‘Safe har­bour’ laws can be com­pli­cated

Albany Advertiser - - NEWS - Mur­ray Thornhill Mur­ray Thornhill is the di­rec­tor of HHG Le­gal Group.

Un­til very re­cently, di­rec­tors of com­pa­nies — the peo­ple who run the vast ma­jor­ity of busi­nesses in Aus­tralia, from your cor­ner store to global gi­ants — were li­able to se­ri­ous penal­ties if they al­lowed their busi­ness to op­er­ate while in­sol­vent whether they took rea­son­able ac­tion or not.

The fear of penal­ties gave them an in­cen­tive to place the busi­ness into ad­min­is­tra­tion or liq­ui­da­tion early and fast, rather than sol­dier­ing on or work­ing their way out of trou­ble.

The prob­lem was that it is very dif­fi­cult in many busi­nesses to work out where the line is be­tween do­ing it tough and be­ing in­sol­vent.

En­trepreneurs and other busi­ness lead­ers were dis­cour­aged from tak­ing even sen­si­ble busi­ness risks that they may oth­er­wise have taken.

Many ar­gued that the law was sti­fling in­no­va­tion in the econ­omy.

In Septem­ber this year, the so­called “safe har­bour” laws were passed by Fed­eral Par­lia­ment.

Rather than hav­ing to sac­ri­fice the com­pany in or­der to safe­guard them­selves and avoid try­ing to trade out of dif­fi­culty, the law now gives di­rec­tors the op­por­tu­nity, un­der strict con­di­tions, to take rea­son­able ac­tion to work out how to con­tinue trad­ing.

The new laws are com­pli­cated, and it re­mains to be seen how the courts will in­ter­pret them.

If you are wor­ried about whether your busi­ness is in­sol­vent, it is now even more im­por­tant to take ad­vice on the many op­tions avail­able to you.

But you can­not de­lay — the mo­ment you sus­pect in­sol­vency, you need to seek pro­fes­sional ad­vice and be able to show you took sen­si­ble ac­tion.

Hav­ing ac­count­ing and le­gal ad­vice will be crit­i­cal if you are later pros­e­cuted, to show that you took rea­son­able steps.

If you are wor­ried about your ex­po­sure to an­other com­pany you sus­pect is in­sol­vent, you should also act quickly to get ad­vice on how to nav­i­gate that si­t­u­a­tion — to con­tain the risks of miss­ing out if the busi­ness is later placed into ad­min­is­tra­tion.

This is gen­eral in­for­ma­tion only and does not con­sti­tute spe­cific le­gal ad­vice. If you would like fur­ther in­for­ma­tion in re­la­tion to this mat­ter or other le­gal mat­ters, con­tact HHG Le­gal Group on 9481 2322.

Walpole au­thor Sarah Drum­mond has been short-listed for the In­ter­na­tional Dublin Lit­er­ary Award.

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