in financial trouble and at risk of becoming insolvent, you need to get the right advice and be proactive rather than reactive. So get in touch with us today for a free consultation to discuss your situation.