It is sometimes hard to admit that a business that has been trying to make its mark is in financial distress and in a position to not pay off its debts. Sometimes, the downward spiral is so quick and sudden that before long, the company has incurred another bill on top of those that can’t be paid – and until last year, a director would be personally liable for the new debts incurred, as the business engaged in insolvent trading. Under insolvent trading laws in s 588G(2) of the Corporations Act 2001 (Cth), a director of a company can be personally liable for debts incurred by the company if, at the time the debts were incurred, there were “reasonable grounds” to suspect that the company was either insolvent or would become insolvent. Last year, the Australian Parliament passed some significant changes to company and insolvency laws. Under these laws, a ‘safe harbour’ was introduced, to encourage Australian company directors to implement a rescue plan without breaching insolvent trading laws. Through these safe harbour provisions, directors are empowered to take steps to turn a struggling company around instead of handing the company over to an Administrator at the first sign of trouble.
The safe harbour provides honest, diligent directors with an opportunity to remain in control of the company and attempt reasonable innovative and entrepreneurial solutions to solve financial difficulties. However, some exclusions do apply, and it is essential to get the right advice on how to start it, how to end it and what to do during it. Talk to an independent practitioner at Insolve with an expertise in the field today.