School governance & financial viability during COVID-19

1. Focus on cash

• Fee collections – Consider the school’s current policy around non-payment of fees. Is this appropriate in the current environment? Can fee discounts be offered to encourage payment and secure cash flow now?
• Creditor payments – Can payments be delayed or negotiated?
• Landlords – Is rent relief by negotiation an option?
• Banks – Negotiate payment deferral (of principal and interest) with banks where possible.
• Stimulus packages – Understand what Federal and State stimulus packages may be available. This may include JobKeeper; PAYGW cash flow boost and other potentially relevant initiatives here.
• Protect current sources of funding – Commonwealth funding may be at risk for independent schools who do not make in-person classroom teaching available to those who need it.

2. Scenario planning

A robust short to medium term forecast is essential. Whilst the focus at this time is on cash flow, an integrated plan including profit and loss and balance sheet should be prepared.

• Plan early – As cash flow injections from ATO, Government, and Financial Institutions dry up, cash flow will tighten further. Early action and robust planning will be the key to navigate through this crisis.
• Include downside scenarios – Assessing and planning for downside scenarios (eg. what if 50% of school fees are not paid; what if enrolments decline by 20%?) will ensure you have the resources and plans in place to weather future uncertainties.
• Outside point of view – Independent preparation or review is recommended to assist in stress testing key assumptions.
• Anticipate funding requirements – Stakeholders (Banks in particular), who are contemplating providing financial assistance, will require a robust plan underpinned by a strong financial forecast to give comfort and clarity. A robust plan will maximise your opportunity to access any necessary funding support.

3. Engage with key stakeholders

Communication is key. Early and open communication is vital to gain the trust and support of key stakeholders.

• Parents – This is an anxious time for parents. Many may be facing financial difficulty themselves, together with the added challenges of overseeing their children’s education in a home-schooling environment. Providing timely and clear instructions to parents (particularly relating to fee payment obligations and homeschooling matters) is critical to maintaining a strong and trusted relationship, and to safeguard continued enrolments into the future.
• Staff – Employees need to know where they stand and trust messages from their school leaders – tone, accuracy and relevance can make all the difference to employee co-operation and behaviour. In many cases, workforce solutions can be negotiated, and a big part of this is active engagement to explore what options can be accommodated. Engaging with your legal advisors early will help clarify the options available.
• Landlords – Consider the commercial rent relief options available. Could these apply? 
• Banks – All major lending institutions are offering support to businesses impacted by COVID-19. This relief includes deferral of loan repayments and fee waivers. Consideration of loan restructures or requests for further credit may be appropriate. Banks faced with requests for additional support will require evidence of sound financial planning (refer point 2).
• Regulator – Keep your Regulator and other review bodies informed.

4. Board meetings – records to support decisions

School Boards must continue to meet and effectively govern the school, but what does this look like under these circumstances?

• Constitutional requirements – Many School Constitutions (Governing Rules) are out-dated and may not allow for electronic/virtual meetings. Does your constitution currently allow for electronic meetings and circular resolutions? Constitutional amendments may be required to ensure that resolutions are valid in an online environment.
• Reliable information / Board Packs – What information is the Board currently receiving to make informed decisions? Is this information accurate and based on reliable data, and has it come from appropriately qualified people?
• Board Minutes – Ensuring that all discussions and decisions are well documented is critical. Many of the interim support measures, including relief from insolvent trading (refer point 5), are currently available for a 6 month period only. As these safety nets fade away, Boards may need to rely upon written record to substantiate decisions made.

5. Directors’ duties and solvency

New legislation has passed (effective 24 March 2020) which temporarily (for a 6 month period) provides protection to Directors against a trading whilst insolvent claim. This protection is available to Directors where:

• The debt is incurred in the ordinary course of business; and
• The debt is incurred in the 6 month period commencing on 24 March 2020 (or longer period as fixed by regulation)