RISK WARNING FOR COMPANY DIRECTORS AND ADVISORS
RISK WARNING FOR COMPANY DIRECTORS AND ADVISORS
Are you or your clients falling behind on paying company debts?
Directors are exposed to personal liability if they trade a business unable to pay its debts when
they fall due. This is called insolvent trading. Resigning as a Director does not provide relief.
What can happen to a Director for insolvent trading?
Civil financial penalties of up to $200,000. Compensation proceedings can be initiated by
ASIC, a liquidator or creditors in addition to civil penalties and are potentially unlimited. This
may result in personal bankruptcy which will disqualify a Director from managing a company.
Is there an alternative to an immediate insolvency appointment?
Yes. “Safe Harbour” changes to the Corporations Act can be used to stop acting prematurely
to appoint a liquidator or administrator, which can be a destructive and litigious minefield.
What is Safe Harbour and who can help?
If done correctly, Safe Harbour provides Directors protection from personal liability for
insolvent trading if the company is attempting to restructure.
An appropriately qualified professional can help provide an effective and protective restructure
to manage the challenging financial situation without fear of a Director being personally liable.
Are public notifications or other announcements required?
No. Unlike an insolvency appointment, Safe Harbour is a confidential commercial arrangement
between the company and its advisors. Directors keep control of the business.
How do the company’s accountant, tax agent, lawyer and other advisors fit in?
We partner with current advisors, working together to save the business, benefiting all by
maintaining relationships with businesses which might otherwise have been forced to close.
Safe Harbour: Director Protection During Financial Uncertainty
Instead of prematurely entering into administration or liquidation, reforms to the Corporations Act now
provide Directors with alternate protection against personal liability for insolvent trading.
Known as “Safe Harbour”, it provides the much-needed breathing space for Directors to properly and
adequately determine and assess all of a Company’s viable options during a period of financial difficulty.
Australia’s insolvent trading laws are amongst the harshest in the world. They expose Directors to
personal liability along with risks of civil financial penalties of up to $200,000. Compensation
proceedings may be initiated by ASIC, a liquidator or creditors for potentially unlimited amounts.
Where there is a suspicion of insolvency, Directors have a legal duty to act in the interest of creditors.
Proper and responsible decision-making may prove difficult for Directors during this time.
Appointing an appropriately qualified restructuring advisor under Safe Harbour is a prudent first step
to ensure Directors are protected and that all options can be properly considered.
The Safe Harbour reforms seek to encourage an orderly and proactive restructuring during financial
uncertainty to avoid a formal insolvency process, which can be a destructive and litigious minefield.
Unlike an insolvency appointment, Safe Harbour and restructuring do not require public notifications
or notices – it is a private commercial arrangement with Directors maintaining control.
When done correctly, Directors will not be personally liable for debts incurred after the date of
insolvency if it can be demonstrated that they were in connection with a proper restructuring plan
which is reasonably likely to lead to a better outcome than an immediate insolvency appointment.
Article courtesy of: Titanium Corporate Advisory
How can Titanium Corporate Advisory (TCA) help?
TCA are a highly qualified specialist restructuring advisory and consulting accounting practice.
The Principal has over 25 years experience in Restructuring, Insolvency, Consulting and
Advisory, having held senior management positions within Big 4 international consulting firms.
Contact Mark Levi of Titanium Corporate Advisory to learn more about effective and protective Safe Harbour Restructuring Programs.
0439 875 937
info@titaniumcorporateadvisory.com.au