On 6 December 2024, ASIC released its updated Regulatory Guide RG 217 'Duty to prevent insolvent trading: Guide for directors' (RG 217). The updated guidelines replace the previous version which was released in August 2020.
Most notably, RG 217 now contains detailed guidance from ASIC on how directors may be able to protect themselves from civil liability for insolvent trading by establishing a 'safe harbour' in accordance with section 588GA of the Corporations Act 2001 (Cth) (Corporations Act).
Other notable changes to RG 217 include:
- Guidance from ASIC on when a holding company may be liable for
insolvent trading by a subsidiary (including the circumstances in
which a holding company will not be liable by reason of the safe
harbour protections);
- Amendments to the key guiding principles that directors should
consider and implement, where appropriate, in carrying out their
role as a director, in relation to their duty to prevent insolvent
trading;
- Guidance on the factors that ASIC will consider when assessing
whether a director may establish (or be entitled to rely on) safe
harbour protection; and
- The inclusion of additional items in the list of factors that a reasonable person would take into account when determining whether a company is insolvent.
The updates to RG 217 followed an extensive consultation process that included the release of CP 372 'Guidance on insolvent trading, safe harbour provisions: Update to RG 217' (CP 372) on 14 September 2023, whereby ASIC sought input on the proposed changes to RG 217.
At the same time as ASIC released the updated RG 217, it also released REP 803 'Response to submissions on CP 372 Guidance on insolvent trading and safe harbour provisions' highlighting the key issues that arose out of the submissions received on CP 372.
Key takeaways
- In December 2024, ASIC released an updated version of
Regulatory Guide 217 Duty to prevent insolvent trading: Guide for
directors (RG 217). RG 217 provides guidance to
help directors understand and comply with their duty to prevent
insolvent trading as well as guidance on utilising safe harbour
protections. The updated RG 217 was released following extensive
consultation with industry stakeholders.
- RG 217 provides updated guidance on directors'
responsibilities to prevent insolvent trading, including monitoring
solvency, investigating financial difficulties, seeking
professional advice, and acting in a timely manner.
- Importantly, RG 217 now includes guidance on how directors may be able to protect themselves from civil liability for insolvent trading by establishing a 'safe harbour' in accordance with section 588GA of the Corporations Act. This guidance is accompanied by practical examples of how the safe harbour regime can be utilised by directors and their professional advisers.
Duty to prevent insolvent trading
The updated RG 217 includes additional guidance on the steps that may need to be taken by a director to comply with their duty to prevent insolvent trading. This includes new guidance on the obligations of a director where the director is not involved, or is involved in a limited capacity, in directly overseeing the company's financial situation and is relying on internal or external advice.
The updated guidance sets out four key principles that directors must consider in carrying out their duties, in the context of their duty to prevent insolvent trading.
Those principles require a director to:
- actively monitor company solvency;
- investigate financial difficulties;
- obtain advice from professional advisers where necessary; and
- act in a timely manner.
While the substance of these principles is largely unchanged from the previous version of RG 217 (released in August 2020), the amendments made by ASIC signal a heightened expectation that directors will be actively involved in monitoring the financial performance of the company and will take positive steps to keep themselves informed about the company's financial position.
ASIC has also updated the list of factors that a reasonable person would take into account when determining whether a company is insolvent, by including several additional indicators of insolvency. While these factors are not intended to be exhaustive, they provide helpful guidance for both directors and professional advisers in assessing whether or not a company may be insolvent.
Safe harbour protection
RG 217 now contains detailed guidance on the circumstances in which a director may be able to establish safe harbour protection from civil liability for insolvent trading under section 588GA of the Corporations Act.
This includes guidance on:
- what a director should be doing in order to rely on safe harbour protection;
- when safe harbour protection will not be
available;
- the steps that must be followed in developing a "course of action" that is "reasonably likely" to deliver a "better outcome" for the company, including the specific aspects (or features) that may form part of a course of action;
- what is meant by "reasonably likely" to deliver a "better outcome" for the company;
- what debts are included in safe harbour protection;
- the impact of the safe harbour protections on the general director's duties under sections 180-184 and a listed company's continuous disclosure obligations; and
- additional safe harbour protections that may be available to a director in the context of a small business restructuring.
Importantly, in order for safe harbour protection to be available, ASIC has made it clear that directors must have a proper basis for deciding on a course (or courses) of action, which must be based on obtaining advice from an "appropriately qualified entity", if appropriate, and documenting the basis for the adoption and implementation of the course of action.
Evidential burden
A director who wishes to rely on the safe harbour protection in relation to a debt bears the onus of pointing to evidence in support of the matters set out in section 588GA(1). ASIC provides some guidance on the nature of this evidence and what a director will need to demonstrate in order to satisfy this evidential burden.
ASIC safe harbour protection considerations
Building on the guidance outlined above, RG 217 sets out the key factors that ASIC will consider in assessing whether a director may establish safe harbour protection, and the evidentiary measures (or items) that ASIC will look at for each factor.
The key factors ASIC will take into account are:
- If the director started to suspect the company may become or be insolvent, whether the director developed an alternative course of action reasonably likely to result in a better outcome for the company than the immediate appointment of an administrator or liquidator;
- Whether the director obtained advice from an appropriate qualified entity who was given sufficient information to give appropriate advice;
- Whether debts incurred by the company were incurred directly or indirectly in connection with the alternative course of action; and
- Whether any of the factors preventing safe harbour protection are present.
Final thoughts
The updated guidance from ASIC is a helpful resource and contains a number of practical examples drawn from recent case law and other developments that will assist directors in navigating their duty to prevent insolvent trading.
In particular, we expect the guidance will prove a useful tool for directors of small-to-medium enterprises who may have less support available to assess their company's suitability for safe harbour protection, and hopefully improve take-up of the safe harbour protections in appropriate circumstances.
Importantly, it is clear from ASIC's guidance that the role of professional advisers will remain key in ensuring directors' compliance with their obligations in the context of insolvent trading.
In particular, whether a course of action will be sufficient to attract safe harbour protection under section 588GA is a complex issue which will be assessed by a court on a case-by-case basis. ASIC's updated guidance makes it clear that there is an expectation that directors will engage with professional advisers at the appropriate time to ensure that any "course of action" is developed and implemented in a way that complies with section 588GA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
![]() |
![]() |
Lawyers Weekly Law firm of the year
2021 |
Employer of Choice for Gender Equality
(WGEA) |