The two year anniversary of the safe harbour reforms arrives in September this year. Heralded as a major milestone in Australia’s restructuring and turnaround landscape, it’s clear the reforms are yet to reach their full potential.
Safe harbour was designed to protect directors against an insolvent trading claim in certain circumstances should they choose to allow a suspected insolvent company to continue to operate while a turnaround plan is attempted.
Prior to the reforms being introduced, our research indicated that companies in external administration (irrespective of size) traded insolvent for an average of six months. This exposes the personal assets of the directors to a liquidator’s claim. Even well-advised directors of ASX-listed businesses have been challenged retrospectively by liquidators for a period of insolvent trading.
The safe harbour rules were designed to help mitigate these risks to allow directors to attempt to deliver a ‘better outcome’ than insolvency. While it will take some time to assess the reform’s results, practical experience to date has seen four key themes emerge:
- About half of companies seeking safe harbour advice end up in an insolvency process anyway
- Plenty of questions remain
- Safe harbour has been used in a wide range of scenarios
- Uptake appears lower than expected
This article was first published in Australian Restructuring Insolvency & Turnaround Association Journal June 2019.