Safe Harbour – new insolvency law
What is the safe harbour?
Safe harbour commenced on 19 September 2017 and operates as a carve out from the civil insolvent trading provisions of the Corporations Act (provided requirements are met).
How does the safe harbour work?
If a company is on course for insolvency, directors now have a safe harbour to work to turn the company around. The course of action taken by the director must be reasonably likely to lead to a better outcome for the company than moving straight to administration or liquidation.
Whether the course of action passes the ‘better outcome’ test will depend on the company’s situation.
What factors will be relevant in assessing whether your course of action is reasonably likely to lead to a better outcome?
- Remained informed about the company’s financial situation
- Took steps to prevent misconduct by company officers and employees
- Took steps to ensure the company maintained appropriate financial records
- Took appropriate steps to develop or implement a plan to restructure the company to improve its financial situation
- Obtained advice from an appropriately qualified advisor
What you must do to maintain safe harbour protection?
- Pay employee entitlements when due (including superannuation)
- Meet taxation reporting obligations
- Provide the external administrator certain required information in a formal insolvency
When will a safe harbour end?
- If after starting to develop a course of action, the course of action is not implemented with a reasonable period
- The course of actions ceases
- The course of action stops being reasonable likely to lead to a better outcome
- The company goes into administration or liquidation
Conclusion
We are of the view that safe harbour will further improve Australia’s restructuring laws, which will allow more companies, along with jobs to be saved.
For more information on this article or should you have any other questions please contact us.
Important: This information is not advice. Readers should not act on the basis of the material included in this publication. We recommend that formal advice be obtained before acting in the area covered herein.