SV Strategic Solutions – Safe Harbour

Safe Harbour Laws

You may or may not be aware that the Treasury Laws Amendment (2017 Enterprise Incentives No.2) Bill 2017, was ratified by both houses in the parliament recently with the aim of the legislation to create safe harbour provisions for directors embarking on informal restructuring campaigns and a moratorium on automatic activation of ipso facto clauses when a company is formally restructuring.

 

The Bill received Royal Assent on 18 September 2017 and under the legislative provisions the safe harbour laws came into effect on 19th September 2017 and the ipso facto laws will commence on 1 July 2018.

 

The purpose of safe harbour laws is to provide protection to directors from being personally liable for insolvent trading provided they genuinely attempted to restructure their company. This operates to carve-out the insolvent trading provisions of section 588G of the Corporations Act 2001 (Cth) and seeks to provide protection outside of a formal insolvency appointment, for a director who, at the time when the debt was incurred, suspects that the company may become or is insolvent and who then takes a course of action that may include a restructure to trade out of its difficulties.

 

This means that a director would only be liable for insolvent trading, if it is shown that the director did not take any action that would try and lead to a better outcome for the company and its creditors, rather than entering into a formal insolvency appointment.

 

In a nutshell, the criteria to meet safe harbour is based on the following:

 

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