Safe Harbour Protection for Directors
Company directors can now obtain protection from insolvent trading personal liability.
Under new Australian laws introduced in September 2017, directors of Australian companies whose businesses are experiencing financial difficulties, can now obtain protection from insolvent trading personal liability.
The best time to obtain this protection is when it is first suspected that the company is insolvent or likely to become insolvent. The company must meet certain criteria and be prepared to develop one or more courses of action that are reasonably likely to lead to a better outcome, than the immediate appointment of an administrator or liquidator to the company.
To be confident with safe harbour protection the director should ensure:
- The company has received advice from an appropriately qualified professional who is able to form a view that enacting safe harbour will result in a better outcome for the company than liquidation or voluntary administration.
A turnaround specialist, who is qualified and has extensive experience in operational and financial turnaround is well placed to provide this advice.
- A turnaround plan should be developed where one or more courses of action are reasonably likely to produce a better outcome.
- Be fully compliant with its tax reporting obligations (not necessarily paid);
- Be able to pay employee entitlements;
- Maintain appropriate books and records.
Safe harbour protection is available from the point in time when the directors start developing one or more courses of action. There is no specified duration to safe harbour protection provided the company is continuing to work towards an outcome that is reasonably likely to provide a better outcome than formal insolvency. The turnaround plan and initiatives may change and develop over the course of safe harbour protection.
We recommend that a monthly meeting is held to:
- Confirm that the turnaround plan is being implemented;
- Revisit the plan to test that it is still valid to achieve a better outcome;
- Confirm statutory reporting obligations are being maintained;
- Ensure appropriate records are being maintained.
The good news is that company directors can seek help earlier. It is important for advisors to communicate this to company directors if they become aware of any circumstances that may warrant safe harbour protection such as:
- Difficulty in meeting outstanding tax obligations;
- Tight cash flow;
- An expectation that the next big job/sale/contract will save the company;
- Decline in earnings;
- Pressure from creditors;
- Legal demands;
- Breach of lending covenants;
- Change in external market factors.
- Document engagement of an appropriately qualified professional;
- Confirm that the threshold conditions are satisfied;
- Recieves a formal recommendation on safe harbour;
- Have a director’s resolution to implement safe harbour.
Please call one of our experienced advisors to arrange a confidential and obligation free consultation.