Australian company directors are subject to stringent insolvent trading laws. The confidential safe harbour provisions in the Corporations Act 2001 provide an added layer of protection to directors.
Presented by Olvera Advisors
There has been a significant and widely reported increase in the number of companies facing insolvency in recent months. Statistics from the Australian Securities and Investments Commission (ASIC) show insolvency appointments in the September quarter rose by 45.5 per cent from the same period in 2023. This is a clear indication of the many companies — and their directors — that have fallen into financial distress.
Aside from the reputational damage of an insolvent trading claim, the Corporations Act 2001 (Cth) imposes significant penalties on directors whose company is found to be trading while insolvent. Directors can also be exposed to damages claims or civil and criminal penalties. In addition, the costs of claims by a liquidator or ASIC for insolvent trading are unlikely to be covered under a directors and officers (D&O) insurance policy.
How does safe harbour mitigate risk for directors?
Safe harbour is a legislative process that provides protection to directors of companies that take active steps to turn around an organisation that may be approaching insolvency.
Engaging a safe harbour expert during periods of uncertainty, and complying with the safe harbour regime, enables directors to focus on leading the company out of difficulties and mitigating the concern of personal liability.
Essentially, the process allows company directors to remain at the helm of their organisation while also implementing a plan that would deliver a better outcome — as opposed to the immediate winding up of the company.
“Protecting and retaining highly skilled directors with the requisite experience, particularly during periods of uncertainty, will give the company the best chance of survival,” says Kate Barnet MAICD, principal at Olvera Advisors.
Safe harbour can be viewed as a risk mitigation strategy, giving directors a level of protection against personal liability and allowing them to focus on the corporate issues, which includes working to develop and implement a plan that delivers long-term viability for all stakeholders.
Learn more about Safe Harbour with Olvera Advisors.
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