Ensuring solvency

Ensuring the solvency of an organisation is among the fundamental duties of a director. And overseeing organisations that are undergoing financial difficulty involves difficult legal, ethical and strategic decisions.

A new pilot program, Company Directors Course Specialisation: Ensuring Solvency, will help directors make the right calls overseeing organisations in financial stress.

Currently, if directors err, they are subjected to an insolvency regime that is among the harshest in the world. The penalties for trading while insolvent can involve directors being personally liable for compensation or even criminal charges, according to the Australian Securities and Investments Commission’s guide to insolvency.

Yesterday the Federal Government released its long awaited draft legislation that would reform Australia’s insolvency laws. The draft reform includes a safe harbour provision that could allow directors breathing room to deliver better outcomes for organisations that are in financial difficulty.

“A workable safe harbour can help boost productivity and save jobs,” AICD General Manager Advocay Louise Petshcler said in response to the welcome news. “Instead of seeing businesses shuttered and people put out of work due to the threat of insolvency, a safe harbour framework would enable directors to work to secure a better outcome and potentially avoid voluntary administration.”

But for the time being a period of financial stress at an organisation will place a heavy burden on a director. Directors cannot afford to be underprepared should solvency questions arise. When growth remains sluggish in many parts of the Australian economy, directors of organisations need to be ready if the sector they operate in experiences a downturn to deal with the challenges that uncertain solvency presents.

The new course offers a unique and immersive experience to prepare for these daunting situations. Company Directors Course Specialisiation: Ensuring Solvency is tailored to experienced directors and executives who need to be confident they can steer their organisation through financial stress.

While reading guides, statutes and theory is important in understanding a director’s duties, knowing what to do when overseeing a distressed company requires subtle business judgements and decisions that can only be learned through experience. Participants in this new course will be placed in a board simulation so that they can recognise what to do in practice if a solvency crisis hits. Highly skilled facilitators with subject matter experience take participants through an engaging and comprehensive case study. The course provides a safe environment to test theory and assumptions.

Identifying the early warning signs, developing a turnaround plan, negotiating with stakeholders and fulfilling duties will all be covered in the course. By being prepared and practiced, directors can make sure they make the right decisions when called upon in a solvency crisis.

Open to graduates of the Company Directors Course™, the course pilot will be held in Melbourne on 20 April. For more information, or to register, visit the course calendar.