Sometimes as a company director things don’t go as planned and you realise you are at risk of insolvency. Under Section 588G of the Corporations Act 2001 directors have the duty to prevent insolvent trading. Failing to comply can make yourself personally liable for debts not if they cannot be repaid. The good news is that there is a ‘safe harbour’ protection for directors that will protect you from personal liabilities under certain circumstances.
What is the safe harbour protection?
Added to the Corporations Act 2001 in 2017, this provision will protect directors from being personally liable for debts incurred if they can show that their actions taken were reasonably likely to have led to a better outcome for the company and its creditors, compared to the appointment of an administrator or a liquidator. The directors will need to prove that as soon as they suspected the company may be or become insolvent they took necessary course of actions to improve the company’s financial situation.
When is this protection not available?
It is important to note that the safe harbour will not be available if you fail to meet the following:
- If the company has failed to maintain proper books and records
- Failing to pay employee entitlements
- Failing to comply with tax obligations
Do not wait before it’s too late. If you suspect that your company may be insolvent or at risk of insolvency please speak to ISA for free and confidential advice on our 24/7 toll-free hotline on 1800 003 883.