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PKF Australia

Accountants and Business Advisers

The Spotlight on Safe Harbour

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Glenn Franklin

Partner

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The Spotlight on Safe Harbour

The findings from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and other associated factors including a tightening of bank lending policy and a weaker property market will test the resilience of many businesses this coming year, as a credit crunch looms.

Recent government statistics concerning the property market reveal that investor lending is down 22 per cent on last year. It has also recently been reported that there has been a five-fold increase in the number of rejections of loan applications by the banks as compared to the previous year.

Having regard to this difficult landscape, it is important directors, their accountants and advisers educate themselves on the relatively new Safe Harbour provisions and the important protections this mechanism of the law provides.

Legislation for Safe Harbour was introduced in September 2017. Directors can escape personal liability for debts incurred after the date of insolvency if they can show the debts were incurred in connection with a course of action reasonably likely to lead to a better outcome for the company and its creditors as a whole, rather than proceeding to immediate administration or liquidation.

Directors of companies that are encountering financial difficulties or are in financial distress can consider implementing a Safe Harbour restructuring process if it is believed it will lead to a better outcome for the company.  

There are rules that encapsulate the Safe Harbour provisions which companies and directors will need to follow to avoid the threat of insolvent trading.

Directors and their advisers need to be satisfied that:

  • Proper and up-to-date financial reporting is being undertaken
  • Employee entitlements, including superannuation, are being paid up to date
  • Tax reporting obligations are met
  • Advice from properly qualified restructuring advisers is being obtained.

An important element in respect to sound restructuring advice is assisting with the formulation of a viable action plan that will navigate the company through the challenging financial conditions.

There are other benefits in undertaking the Safe Harbour process which include the preservation of the business and improved profitability. Moreover, given it is not a formal insolvency process, i.e. administration or liquidation, there is limited visibility from creditors, competitors, and the general public.

As Safe Harbour provisions are aimed towards allowing directors, with proper restructuring advice, to continue trading with a view to saving the company, early advice should be sought.

PPSR Renewals
A reminder for businesses that registered a security interest at the commencement of the Personal Property Securities Register (PPSR) in January 2012, it is likely it was for a seven-year period, that ended in January 2019.

So, review your businesses registrations and seek professional advice to ensure they are still active, your securities are still in place and are renewed if need be. The consequences of your security interests lapsing include:

  • It will become unsecured and rank behind creditors who renewed their security interest; and
  • The property may vest in the entity who granted the interest if that entity is wound up.

This article was co-authored by Glenn Franklin and George Reilly.


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