Safe Harbour for Directors

Pursuant to the insolvent trading provisions in section 588G(2) of the Corporations Act 2001 (“the Act”) a director can be held personally liable for certain debts incurred by the company if the company was insolvent at the time, or becomes insolvent by incurring those debts.

The safe harbour provisions in section 588GA(1) of the Act provide directors relief from this personal liability and the opportunity to continue to trade the company under distressed circumstances, provided they are taking a course of action that is reasonably likely to lead to a better outcome for the company and its creditors, compared to the appointment of an administrator or a liquidator.

It is recommended that directors consider the safe harbour provisions from the particular time they start to suspect the company may become or be insolvent.