Adelaide’s leading insolvent trading lawyers
Stanley & Co Lawyers are aware of new safe harbour provisions and can work with your company and advisors (such as accountants) to identify if you are potentially eligible for safe harbour protection. The best time to obtain this protection is when it is first suspected that the company is insolvent or likely to become insolvent.
To benefit from Safe Harbour protection the company must meet certain criteria and be prepared to develop one or more courses of action that are reasonably likely to lead to a better outcome, than the immediate appointment of an administrator or liquidator to the company.
To rely on Safe Harbour protection, the director(s) should:
RECEIVE ADVICE FROM A TURNAROUND PRACTITIONER
The company has received advice from an appropriately qualified professional who is able to form a view that enacting safe harbour will result in a better outcome for the company than liquidation or voluntary administration:
- A turnaround practitioner, who is qualified and has extensive experience in operational and financial turnaround is well placed to provide this advice.
- A turnaround plan should be developed where one or more courses of action are reasonably likely to produce a better outcome.
TO RELY ON SAFE HARBOUR PROTECTION, THE DIRECTOR(S) SHOULD:
- The company should be fully compliant with its tax reporting obligations (not necessarily paid);
- Be able to pay employee entitlements;
- Continue to maintain appropriate books and records.
HOW LONG DOES SAFE HARBOUR LAST?
Safe harbour protection is available from the point in time when the directors start developing one or more courses of action. There is no specified duration to safe harbour protection provided the company continues to work towards an outcome that was reasonably likely to provide a better outcome than formal insolvency. The turnaround plan and initiatives may change and develop over the course of safe harbour protection.
Our insolvent trading lawyers recommend meeting monthly to:
- confirm that the turnaround plan is being implemented;
- revisit the plan to test that it is still valid to achieve a better outcome;
- confirm statutory reporting obligations are being maintained; and
- ensure appropriate records are being maintained.
HOW TO IDENTIFY IF A DIRECTOR NEEDS SAFE HARBOUR PROTECTION?
Directors can seek help as soon as the financial position of the company begins to deteriorate. It is important for advisors such as book-keepers and accountants to communicate with directors if they become aware of any circumstances that may warrant safe harbour protection such as:
- Declining earnings or sales;
- Difficulty in meeting outstanding tax obligations;
- Tight cash flow & inability to pay wages;
- An expectation that the next big job/sale/contract will save the company;
- Pressure from creditors & legal demands;
- Breach of lending covenants;
- External factors, market changes & increas/ed competition or disruption.
HOW DO I MAINTAIN SAFE HARBOUR PROTECTION?
To be confident Safe Harbour protection continues to apply:
- document the engagement of an appropriately qualified turnaround practitioner;
- confirm the threshold conditions are being satisfied;
- receive formal recommendations on Safe Harbour process; and
- ensure directors continue to resolve at meetings that Safe Harbour purpose is being progressed and remains appropriate.
WILL I MAINTAIN CONTROL OVER MY COMPANY?
The answer to this very important question depends on the method of ‘turnaround’. There are two possible scenarios with varying levels of control:
1. Informal Workout or ‘Safe Harbour’ Turnaround
- In this scenario, you retain full control of your company during and work with a qualified turnaround practitioner.
2. Voluntary Administration or Liquidation
- In this scenario, a registered liquidator will take over control of your company. This is a person appointed by shareholders, or unsecured creditors. On appointment, the liquidator assumes control of the business, collects and auctions off its free (un-pledged) assets in a reasonably short time, pays the unsecured creditors from the proceeds of the sale, and (if any money is left) distributes it among the shareholders in proportion to their shareholdings.
Who is at the forefront of these reforms?
THE AUSTRALIAN INSTITUTE OF COMPANY DIRECTORS
The Australian Institute of Company Directors had long advocated for the legislative reform which is designed to encourage innovation, risk and sustainable economical growth.
TURNAROUND MANAGEMENT ASSOCIATION
The Turnaround Management Association (Australia), also strong advocates of the legislative reform, published Best Practice Guidelines – Navigating Safe Harbour. In July 2017, whilst still in consultation, Lachlan Edwards, the President of the Turnaround Management Association, and Marcus Derwin, Director, were interviewed for an article which appears in the July edition of the Australian Institute of Company Directors Magazine on the proposed Safe Harbour reforms to Australian insolvency laws.