On September 17, members of WLG's Restructuring & Insolvency Resolution Group met to discuss Australia's "safe harbour” regime and how it compares with approaches in New Zealand and other jurisdictions. The session was led by lawyers from MinterEllison (Australia) with additional insights from MinterEllisonRuddWatts (New Zealand). A unique highlight was the involvement of Franziska Fuchs of CMS Germany, currently on secondment at MinterEllison through WLG | exchange, who helped organize the presentation along with MinterEllison Senior Associate Nathan Brumley.
Key Takeaways
- Australia's safe harbour regime has been in place since 2017 and protects directors from insolvent trading liability if they are pursuing a plan that is reasonably likely to deliver a better outcome for the company than immediate administration or liquidation. Importantly, directors must ensure this protection is triggered early—once insolvency is suspected.
- The protection is narrow. Safe harbour does not insulate directors from other risks, such as breaches of directors' duties, director penalty notices issued by the Australian Taxation Office, or personal guarantees. Its sole focus is on insolvent trading exposure.
- Access to safe harbour depends on compliance. Companies must be up to date with employee entitlements (including wages, leave, and superannuation) and tax lodgments. Even if tax payments are delayed, filings must remain current.
- Good practice under safe harbour includes developing a clear, written plan with milestones and accountability, keeping detailed board minutes, monitoring progress regularly, and engaging an external adviser who can provide ongoing confirmation that the criteria for safe harbour continue to be met.
- Safe harbour is not the same as Chapter 11. Unlike U.S. restructuring processes, there is no automatic stay, no protection against ipso facto clauses, no cramdown mechanism, and no debtor-inpossession facility. Instead, it functions best in situations where a consensual restructuring outcome is achievable.
- Confidential and relatively low cost. There is no requirement for a public filing or disclosure that a company and its directors are relying on safe harbour. This provides companies with time to seek a solution without drawing undue attention to the issues they are facing.
- Insurance coverage is complex. Directors' and officers' (D&O) insurance may or may not cover insolvent trading depending on the policy. At a minimum most policies exclude cover for criminal conduct (insolvent trading may have criminal consequences, if incurring the relevant debt(s) is 'dishonest'). Prospective directors should review the coverage closely before accepting a board appointment.
- Burden of proof sits with directors. If challenged, directors must point to evidence demonstrating that the plan had a reasonable prospect of success, but there has been little litigation testing the scope and operation of the provisions.
- Market impact in Australia has been positive overall, encouraging directors to pursue turnaround strategies rather than entering administration prematurely. However, concerns remain about weaker plans in the SME sector, underscoring the need for rigorous documentation.
- New Zealand has no equivalent safe harbour regime. Directors face liability for "reckless trading” if they incur obligations without a reasonable basis to believe they can be met. Courts apply a high bar, and D&O coverage is tightening.
- Other jurisdictions discussed included the United States (with its focus on value maximization and rescue culture), Singapore (where limitations on indemnities and challenges with competing payment priorities were noted), and India (where no safe harbour exists, though directors may rely on good-faith protections).
Practical Dos and Don'ts
- Don't put your head in the sand. Directors must act as soon as they suspect the company may be insolvent.
- Do engage an experienced external restructuring adviser early and ensure they remain actively involved.
- Do keep employee entitlements and tax lodgments current at all times.
- Do create a written plan with milestones and stress-test it regularly.
- Don't assume safe harbour will protect against all exposures—tax penalties, guarantees, and fiduciary duty breaches are outside its scope.
- Do review your D&O insurance policy and any third-party indemnities to confirm whether they cover liabilities arising from insolvent trading.
- Do coordinate cross-border advice where Australian subsidiaries are involved, as holding-company exposure can be significant.
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.
