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There are several recognised benefits to being part of a global group. These can include:
By working closely with their global parent, Australian subsidiaries may be able to tap into these benefits and achieve greater success in the global marketplace.
So while the upside can be significant, it's crucial to consider the potential risks and challenges that may arise.
A director of an Australian company must comply with all obligations required under Australian law, which include inter alia:
If a director fails to comply with their obligations, their reputation and personal financial position (including their family home) could be at risk.
A concerning trend has emerged where Australian subsidiaries have been funding their global parent, however, when the subsidiary needed its cash returned, funding was not reciprocated as expected. Quick action is required by Australian directors in these circumstances, to mitigate the possible impacts on themselves and their company.
An Australian company had been providing financial support to its global parent during profitable trading in Australia over a number of years.
Despite verbal assurances, the global parent did not repatriate funds when requested. This meant the Australian company was unable to pay accumulating tax debts and faced insolvency.
Ultimately the directors chose to enter Voluntary Administration to protect themselves from insolvent trading.
A global parent underwent a formal restructuring process which constrained the Australian company’s ability to access cash and negotiate supplier contracts.
The directors sought safe harbour protection advice while they negotiated alternative debt funding.
A director of an Australian company did not keep themselves informed of the company’s financial position and was then surprised to learn that the global parent arranged for the voluntary administration of the subsidiary, without consulting the Australian director.
The director was only made aware of the impending appointment when a consent to act as administrator was presented by the proposed administrator.
A company’s ability to access cash may become an issue in scenarios where there are:
The good news for Australian directors is that by considering the possible risks and challenges, and seeking advice early, practical solutions are available.
When working within a global group, directors of Australian subsidiaries may face additional challenges in fulfilling their duties. For example, they may have limited control over the group's overall financial position or be subject to conflicting demands from the parent company. Australian directors may experience an uncomfortable surprise if they seek a return of funds from a global parent and the request is denied or delayed.
In these situations, it's important for directors to seek professional advice and to carefully document their decision-making processes to demonstrate that they have acted in the best interests of the Australian company.
Directors can take other proactive steps, such as:
By staying alert and proactive, Australian companies can work effectively with global parent companies while protecting their own interests and ensuring long-term success.
We are experts in financial and operational restructuring, safe harbour, and formal insolvency. We have access to restructuring and insolvency experts in all regions globally, including Australia, the UK, and Europe.
By Leah Campbell and Anna McLaurin