Safe Harbour Provisions (Insolvent Trading) – What Directors Need To Know

Background

In response to the COVID-19 pandemic, the Federal Government announced a Safe Harbour amendment to the Corporations Act 2001 (Cth) (Corporations Act) to provide temporary relief measures for financially distressed businesses. Effective from 25 March 2020, the amendment protects directors from being personally liable for debts incurred during insolvent trading if the debt was incurred:

a. in the ordinary course of the company’s business;
b. during the six-month period (or any extension of the period);
c. before the appointment of the administrator or liquidator (during those periods).

The exact section is set out here.

On 7 September 2020, the six-month period was extended until 31 December 2020 as released in this statement by the Government.

Alert for directors

It has come to our attention that there is one essential aspect of the amendment which directors need to be aware of.

That is, in order for the relief to apply the company needs to appoint an external administrator or liquidator before 31 December 2020.

This means that there are no protections for insolvent trading if the company is placed in administration or liquidation after 31 December 2020 (being the end of the relief period as currently set by the government).

Directors then need to place their company in administration or liquidation BEFORE 31 December 2020 to receive protections for insolvent trading.

During these uncertain times, stay informed on the latest updates by subscribing to our newsletter. If your business is struggling from the impact of the pandemic or is looking for more information on company liquidations, please contact Australian Company Liquidations on 1800 981 070. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice.