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Under Section 588GA of the Corporations Act 2001 (the Act), if your company is taking actions to improve its financial situation, you can access ‘safe harbour’. Safe harbour is a form of legal protection that provides directors with a defence for insolvent trading liability.
The best time to consider safe harbour is as soon as you suspect your company is approaching insolvency. The sooner you access it, the better protected you are.
COVID-19 Safe Harbour Defence:
In March 2020, as a result of COVID-19, a temporary safe harbour defence was introduced. This measure protects directors from insolvent trading liability for certain debts incurred during this period. The protection extends to 31 December 2020.
What does safe harbour involve?
Safe harbour is only available where a genuine turnaround attempt is being made and when you meet the eligibility criteria referred to as the ‘better outcome test’ – something we can advise you on if it is a viable solution for your business.
The criteria includes staying informed about your financial position, taking steps to prevent misconduct, keeping proper records, ensuring your employee entitlements and superannuation are paid, and your ATO returns are lodged on time.
What are the benefits of safe harbour?
- Protection for directors against personal liability
- Breathing space to create a turnaround plan
- Cheaper and less disruptive than voluntary administration