Safe Harbour Protection for Company Directors is a legal protection that shields company directors from personal liability for insolvent trading if they take proactive steps to restructure or save the company when it is experiencing financial distress.
Specifically, landmark legislation passed by Parliament in September 2017 called ‘Safe Harbour’ includes provisions that empower directors to remain at the helm instead of ceding control – in many cases prematurely – to external Administrators or Liquidators.
These laws also mean that directors of companies in financial distress will have Safe Harbour protection from civil liability under Section 588G(2) of the Corporations Act 2001 (Cth) for incurring debts when they start developing an action plan that is “reasonably likely” to lead to a better outcome for the company than becoming insolvent.
Company directors seeking Safe Harbour protection need to engage an Appropriately Qualified Entity (AQE) such as Jirsch Sutherland to take on the role.
Our nationwide team of experts offer professional advice and assistance throughout the entire Safe Harbour procedure, from initial consideration through to developing a Restructuring Plan.
It was introduced to:
Company directors can be personally liable if they allow a company to trade while insolvent.
However, Safe Harbour protection applies if:
If these conditions are met, the director may avoid personal liability for debts incurred during that restructuring period.
If later challenged (e.g., by a liquidator), directors must show:
Safe Harbour does not apply where Australian Tax Office (ATO) penalties arise from recklessness or intentional disregard of the tax law by negligent directors, nor does it affect other administrative penalties, including when tax avoidance schemes are involved.
Protection may be lost if:
Safe Harbour:
Safe Harbour starts when a director:
⚠️ Insolvent = unable to pay debts as and when they fall due.
At this point, directors must act quickly.
Directors must take steps to understand the company’s financial position.
This usually involves:
Poor record keeping can disqualify Safe Harbour protection.
While not mandatory in law, it is strongly expected/recommended in practice.
Directors typically engage:
Professional advice helps demonstrate the course of action is “reasonably likely to lead to a better outcome” than liquidation.
The core requirement is that directors begin developing one or more courses of action that are:
“Reasonably likely to lead to a better outcome for the company than immediate liquidation.”
Examples of actions:
The plan must be:
Safe Harbour is only available if the company:
Failure here can invalidate Safe Harbour protection.
Protection applies only while directors are actively:
It is not a “set and forget” protection.
If the plan stops being viable, directors must reassess.
Safe Harbour only protects directors from personal liability for debts:
It does NOT protect:
Safe Harbour ends when:
If the turnaround fails, directors must then:
Delaying too long may expose directors again to liability.
Our nationwide team of experts offer professional advice and assistance throughout the entire Safe Harbour procedure, from initial consideration through to developing a Restructuring Plan, including:
Safe Harbour is preventative and protective, while the other options are formal insolvency procedures designed to either restructure under court/professional supervision or wind up the company.
The earlier directors act (e.g., via Safe Harbour), the more options they preserve.
Safe Harbour is a legal defence that protects company directors from personal liability for insolvent trading, provided they are developing and implementing a restructuring plan that is reasonably likely to produce a better outcome than immediate liquidation.
It is not automatic immunity — it is a defence that must be proven if challenged.
Safe Harbour begins when:
There is no formal filing or registration required.
No. It is not mandatory.
However, obtaining advice from a qualified restructuring or insolvency professional is strongly recommended, as it helps demonstrate that the plan is commercially viable and reasonable.
Failure to seek advice may weaken the defence.
No.
Safe Harbour does not:
If creditor pressure becomes severe, formal insolvency processes (e.g., voluntary administration) may still be necessary.
Safe Harbour protects directors from liability for debts:
It does not protect:
Safe Harbour is unavailable if the company:
It may also fail if:
Safe Harbour continues only while:
It ends if:
The director.
If a liquidator later alleges insolvent trading, the director must prove:
Good documentation is critical.
Note: The information provided is for general purposes only. It is not financial or legal advice. Please get in touch with a qualified expert from our team.
