What is Safe Harbour?

But understanding the legislation is only the starting point.

Safe Harbour is about action. It requires directors to confront the financial position of the business, make informed decisions about what needs to change, implement a genuine course of action and be able to demonstrate what they have done.

The Starting Point

Section 588GA of the Corporations Act 2001 (Cth) provides a Safe Harbour from civil liability for insolvent trading in certain circumstances where a director, after starting to suspect insolvency, starts developing one or more courses of action reasonably likely to lead to a better outcome for the company than immediate administration or liquidation.

Importantly, the legislation also tells us a great deal about the behaviour expected of a director when determining whether a course of action is reasonably likely to lead to a better outcome.

It points to matters including whether the director is properly informing themselves about the company’s financial position, taking appropriate steps to prevent misconduct, ensuring appropriate financial records are being maintained, obtaining advice from an appropriately qualified adviser and developing or implementing a plan for restructuring the company.

There are also important eligibility requirements concerning employee entitlements and taxation obligations.

We Work With You to Implement the Plan

This is where our work has become very practical.

We begin by establishing the truth about the business. We look at the financial position, cash, debtors, creditors, taxation obligations, employee entitlements, profitability, loans, director remuneration and the operational issues affecting the company’s ability to meet its obligations.

From that information we help develop the course of action. Some changes may need to happen immediately. Others become part of a 30-day or 90-day plan. What matters is that the plan is not simply written — it is implemented, measured and continually tested against what is actually happening in the business.

We then work with the director regularly. Depending on the circumstances, that can involve reviewing banking, debtors, creditors, ATO accounts, cash flow, pricing, quoting, profitability and compliance. Decisions and actions are followed up, results are measured and, where something is not working, the course is corrected.

The process becomes:

That creates something extremely important: an evidence trail.

We are not relying solely on somebody remembering months later what they intended to do. We are progressively recording the financial information considered, the problems identified, the decisions made, the actions taken and the results being achieved.

Building Discipline Into Your Business

Safe Harbour requires more than good intentions. A business under financial pressure needs reliable information and disciplined management.

That means keeping financial records current, understanding the company’s cash position, maintaining compliance, dealing with problems as they arise and regularly testing whether the course of action remains appropriate.

Our job is to help build that discipline into the way the business is managed.

We use financial and management information to make the hidden visible. We examine where cash is going, whether the business is generating sufficient cash to support itself, what is happening to debtors and creditors, whether taxation and employee obligations are being dealt with, and whether the underlying business is actually improving.

Where necessary, we go deeper — into pricing, job profitability, labour, quoting, overheads, finance costs, director remuneration and the everyday decisions that determine whether a business ultimately produces cash or consumes it.

From Financial Pressure to Financial Clarity

Something important can happen when a business starts operating with this level of information and discipline.

Problems become visible earlier. Decisions can be based on current information rather than instinct. Cash becomes easier to understand. Accountability improves. Repeated mistakes can be identified and corrected. Management begins looking forward rather than continually reacting to yesterday’s problems.

That is where our work goes beyond simply understanding the Safe Harbour legislation.

The immediate task is to help the director pursue a genuine course of action directed toward a better outcome for the company.

But the greater opportunity is to use that process to build a stronger, more compliant, better controlled and more financially rewarding business.

That is how we approach Safe Harbour: understand the law, establish the truth, decide what needs to change, document the course of action, implement it, measure the results and keep improving the business.