Safe Harbour defence to Insolvent Trading

Last reviewed and updated: April 2026

What is the safe harbour defence to insolvent trading?

The safe harbour provisions provide directors with an exception from insolvent trading liability where they are developing courses of action which are reasonably likely to lead to a better outcome for the company than administration or liquidation.

The relevant legislative provision is s588GA Corporations Act 2001 (Cth).  The elements necessary to be proven by the person seeking to rely on the safe harbour exception to insolvent trading are:

• Developing one or more courses of action: a director will enter safe harbour once the director starts developing one or more courses of action reasonably likely to lead to a better outcome, rather than only being available once a director has taken a course of action;
• Direct and indirect debts included: the safe harbour be available in respect of all debts incurred directly or indirectly in connection with any such course of action, rather than only those incurred in connection with the course of action;
• A better outcome for ‘the company’ only: this may create some uncertainty as to what ‘the company’ means in this context and how a ‘better outcome’ is to be assessed if stakeholders other than creditors need to be considered;
• A better outcome than immediate liquidation or administration only: the comparison be to the immediate appointment of a liquidator or administrator;
• Safe harbour not to end on receivership or entry into a scheme: the safe harbour only end on the company entering into administration or liquidation (from which point the directors will no longer be responsible for the control of the company); and
• Holding companies to be covered: protection available for holding companies provided that they take reasonable steps to ensure that safe harbour is available to the directors of the subsidiary.

Best practice guidelines

In response to the release of the revised Bill in June this year, the Turnaround Management Association released best practice guidelines in relation to the practical steps companies and advisors can take when seeking to utilise the insolvent trading safe harbour.

Follow these links to find more information about what is insolvent trading and a review of the new insolvent trading safe harbour and ipso facto legislation.

 

 

 

How Boss Lawyers Can Help

If you need guidance on this issue, our experienced team can provide practical, strategic advice tailored to your situation. Our practice areas include insolvency lawyers, commercial litigation lawyers.

Contact Boss Lawyers on 1300 267 711 or visit bosslawyers.com.au.

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Disclaimer: This article provides general information only and does not constitute legal advice. You should obtain specific legal advice relevant to your circumstances before taking any action.

Practical Steps to Activate the Safe Harbour Defence

The safe harbour provisions in section 588GA of the Corporations Act 2001 (Cth) are not self-executing. A director cannot simply claim safe harbour protection — they must take genuine, documented steps to develop and pursue a course of action reasonably likely to lead to a better outcome than administration or liquidation.

In practice, directors seeking to rely on safe harbour protection should:

• Obtain independent financial advice: Engage a qualified restructuring adviser or insolvency practitioner to assess the company’s financial position and develop a restructuring plan.
• Document everything: Courts will scrutinise the quality and genuineness of the restructuring effort. Directors should keep detailed records of all advice received, decisions made, and steps taken under the safe harbour plan.
• Maintain tax compliance: A director cannot access the safe harbour protection if the company is not meeting its obligations under the tax administration legislation, including superannuation contributions. Staying current with ATO obligations is a precondition to safe harbour protection.
• Ensure employee entitlements are honoured: The safe harbour provisions require that the company continue to pay employee entitlements as and when they fall due.
• Engage appropriate advisers: Experienced restructuring lawyers, accountants, and turnaround specialists should be involved from the outset.

What Happens if the Safe Harbour Plan Fails?

If a director pursues a safe harbour restructuring but the company ultimately enters liquidation, the safe harbour protection may still apply — but only for debts incurred during the period that the protection genuinely applied. If the plan was not genuinely likely to produce a better outcome than external administration, a court may find the safe harbour protection does not apply and expose the director to insolvent trading liability.

Importantly, the safe harbour protection ends if the company enters voluntary administration or liquidation, or if the course of action that attracted the protection ceases to be pursued.

What This Means for Queensland Directors

For directors of Queensland businesses experiencing financial difficulty, the safe harbour provisions represent a genuine opportunity to pursue a commercial rescue without fear of insolvent trading liability — provided the restructuring effort is genuine, documented, and properly advised. The consequences of getting this wrong — including personal liability for company debts — are severe.

Boss Lawyers regularly advises directors on insolvent trading exposure, safe harbour structuring, and insolvency options across Brisbane and Queensland. Mark Harley, Principal Solicitor, has more than 17 years of experience acting for directors and companies in complex insolvency and restructuring matters.

This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances. For expert advice, contact Boss Lawyers on 1300 267 711.