What is safe harbour?
What is Safe Harbour?
Historically in Australia, if there are reasonable grounds for suspecting your business was unable to pays its bills when they were due (what the lawyers call trading insolvent), the directors could be held as personally liable for any debts that the business ran up in this period.
What this meant that if your business was having financial difficulties, often the only decision that the business owner could take to protect their personal assets and avoid potential penalties, was to place the company into voluntary administration.
But the problem with this is that very few businesses ever recover from being placed into voluntary administration. At least 9 in 10 businesses in voluntary administration end up being shut down with the administrator on average getting paid around $55,000. The creditors get cents in the dollar and the business owner left with nothing from the business and may end up losing their house and other assets.
A really drastic outcome from what could just be a potential short term down period.
Thankfully the Australian Government realised that this was stifling business and in 2017 introduced new laws to help business owners take reasonable steps to restructure and/or allow the business to trade out of its difficulties, without resorting to closing, what could be, a great long term business.
These laws are known as the “Safe Harbour” Laws.
If you are eligible to use these Safe Harbour laws, these laws can allow you as the business owner, to avoid being personally liable for debts(#) that the business runs up in the period you are trying to improve the financial position of the business.
In other words, if you are eligible for these Safe Harbour laws, you, as the business owner can have some time to fix the financial problems of your business without putting your personal assets such as your house at risk.
Am I eligible to use the Safe Harbour Laws?
To be able to use the Safe Harbour laws there are two key areas that the business and business owner need to comply.
The first part is very factual. Is your business:
- Paying all entitlements to your staff by the time they fall due. For example, paying superannuation on time.
- Meeting all your tax reporting obligations to the Australian Taxation Office.
- Taking appropriate steps to ensure you have appropriate financial records.
- Taking appropriate steps to prevent any fraud or misconduct by officers or employees of the company.
- Obtaining advice from an appropriately qualified entity.
- Developing or implementing a plan for restructuring the company to improve its financial position.
And are you, as a business owner, properly informing yourself of the company’s financial position.
These are all factual questions and you as the business owner need to support these statements with some form of reasonable evidence.
The other area is less factual and more subjective.
You, as the business owner, must be developing one or more courses of action that are reasonably likely to lead to a better outcome for the company within a reasonable time frame. In other words, a business rehabilitation plan.
What is a Better Outcome?
The Safe Harbour law defines a better outcome as one that is better for the company than the immediate appointment of an administrator, or liquidator.
Some of the things that you as the business owner need to consider to determine if you can achieve a better outcome include:
- Are the financial difficulties facing the business from short term issues or a longer term irreversible decline? If it is a long term decline, then will a rehabilitation plan be reasonably able to improve the business outcome in an appropriate time frame? Maybe in this situation you have no choice but to appoint an administrator.
- Are the financial difficulties facing the business a result of factors outside your control? If the factors are outside you control, will you be able to implement changes for the better? If not, maybe you have no choice but to appoint an administrator.
- Can any rehabilitation plan be implemented in a reasonable time frame?
Pros
- Provides protection for your personal assets against properly incurred business debts (as long as you meet all other director duties).
- You, as the business owner are in control of the restructuring process.
- No defined time period, just needs to be undertaken in a reasonable time frame.
- Private – customers, creditors and suppliers don’t need to be notified.
- Flexibility in what you are doing as not just limited to a debt restructure.
- Available to you right now so can start to protect your personal assets straight away.
- Businesses today are using these laws to save their business.
Cons
- You need to meet the eligibility criteria which includes making sure all staff payments including superannuation are up to date.
# It is important to remember Safe Harbour covers you for debts that are “incurred directly or indirectly in connection with” developing and taking the course of action. Safe Harbour does not protect you for any other debts incurred where they are not for a proper purpose. For example, you take on a debt to pay yourself a dividend, or pay for personal expenses.
In our opinion, if you are suffering from financial distress and you want to try and save your business, without putting your personal assets at risk, utilising the Safe Harbour laws is likely to be the best option for you and your business.
And we are happy to come and have an obligation free chat with you to see if utilising the Safe Harbour laws are the best option for your business.
Contact Wayne Wanders for to see if you can access the Safe Harbour Laws
To ensure I help your business specifically, the best approach I have found is to have an obligation free session with you. In this session we will review your current business in a factual and objective manner, to better understand the challenges that you face. And this session does not need to be face to face.
At the end of this session, you will have some clarity around whether you can access the Safe Harbour Laws..
Simply fill in the contact form below or email me at wayne@aRealCFO.com.au or call me on 0412 227 052 to organise one of these obligation free sessions.
To get help you successfully navigate your way through your financial challenges so your business can survive and thrive in these uncertain times, simply use the contact form on the left to email Wayne or call him on 0412 227 052.
Let Wayne Wanders, a fully qualified and experienced CFO, help you successfully navigate your way through your financial challenges so your business can survive and thrive in these uncertain times.
Wayne Wanders, A Real CFO
wayne@aRealCFO.com.au
