Australian companies should consider Safe Harbour provisions first instead of forcing directors to place their companies into administration prematurely.
As part of the Government’s insolvency law reform, the Safe Harbour insolvent trading provisions began on 19 September 2017. Safe Harbour provisions encourage directors to pursue restructuring opportunities that will deliver a ‘better outcome’ for all stakeholders (shareholders, directors, employees, suppliers, lenders, customers) compared to the immediate liquidation or administration of the company.
At Byronvale Advisors, we believe it is vital for Australian businesses to understand how Safe Harbour can help turn their company around, so we have broken down and explained the fundamental factors and consideration for a better outcome in detail.
To obtain the benefit of the 2017 Safe Harbour provisions, directors must be able to show that the course of action adopted by the company is ‘reasonably likely’ to lead to a ‘better outcome’. This course of action comes in the form of a written plan that can help directors restructure and trade the company out of its financial difficulties as opposed to prematurely seeking the appointment of an administrator or liquidator.
A ‘better outcome’ is an outcome that is better for the company than immediately appointing an administrator, or liquidator. Safe Harbour encourages company directors to remain in control of a financially distressed company and take reasonable steps to restructure and allow it to trade out of its difficulties.
To qualify for Safe Harbour, directors must be honest and diligent in ensuring the company has:
Safe Harbour provisions in the Corporations Act offer directors protection from civil insolvent trading provisions within the Corporations Act while a company is attempting to restructure or turn its financial position around.
Directors must comply with certain requirements to rely on the Safe Harbour provisions in s588GA, including:
The factors considered in determining if the course of action is reasonably likely to lead to a better outcome are:
A restructuring plan comprises:
For the best chance of relying on Safe Harbour during the execution of a turnaround strategy, directors should:
The 2017 law reforms aim to develop a culture of restructuring the company’s future so all stakeholders (shareholders, directors, employees, suppliers, lenders, customers) have an opportunity to obtain a better outcome if a company is in financial distress.
Please contact our team for more information and find out how Safe Harbour is right for you.