The Australian Government Passed Safe Harbour Legislation

Written by Linda Cornacchia

Recently, the Australian Government has passed new ‘Safe Harbour’ legislation. This is an important change providing useful opportunities for companies when restructuring. The new law means that directors will be able to trade on their company when its solvency is questionable. The safe harbour provisions will commence the day after the Bill receives royal assent.

Effect on Insolvent Trading Laws

The new legislation does not remove the insolvent trading laws. However, once a director enters a ‘safe harbour’, they are deemed not to be personally liable “where they take a course of action that is reasonably likely to lead to a better outcome for the company and the company’s creditors as a whole.

The insolvent trading safe harbour applies where the directors start developing one or more courses of action that are reasonably likely to provide a better outcome for the company than an immediate liquidation or administration. The safe harbour protects directors from insolvent trading liability arising from debts incurred directly or indirectly in connection with any such course of action.

Impact on Restructuring Businesses in Distress

Restructuring a distressed business is hard to do and requires a wealth of knowledge, experience and understanding of structures. Often directors can be distracted during restructuring subsequently increasing their risk of being personally responsible for the debts they sustain.

This legislation will do a lot to ease concerns of directors, who do the right thing to find a solution that results in a better outcome than the immediate appointment of an administrator.

If you want to know more about applying for a safe harbour and believe this might apply, get in touch with us immediately. As a registered tax agent, we can request safe harbour on our clients’ behalf as well as connecting you with the right experts to help you and your business navigate this period.

Contact us at Advivo Accountants and Advisors on +61 7 3226 1800, or use our Contact Form.