Government Response to the Review of the insolvent trading safe harbour

The Government has tabled the 2021 Review of the Insolvent Trading Safe Harbour in Parliament and also released its response.

The aim of the safe harbour is to encourage company directors to seek advice early on how to restructure and save financially distressed but viable companies, rather than closing down prematurely to avoid personal liability.

The Review recommended that the current insolvency safe harbour be retained.

However it pointed out that there is currently no ASIC guide or industry-endorsed best practice guide as to how the safe harbour provisions operate in practice. Therefore, a number of the Panel’s recommendations are aimed at simplifying the provisions or clarifying their meaning, so that they can be readily understood and applied.

In response, the Government supports the enhancement of the operation of the safe harbour provisions, to ensure the safe harbour remains fit for purpose in terms of supporting companies to restructure and survive.

The Government agrees to the following recommendations for amendment of the Corporations Act:

  • including a concept of financial distress which may be more easily understood by directors;
  • extending debts covered to debts incurred in the ordinary course of business;
  • requiring directors to produce books and records in a director’s possession and control (even if they are not the books and records ‘of the company’),

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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