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

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 731 155. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice.

Safe Harbour Amendments – What Advisers Need To Know

Safe Harbour Provisions (insolvent trading) – What Advisers 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 advisers to directors

It has come to our attention that there is one essential aspect of the amendment which advisers 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 (the end of the relief period currently).

Advisers then need to instruct directors 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 731 155. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice.

How to Close Down your Company and Appoint a Liquidator

Closing down your company can be a stressful time. If your company cannot afford to repay its debts, it is most likely insolvent. As a director, you have an obligation under the law not to incur any further debts when your company is insolvent and you may wish to consider winding it up and appointing a liquidator.

Liquidation

If your company is insolvent, liquidating the company means your business stops operating and a liquidator is appointed either by the shareholders or by court order. The liquidator’s role is to preside over the orderly winding up of the company.

The liquidator will oversee that there is a fair and equitable distribution of the company’s assets (which must be in accordance with the Corporations Act). The liquidator will investigate the affairs of the company to ensure that no creditor has received any unfair advantages over other creditors (such as received an unfair preference).

The liquidator will record the appointment with ASIC. As a director you will still need to fully co-operate with the liquidator and provide all necessary assistance such as delivering the company’s books and records to the liquidator.

Seeking advice from company liquidation experts can ease this stressful process and help prevent unwanted legal surprises.

If you are company director and you are considering a company liquidation, then call Australian Company Liquidations for free and confidential advice.  We operate a 24 hour insolvency hotline. Call now on 1800 731 155.