Safe Harbour Guide

Prior to the amendments, the provisions of the Corporations Act governing corporate insolvency focused on the need for Directors to appoint Voluntary Administrators of a company if they suspected that the company was insolvent in order to avoid the risk of the Director being found personally liable for debts that the company incurred whilst it was trading insolvently.

The appointment of a Voluntary Administrator is frequently followed by the appointment of a Liquidator and results in the total loss of any goodwill of the business of a company and the fire sale of assets and little or no recovery of debts for unsecured creditors.

The purpose of the safe harbour provisions is to encourage a culture of restructuring in Australia by offering protection to Directors who are proactively taking steps to achieve a better outcome for the company than the outcome likely to flow from the immediate appointment of an Administrator or Liquidator.

The new safe harbour provisions are found in Section 588GA of the Corporations Act and effectively provide a carve out from the existing insolvent trading regime in Section 588G.