The Restructuring Continuum: Part 2 - All Aboard!
A Safe Harbor Is Your Destination
The Australian safe harbour legislation came into effect in September 2017. The objective of safe harbour is to promote entrepreneurialism and foster a turnaround culture to save businesses, rather than allow them to fail.
It provides directors with comfort from personal liability for insolvent trading if they satisfy the safe harbour criteria. In the lead up to the implementation of the legislation, there was much discussion from all corners about how the legislation would be utilised and who would utilise it. In truth, no one really knew with any great certainty or accuracy.
This remains the case, as there have not been many notable matters where details have been made publicly available and we attribute this to the current position that entities who enter safe harbour:
- Do not have to notify ASIC;
- Do not appear to be required to make automatic disclosure pursuant to ASX Continuous Disclosure reporting requirements, although continuous disclosure obligations always apply; and
- Are not forthcoming in disclosing they have safe harbour protection, via their existing communication channels with stakeholders.
There are various eligibility requirements and safe harbour is generally only available to the company if:
- It keeps proper books and records;
- It provides for employee entitlements to be paid in full, on time (including superannuation);
- Its tax reporting is up-to-date;
- It has obtained advice from an ‘appropriately qualified’ restructuring advisor; and
- There is a documented plan which demonstrates that the safe harbour turnaround plan is likely to result in a better outcome than an external administration, and whether the stakeholders included could reasonably rely on that result.