The Safe Harbour legislation was introduced in 2017 to alter the director’s decision process prior to appointing a voluntary administrator or liquidator and rewards such behaviour with protection against personal liability for insolvent trading of a corporation. If the Directors adopt the prescribed steps, then personal liability for insolvent trading is excluded from that point on. Note here that the directors must have met all the legislative requirements to take advantage of the safe harbour.
The primary trigger is that the directors can show they were developing or taking a course of action that at the time was reasonably likely to lead to a better outcome for the company than proceeding to immediate administration or liquidation.
How TPH Can Help
TPH provides a systematic step-by-step approach to the implementation of Safe Harbour which simultaneously meets the legislative requirements of Safe Harbour while also maximising the changes of successful turnaround and continued operation. This system meets but goes beyond the guidelines provided by the Turnaround Management Association.
The system includes cashflow analysis, debt negotiation, short terms cashflow resolution, strategic direction, personnel management, KPI management, sales and marketing, accounting and bookkeeping systems and services and more.
For the directors to utilise the safe harbour provisions the onus is on the directors to prove that they have:
- They have been taking appropriate steps to develop or implement a plan to restructure the company to improve its financial position;
- They have adopted a course of action that is likely to lead to a better financial outcome for the company;
- They kept themselves informed about the company’s financial position;
- They have taken steps to prevent misconduct by officers and employees of the company;
- They have taken appropriate steps to ensure the company maintained appropriate financial records;
- They have obtained appropriate advice from an appropriately qualified adviser.
Other pre-conditions are:
- at all times the company complies with its obligation to pay its employees (including their superannuation) and meet its tax reporting obligations.
- a director complies with certain formal obligations during a subsequent formal insolvency should the company be unable to be turned around.
- safe harbour applies from the time the director suspects the company may become insolvent and starts to adopt safe harbour to the time they stop complying with the safe harbour requirements
- Safe harbour will also operate to limit the compensation payable by a holding company where the directors of the subsidiary had the benefit of safe harbour and where the holding company was taking reasonable steps to ensure the directors of the subsidiary had the benefit of safe harbour