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ARTICLE · 28 NOVEMBER 2023

How Safe Harbour can help protect company directors from personal liability

Mackay Goodwin
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Safe Harbour provisions offer reduced personal liability for directors to trade their company out of insolvency.

AustraliaInsolvency/Bankruptcy/Re-Structuring
Grahame Ward
Grahame Ward
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What are the Safe Harbour provisions?

The Safe Harbour provisions under the Corporations Act 2001 provide protections to assist company directors from personal liability for insolvent trading. The provisions enable directors who suspect their company may be insolvent, to find an alternative course of action other than immediately opting for administration or liquidation.

To understand what is meant by 'Safe Harbour,' it is necessary to consider what Safe Harbour offers protection from.

In Australia, directors have a strict duty under section 588G of the Act to prevent insolvent trading by a company. A director can be held personally liable for debts incurred by a company while it is insolvent if at the time the debt was incurred there were reasonable grounds to suspect that the company was insolvent. Directors who are found to be personally liable for the debt may also be banned from managing corporations in the future.

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