RSM Australia

Safe harbour protection for directors

RSM offers Safe Harbour strategies

What is safe harbour?

Safe harbour is an additional defence to a claim by a liquidator or creditor against a director personally, for debts incurred by the company while it was insolvent. It provides an exception to the rule that a company cannot continue trading if it is insolvent.


The safe harbour exception allows you to continue trading when the company is insolvent, but only if you take certain actions that are reasonably likely to produce a better outcome for the company than immediate liquidation.

To claim safe harbour you must take these actions (as a minimum):

  • Keep your books and records in order
  • Provide employee entitlements, including superannuation
  • Keep tax records up to date
  • Seek advice from a qualified restructuring advisor
  • Devise and document a restructuring plan resulting in a better outcome than an immediate liquidation
  • Comply with the plan

If you take these actions, you (as the director) may be protected against legal claims of insolvent trading.

Keep in mind that you cannot claim safe harbour for debts incurred before you have taken these actions.

Why is safe harbour important?What is safe harbour? Safe harbour is an additional defence to claim by a liquidator.

When a company is in financial trouble, it often feels easier to ignore it or hope that it will all go away.

As a director, you may:

  • Avoid phone calls
  • Make promises you can’t keep
  • Feel out of control
  • Make irrational decisions
  • Suffer stress or depression

Safe harbour is an opportunity to recognise what is happening, stop and evaluate the situation, and develop a turnaround plan.

What that plan looks like depends on your company’s unique situation.

But it offers you the chance to be proactive at a time when many directors are simply reacting to the whirlwind of events that usually follow the realisation of impending insolvency.
The ultimate outcome of a restructuring plan is to return your company (or part of it) to solvency and help you deal with creditor claims. Occasionally, it may result in an orderly wind-down of the company and liquidation.

How can RSM help with safe harbour?RSM provides assistance with safe harbour and can evaluate your company's situation

As certified accountants and experienced business advisors, we can:

  1. Explain safe harbour and how it works
  2. Evaluate your company’s situation
  3. Offer advice on challenges and opportunities
  4. Help you create a sound restructuring plan
  5. Keep you accountable

 

If your business does go into liquidation, you can use these measures as a defence against a liquidator’s claim that you allowed the company to incur debts while it was insolvent.

For more information about safe harbour and developing a turnaround plan, please contact one of our Restructuring and Recovery Specialists

RSM offers Safe Harbour strategies

Insolvency Reform Edition 21 | Is it time for radical restructuring reform?

31 March 2020
The reckoning - A Black Swan event in the form of a pandemic will test the capacity of personal and corporate insolvency regimes to deal with the impact of the pandemic on the financial position of individuals, corporations and incorporated associations.

Directors now immediately liable for overdue superannuation amounts

5 September 2019
From April 1st 2019, directors may be held personally liable for overdue superannuation from the moment it becomes overdue.

When insolvency looks likely: do you need safe harbour?

10 April 2019
If you’re in touch with your company’s financial position and receive regular (if not daily) updates, you should be able to see the writing on the wall well before the situation becomes dire. But how do you know when you’ve passed the point of 'not doing well' and entered 'insolvency' territory?

Company directors get a safe harbour in relation to potential insolvent trading claims

4 December 2017
On 18 September 2017, what has become called “the safe harbour defence”, became available to company directors from claims against them for allowing the company to incur debts whilst insolvent (“insolvent trading”). This reform was part of the Government’s National Innovation and Science Agenda launched in late 2015.

Insolvency Reform Edition 12 - June 2017 - Ahoy! A safe harbour?

16 June 2017
Ahoy! A safe harbour? View the past edition of the Insolvency Reform newsletter - Insolvency Reform Edition 11 - May 2017 HERE