Safe Harbour

On 18 September 2017, Royal Assent was granted to the Safe Harbour Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017, and the bill, more commonly known as the Safe Harbour reforms, became law. The reforms were introduced due to the Government recognising the need to better preserve the enterprise value for companies and their stakeholders, by enhancing the ability to continue to trade outside of a formal insolvency process.

The first part of the reforms introduces a carve out of liability for directors from the existing civil insolvent trading provisions, offering Safe Harbour for directors of a company that undertake a restructure in accordance with the new Corporations Legislation.

What is a Safe Harbour Restructuring Plan?

Where a director suspects a company may become or is insolvent, he or she may commence a Safe Harbour plan, a course(s) of action that is reasonably likely to lead to a better outcome than immediately placing the company into voluntary administration or liquidation. This process, subject to evidentiary requirements, will protect the director from civil claims for insolvent trading in circumstances where the company subsequently enters into liquidation.

In ascertaining whether a director be excluded from liability for insolvent trading the Court may have regard to whether, when developing or implementing the Safe Harbour plan, the director:

  • was properly informed as to the financial position of the company;
  • took appropriate steps to prevent misconduct by officers or employees of the company;
  • ensured that the company maintained appropriate books and records;
  • obtained advice from an appropriately qualified entity; and
  • constructed a plan that had reasonable prospects of improving the financial position of the company.

The director must also ensure that employee entitlements are paid when they fall due during the period of the Safe Harbour plan and that all tax lodgements are made on time.

Safe harbour is a useful restructuring tool to be used to provide protection for directors while making a genuine attempt to implement a turnaround. However, it is essential to obtain proper advice throughout the process, being legal and accounting advice.