Business, People, Formalwear, Indoor, Manager

COVID-19 Safe Harbour and Temporary Relief

Malcolm Campbell ||

In response to the COVID 19 pandemic the Federal Government has introduced temporary amendments to safe harbour provisions in the Corporations Act 2001. A new section 588GAAA has been added which provides temporary relief for directors in relation to personal liability for insolvent trading absent dishonesty or fraud.

These new provisions apply to debts incurred by a company ‘in the ordinary course of business’ for a period of 6 months, commencing on 25th March 2020.

What would a debt incurred in the ordinary course of business look like?

It is not clear which debts will be regarded as being incurred ‘in the ordinary course of business’ however examples in the Explanatory Memorandum to the Coronavirus Economic Response Package Omnibus Bill 2020 include;

  1. a director taking out a loan to move some business operations online; or,
  2. debts incurred through continuing to pay employees during the Coronavirus pandemic.

Whether a particular course of action taken is to be regarded as within the ordinary course of business will depend on the specific business and their circumstances.

In the current climate it would make sense for businesses to prepare a plan which meets many of the requirements of the existing 2017 Safe Harbour provisions.

2017 Safe Harbour

To obtain the benefit of the 2017 Safe Harbour provisions, directors must be able to demonstrate that the course of action adopted by the company is reasonably likely to lead to a better outcome than the immediate appointment of an administrator or liquidator. To do this, directors should ensure the intended course of action is in the form of a written plan.

The Act provides that the following factors in relation to a director’s conduct may be taken into account when deciding if a course of action taken is likely to lead to a better outcome:

  1. whether the director has properly informed themselves of the financial position of the company; or,
  2. whether the director is taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company’s ability to pay all its debts; or,
  3. whether the director is taking appropriate steps to ensure that the company is keeping appropriate financial records; or,
  4. whether the director is obtaining advice from a qualified person (such as a legal professional or lawyer) who was given sufficient information to give the appropriate advice; or,
  5. is developing or implementing a plan for restructuring the company to improve its financial position.

Developing and implementing a course of action

Directors should ensure that a course of action developed is documented so that they will be able to prove that actions taken are in accordance with a plan that is compliant with the safe harbour regime.

Regular board meetings should also be held during this time to ensure that the plan is being followed, and amended where necessary to take into account external influences on the business such as increasing government restrictions, additional fiscal stimulus measures, contractual performance issues, supply chain disruption and market disruption in the wake of COVID-19.

The temporary relief of the new safe harbour provision does not affect the existing duties and liabilities of directors so they must continue to be vigilant in identifying and dealing with the issues that confront the businesses in these challenging times.

If you have questions in relation to how the safe harbour regime might apply to you and your business, or require advice on director duties, please contact a lawyer in Coleman Greig’s Commercial Advice team, who would be more than happy to assist you.

Disclaimer; This information is for information purposes only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. Please contact us if you wish for us to advise you on any issue you may have in your particular circumstances.


Send an enquiry

Any personal information you provide is collected pursuant to our Privacy Policy.


More posts

Understanding roles in the strata scheme

A strata scheme is a building or group of buildings that have been divided into lots which can be apartments, villas, offices, units or townhouses. This will be articulated in the strata plan.

Can i put my home on Airbnb?

Airbnb is a form of short-term rental accommodation. To add your property to Airbnb in NSW, you are required to meet several laws and regulations governing short-term rentals.

When are liquidators required to seek approval to retain legal counsel?

When does a liquidator (or the company he or she is appointed to) need court, creditor, or committee approval to validly retain a solicitor to act in a liquidation matter which is likely to extend for longer than three months?  The answer to this question has only recently been settled.

Proposed changes to building and construction law in NSW

The Building Bill 2022 (the Bill) is the key avenue through which the NSW Government has proposed to reshape the culture of the building and construction industry by eliminating poor performance and improving the quality of building statewide.

Can you dismiss an employee who fails to return to the office?

Slowly but surely, most employers are requiring employees to return to the office for at least a portion of their working week. Some employers continue to struggle with employees resistant to returning to the office or those who have an expectation that they can continue to work from home whenever it suits them.

New powers to combat phoenixing in construction

The rise of phoenixing in the building and construction industry in Australia in recent years has proved a significant challenge to regulators. Mismanagement of time or cashflow can quickly propel businesses into insolvency.

The NSW Building Commission’s extraordinary powers

In late 2023, the NSW Government passed the Building Legislation Amendment Bill 2023 (Amendment Bill). The Amendment Bill established the NSW Building Commission and granted it extraordinary powers to enter construction sites, inspect work and take away information and materials.

© 2024 Coleman Greig Lawyers   |  Liability limited by a scheme approved under Professional Standards Legislation. ABN 73 125 176 230