Strategic Financial Restructuring
Contents
Executive Summary
This case study delves into the successful partnership between HK Partners, and a premier financial services business.
Despite being highly profitable, the business and its ultra-high net worth shareholders were grappling with challenges stemming from an outdated shareholder model and group structure, leading to highly inefficient tax obligations. When HK Partners was engaged, the business set forth on a journey of financial restructuring. This detailed transformation included the introduction of an efficient group structure, the formulation of an effective remuneration plan, the design of robust internal controls, and a family office style approach to the management of shareholders tax, wealth and advisory requirements. These critical enhancements resulted in substantial tax savings, and facilitated the alignment of shareholders, leading to substantial growth and profitability of the business.
Through a structured approach and ongoing advisory, HK Partners helped the business and shareholders achieve their goals while ensuring smooth financial operations and optimised wealth growth.
Understanding the business and shareholder needs
HK Partners initiated an extensive meeting process involving all shareholders. The first order of business was to gain a thorough understanding of all aspects of the business and the shareholders vision for the future. This led to in-depth discussions with each of the shareholders as to the goals and aspirations for their individual family groups.
Through this process, HK Partners was able to gain a comprehensive understanding of the dynamics within the business and shareholder group whilst identifying key issues and potential road-blocks which might hinder future growth.
A road-map was then developed not only for the business, but for each shareholder, taking into account a client journey over different timeframes. This process enabled a systemised transition from the previous advisors, ensuring that key milestones were mapped with timeframes and completed.
Group Structure Refinement
As highlighted in the initial review process with shareholders, the business’ foundational structure demanded a comprehensive overhaul. As such, a thorough review of the existing structure was conducted by HK Partners. Upon review, specific issues with the existing structure were identified, mainly around poor asset protection and tax inefficiency.
HK Partners devised a strategy to restructure existing shareholdings whilst incorporating a new shareholder at the same time, all whilst avoiding potential tax pitfalls. Drawing on close relationships with professional specialists, HK Partners worked closely with tax lawyers to document the restructure strategy and implement it.
In-depth Remuneration Restructuring
Through the initial review process, it was evident that the existing remuneration structure for working shareholders was not satisfactory.
This was having a negative impact on the dynamics within the shareholder group. Therefore, solving this issue was deemed to be a priority by HK Partners.
HK Partners devised a new remuneration model for shareholders which was done concurrently with the restructuring of shareholdings to ensure maximum efficiency. The new remuneration model resulted in a well-aligned shareholder group and annual payroll tax savings in excess of $350,000 per annum. Again, HK Partners worked closely with specialist tax lawyers to ensure potential issues were documented and addressed whilst adhering to tax legislation.
Comprehensive CFO Services Enhancement
The business had previously utilised a part-time bookkeeper who was retiring. As such, a solution was required to manage the transition of the bookkeeping work and deal with the added sophistication of the business remuneration structure. HK Partners spent time working from the business’ offices, sitting with the retiring bookkeeper to thoroughly understand the existing processes. From there, a robust set of internal controls and procedures were developed.
HK Partners assumed the role of the external CFO, managing all functions including responsibility for all cash payments. A key feature of this role was the implementation of monthly shareholder meetings on-site, with detailed management reports encompassing various issues such as profitability, cashflow, tax obligations and more.
As the business grew and obtained its own financial services licence, HK Partners worked to engage external auditors and manage the audit process on an annual basis.
Thorough Personal Insurance Consultation
Recognising the importance of risk management, HK Partners facilitated a review of the shareholders existing personal insurance policies. By engaging external risk advisory specialists, significant policy improvements were identified, and premium savings were achieved. HK Partners also facilitated the process of obtaining new policies in collaboration with the risk advisors.
Personal Wealth Management
Being highly successful investment professionals, the shareholders already had a thorough understanding of the Australian and international investment landscape.
Rather than work closely with specialist investment advisors as would normally be the case, HK Partners instead assisted the shareholders with understanding their overall wealth portfolios, paying careful attention to asset allocation and ongoing cashflow. This was enhanced with specialised reporting software introduced by HK Partners and formed part of the backbone of quarterly family board meetings for each of the individual shareholders.
Estate Planning
Given the ultra-high net wealth of the shareholders, extreme importance was placed on the estate planning process. After a detailed review and meetings with shareholders to understand their wishes with respect to inter-generational wealth transfer, a detailed road-map was developed. This is a living document and is updated annually to ensure all facets of the future wealth transfer are considered and adhered to. HK Partners worked closely with estate planning lawyers to reflect the shareholders wishes within their wills, enduring powers of attorney’s and enduring guardianships. These documents are reviewed annually in conjunction with the abovementioned road-map with changes being made as and when required.
Robust Ongoing Tax and Compliance Management
HK Partners transitioned the business and shareholder entities to live, purpose-built software. This transition enabled real-time reporting, improved both the business and shareholder cash flow management, facilitated comprehensive asset allocation insights for the shareholders across their individual groups, and provided deeper tax planning capabilities.
HK Partners ensured both the business and shareholders quarterly and annual tax and compliance obligations were met across various entities.
Tailored Family Advisory Services
To maintain effective communication and collaboration, HK Partners established quarterly family board meetings for individual shareholders with a structured agenda. These meetings included family members and other specialists as required, and were held separate to monthly shareholder meetings.
By facilitating these sessions, HK Partners ensured proactive decision making, comprehensive oversight, and ongoing alignment with the family's financial goals.
Conclusion
By offering personalised financial services, HK Partners successfully assisted the business and wealthy shareholders in navigating complex financial matters. Through their expertise in external CFO services, investment management, tax and compliance, estate planning, and ongoing advisory, HK Partners streamlined operations, optimised wealth growth, and supported inter-generational wealth transfer.