Amid mounting regulatory concerns which have now been compounded by leadership and insolvency concerns, the Board of Star Entertainment Group (ASX: SGR) is considering placing the Company into safe harbour provisions as they attempt to restructure the business and address its financial instability.
These issues have been no surprise to the market, with SGR having consistently notified investors of the regulatory issues that they face, prompting external audits and substantial penalties over the past three years. Most recently, the Company confirmed that advice surrounding the potential invocation of safe harbour provisions had been sought as part of a broader review of Star’s financial position. These discussions are part of an effort to avert insolvency while finalising its preliminary financial report for FY24, the year ended 30 June 2024.
Safe harbour, as outlined in Australia’s Corporations Act, provides protection for Company directors from personal liability for insolvent trading while they attempt to restructure a financially distressed business. This provision is designed to encourage directors to take reasonable steps to save a Company, rather than prematurely entering administration or liquidation.
Star Entertainment’s financial turmoil has been exacerbated by ongoing scrutiny following multiple investigations into its operations, particularly the findings of the Adam Bell report in August. The report, commissioned after an Independent Inquiry, found Star to be unsuitable to hold a casino licence in New South Wales for a second time. This has thrown its flagship Sydney property into jeopardy.
The situation has been compounded by cost blowouts related to the $3.6 billion Queen’s Wharf Brisbane development, which is critical to Queensland’s tourism and infrastructure plans. The project’s escalating costs, combined with weak trading across its Sydney and Gold Coast casinos, have led to a liquidity shortfall Banks and creditors, including Westpac, Barclays, and Deutsche Bank, are reportedly hesitant to provide additional funding unless further government concessions are granted.
Star’s liquidity issues have sparked concerns of a potential collapse, with the Company actively seeking tax relief from both the New South Wales and Queensland state governments. The NSW government has already rejected further tax concessions. However, Queensland remains open to discussions, citing the significant economic and tourism benefits that the Queen’s Wharf development could bring to the state.
The pressure on Star’s leadership has intensified in recent months, with the Company undergoing significant turnover in its executive ranks. New CEO Steve McCann, who was appointed in June 2024, is tasked with steering Star and its casinos through this challenging period. While the Adam Bell report was critical of the previous board and management, it expressed cautious optimism about the Company’s future under new leadership.
As Star works to finalise its FY24 financial report, the company’s shares remain suspended from trading on the ASX with the FY24 report expected to include substantial write downs, likely in the $ billion dollar range, of their assets based on uncertainty around their ongoing casino assets.
The Star board will continue to assess whether the safe harbour provisions can offer the necessary legal protections to guide the Company through this precarious period without breaching the Corporations Act and trading insolvently.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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