Insolvent trading refers to a situation in which a organisation continues to operate and incur debts while it is insolvent or unable to pay its debts as they fall due. In Australia, insolvent trading is regulated under the Corporations Act 2001. It is a serious legal and financial issue that can lead to severe consequences for both the directors and the club itself.
To ensure that they do not trade insolvent, clubs and their directors can take the following steps:
| Regular Financial Monitoring | Continuously monitor the financial position to identify any signs of insolvency early on. |
| Seek Professional Advice | If there are concerns about the club’s solvency, seek professional advice from accountants, financial advisors, or insolvency experts who can provide an objective assessment of the financial situation |
| Meetings | Hold regular board of management/ management committee meetings to discuss the club’s financial performance and any concerns regarding solvency. Keep detailed records of these meetings, including minutes |
| Timely Financial Reporting | Ensure that financial reports are prepared accurately and in a timely manner. This includes keeping records of all financial transactions, debts, and liabilities |
| Cash Flow Management | Implement effective cash flow management practices to ensure that the club can meet its financial obligations as they become due. This may involve setting aside funds for known future expenses |
| Budgeting and Financial Planning | Develop and adhere to a budget that reflects the club’s financial capabilities. Regularly review and adjust the budget as necessary. |
| Director’s Duties | Directors have a duty to act in the best interests of the club and its creditors. They must not allow the club to trade while insolvent. If insolvency is likely, directors should consider appointing an administrator or liquidator. |
| Restructuring | If the club is facing financial difficulties, explore options for restructuring its debts, renegotiating contracts, or seeking additional funding. Be aware of the legal requirements and obligations associated with such actions |
| Legal Compliance | Ensure that the club complies with all legal obligations, including tax payments, employee entitlements, and superannuation contributions. Non-compliance can contribute to insolvency issues. |
| Professional Development | Directors should stay informed about changes in the law and regulations related to insolvency and regularly engage in professional development to understand their responsibilities. |
If club are potentially looking to trade insolvent, SLSQ may have the capacity to support the club through financial guidance, please contact SLSQ on ethichalstandards@lifesaving.com.au
Resources
- Managing charity money: A guide for Responsible People | ACNC
- What you can do to protect your charity from fraud | ACNC
- Small charities: Managing charity finances | ACNC
- Establishing strong financial controls at your charity | ACNC
- Annual financial reports | ACNC
- Governance Toolkit | ACNC
- Queensland Government Reporting requirements for charities and fundraising
- CPA Charities – a guide to financial reporting and assurance requirements
- Financial tools and templates | business.gov.au
Revision:
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