Safe Harbour – A practical tool for SME directors and their advisers


Safe Harbour – A practical tool for SME directors and their advisers

What is Safe Harbour?

The Safe Harbour law reforms were introduced in September 2017. They have proven to be a useful restructuring tool for companies in financial distress that, in the right circumstances, lead to a ‘better outcome’ for the company.

The aim of Safe Harbour is to encourage directors to turnaround a company in financial difficulty by protecting them from being held personally liable for the company’s insolvent trading. Directors are now encouraged to explore all viable restructuring options for the company, rather than appointing an insolvency practitioner as an administrator or liquidator before fully considering them.

Our opinion of Safe Harbour

 In dVT Group’s opinion, when implemented correctly, Safe Harbour provides directors with the necessary additional time to seek professional advice and consider all viable options. It is this additional time that avoids the requirement for an immediate appointment of an insolvency practitioner, increases the prospects of a successful turnaround of the company and often provides a better outcome for all stakeholders including employees, shareholders, directors and creditors.

 The aim of Safe Harbour is to provide a ‘better outcome’ for the company

A ‘better outcome’ is an outcome that is better for the company than the ‘immediate’ appointment of an administrator or liquidator to the company. This test requires a comparison of the estimated return to creditors under an ‘immediate’ insolvency appointment versus the estimated return under the director’s proposed plan, and in the event that the plan proves unsuccessful, the estimated return under a ‘later’ insolvency.

The Safe Harbour law specifies the following factors in determining whether a course of action is reasonably likely to lead to a ‘better outcome’. That is, whether the director is:

  • Obtaining advice from an appropriately qualified entity (such as dVT Group) who has been given sufficient information to give appropriate advice
  • Developing and then implementing a plan for restructuring the company to improve its financial position
  • Properly informing himself or herself of the company’s financial position
  • Taking appropriate steps to prevent misconduct by officers and employees of the company that could adversely impact the company’s ability to pay all of its debts
  • Taking appropriate steps to ensure the company is keeping appropriate financial records consistent with the size and nature of the company

Important conditions that must be satisfied to be eligible for Safe Harbour

The following conditions must be met at all times to be eligible for Safe Harbour:

  • Debts incurred (including in the ordinary course of business and for the specific purpose of the restructure) must be incurred either directly or indirectly in connection with the proposed course of action under the restructuring plan
  • All employee entitlements, including superannuation, must be paid as and when they fall due
  • All tax reporting requirements must be complied with

What are the factors critical for success?

We have found that the factors critical for success are that the company:

  • Has a core business that is profitable, or that can be made profitable
  • Has access to sufficient resources to fund the Safe Harbour process
  • Maintains good books and records
  • Has sound corporate governance
  • Tax reporting obligations are current (or can be quickly made current)
  • All employee entitlements are paid (or can be quickly paid)

 What are the available turnaround solutions?

The turnaround solutions are encompassed in the restructuring plan for the company and typically may include one, two or any combination of the following courses of action (and/or additional actions); implemented at the same or at different times. What courses of action are selected is dependent on the circumstances of the company, the commercial positions of the stakeholders and what resources may be made available to the company:

  • Equity injection / dilution of current shareholders
  • Provision of new debt / restructuring of current debt
  • Implementation of cost savings
  • Divestment of business / non-core assets
  • Funding of litigation to pursue claims
  • Replacement of directors / senior management
  • Renegotiation of lease, license and other key contracts’ terms

Need help?

If you would like to know more about Safe Harbour or to find out what options you have available, please contact Mark Robinson at dVT Group on 02 9633 3333, or by email

dVT Group is a business advisory firm that specialise in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.