With the Safe Harbour reforms passing through the Senate late Monday night, it’s a timely reminder of what is required of directors to rely on the reforms. The reforms are designed to be accessible to all business however; there are some hurdles to clear.
The key requirements for directors to have access to Safe Harbour are:
- compliance with the obligation to maintain adequate books and records – directors must remain informed of a company’s financial position;
- provision for employee entitlements i.e superannuation must not be more than three months in arrears and payment of entitlements when they fall due; and
- compliance with tax reporting obligations i.e all tax reporting must be no more than three months overdue. Emphasis is on reporting, not payment.
If eligible, actions expected of a director in determining if a course of action is reasonably likely to lead to a ‘better outcome’ for a company and its creditors include:
- taking steps to prevent misconduct by officers and employees of the company – including not incurring new debts that knowingly can’t be repaid;
- taking steps to ensure appropriate financial records are maintained;
- obtaining appropriate advice – this term is deliberately broad to accommodate a wide range of businesses and scenarios;
- keeping themselves informed of a company’s financial position; and
- development and implementation of a plan to restructure the company to improve its financial position.
We believe directors should embrace the introduction of these reforms which address their principle risk, being exposure to personal liability. Initiating the safe harbour protection is designed to be readily accessible with only a few steps required before protection is enacted. The key challenge for directors remains early and proactive engagement when signs of distress are apparent so that appropriate steps are taken to enter safe harbour (and calmer waters) whilst a business rescue is attempted.