I have had a number of clients ask me about the recently Safe Harbour provisions and how they apply to business.
The Safe Harbour provisions were introduced into the Corporations Act 2001 (Cth) (Act) in September 2017 to provide company directors with protection from insolvent trading provisions whilst they implemented and carried out a course of action that would reasonably be likely to lead to a better outcome for the business which is incorporated and subject to the Act.
It is aimed at and encourages directors to consider and pursue opportunities to restructure the business with a view to provide better outcomes to stakeholders rather than liquidation or administration of the company.
The Safe Harbour will apply from the moment the directors commence and implement:
- one or more courses of action that is reasonably likely to lead to a better outcome for the business than immediate administration or liquidation; and
- will carve-out from the insolvent trading provisions of the Act, which will provide directors protection from any personal liability for debts incurred by the business directly or indirectly in connection the course of action.
It is important to remember that for the Safe Harbour provision to apply the directors must act honestly and diligently ensuring the business:
- complies with all its obligations to maintain adequate books and records
- pays employee entitlements when they are due including superannuation
- keeps up to date with its tax reporting obligations and not be more than three months in arrears
I am often asked how I show that it is a better outcome for the business.
It must be remembered that each set of facts will be different and has to be looked at on a case-to-case basis.
However, some actions that will be universal to each case are:
- obtaining professional independent advice
- making sure the directors are totally conversant with the businesses financial position
- making sure there are appropriate measures in place to ensure proper records are kept
- ensuring all employees and responsible officers behave appropriately and lawfully
- ensuring the directors are actively involved in the process and engaging with the relevant stakeholders such as banks, employees, suppliers etc.
- developing a clear plan to restructure the business
It must be remembered that the Safe Harbour is not there to protect directors who continue to trade when it becomes totally unviable.
The Safe Harbour provisions are for a reasonable period and if a better outcome is unlikely or the directors cease to implement the course of action then any protection offered by the Safe Harbour provisions will cease.
It is important that any director ensures they get expert advice and keep records of all the actions they have taken.
A review of the Safe Harbour scheme took place between August and November 2021 and the panel made fourteen recommendations.
The review was tabled by the Government in March 2022 and its response was that it agreed and noted the fourteen recommendations.
A copy of the Governments response can be found here.
How can FC Lawyers help?
It is very important to remember that Safe Harbour is not an automatic lifeline, and the provisions of the Act must be complied with to ensure the directors of a business benefit from them.
Our team have significant experience in assisting directors of businesses both with considering their options and liaising with stakeholders and their own advisors to navigate these often-troubled periods in their business life.
If you would like to discuss any information in the above article, please contact our team today.
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