Safe Harbour FAQ’s

The most frequently asked questions we get and some insights into our experience as a Safe Harbour Advisor.

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What is Safe Harbour?

Safe Harbour provides directors protection from personal liability for insolvent trading. Safe Harbour applies to Directors of companies that are developing a restructuring plan that is reasonably likely to provide a better outcome for the company than the immediate appointment of an administrator or liquidator.

Why was Safe Harbour introduced?

The Safe Harbour reforms seek to address a concern that the risk of personal liability for insolvent trading was causing directors to appoint external administrators prematurely, rather than to attempt a stable restructure. The legislation seeks to strike a better balance between creditors’ interests and encouraging directors to manage challenging financial situations in a responsible fashion. The intention of the Safe Harbour reforms is to encourage proactive restructuring, to and avoid formal insolvency processes, which can be value destructive.

What does a restructuring plan look like?

A Director should create and (very importantly) document a plan that sets out a set of objectives that are comprehensive, milestone based, and time bound. Examples of these objectives might include some or all of:

  • Raising additional capital to repay liabilities or fund future expenditure;
  • Selling a business unit or non-core asset;
  • Pivoting business model or strategy; and
  • Asking for support from key creditors in the form of deferrals on amounts due or concessions on debts outstanding.

The plan should be continually refined as it is implemented and tested against the counterfactual (administration or liquidation) to ensure it satisfies the Better Outcome test. The Better Outcome test is an objective, calculated measurement, undertaken by an ‘Appropriately Qualified Entity’, of the returns generated following the immediate appointment of an Administrator or Liquidator.

Can the restructuring plan vary over time?

Yes, the plan can change over time as objectives are further explored. Often a plan will be updated several times as new information comes to hand, and options are known with more clarity.

Once I have developed a plan what else should I be doing?

Once eligibility is determined and a course of action is developed, Directors should:

  • Continually communicate with key stakeholders to ensure the business can continue to operate in a stable environment;
  • Hold regular meetings at suitable intervals to monitor progress;
  • Ensure continual compliance with all statutory obligations;
  • Update objectives and deadlines as suitable; and
  • Document everything, to ensure peace of mind.

Who is using Safe Harbour?

In our experience Safe Harbour has been used by either large private companies or small to mid-cap ASX listed companies. Some common themes amongst our Safe Harbour clients include:

  • “Start-up” / technology: companies involved in the research and development of IT, medical or other early-stage technology products that are facing short-term cash shortfalls. Often the answer for these companies is to raise additional funds to invest in the continued research and development of their products;
  • Exogenous events: companies impacted by situations beyond their control, such as the Australian Drought in 2018/19 or more recently COVID-19. These companies will utilise a range of restructuring tools, most commonly the sale of non-core assets or business units and negotiating with secured creditors to restructure debt obligations;
  • Regulatory change: companies impacted by changes in regulation, for example businesses impacted by the findings of the Royal Commission into Banking and Financial Services. These businesses will look to sell non-core assets and pivot business strategy; and
  • Changes in consumer demand: companies that are challenged by changes in consumer behaviour and are forced to change business strategy. Typically, these companies restructure operations and divest assets or business units that do not align with the future direction of the company.

How does Safe Harbour assist larger enterprises?

Safe Harbour gives larger companies time to develop and execute a restructuring plan. We see Safe Harbour used as a framework to allow the restructuring plan to develop over time whilst keeping the board and senior management engaged. In certain circumstances it can be used to avoid directors acting prematurely to appoint external administrators, rather than to attempt a solvent restructure.

Do I need a Safe Harbour advisor?

The Corporations Act says that, in relation to the determination of the Better Outcome Test, regard will be had as to whether the company appoints an “appropriately qualified adviser”. The core attributes of an “appropriately qualified adviser”, including professional qualifications, independence, membership of an appropriate professional body and sufficient professional indemnity insurance to cover the advice being given.

In line with guidance from the Australian Restructuring and Insolvency Turnaround Association we believe an appropriately qualified entity should be someone who can credibly test the Better Outcome against the counterfactual scenario – the appointment of an administrator or a liquidator.

What is the interaction between the Safe Harbour Advisor and other advisors / stakeholders?

The Safe Harbour Advisor will work constructively with the company’s other advisors and stakeholders, for example:

  • Lawyers: to understand key contracts and financier agreements;
  • Brokers: to raise capital or sell assets as a part of the restructuring plan; and
  • Lenders (and their advisers): to negotiate the restructure of debt obligations.

Is ASX disclosure necessary?


On 9 March 2018 ASX released Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B which states: “the fact that an entity’s directors are relying on the insolvent trading safe harbour to develop a course of action that may lead to a better outcome for the entity than an insolvent administration, in and of itself, is not something that ASX would generally require an entity to disclose.”

Individual courses of action that are implemented as part of a restructuring plan may however need disclosure, for example the sale of a non-core asset or refinancing a debt facility.

Are Directors collectively protected?

Yes, the Board can all rely on the Safe Harbour protection, given they stay informed of the company’s financial position and take steps to prevent misconduct by officers and employees.

If you have any further questions in regards to Safe Harbour, please feel free to contact us.