The property downturn, the Opal Tower debacle, and possible negative gearing changes could see more directors breaking the law if they’re not protected by Safe Harbour regulations, says insolvency firm Jirsch Sutherland.
Hot on the heels of the Hayne Royal Commission and uncertainty in the residential property market, Jirsch Sutherland Partner Ginette Muller says that a credit squeeze or crunch – “depending on where you sit in your bank’s pecking order” – is coming.
“The current property climate is weighing heavily on anyone who either owns, or aspires to own, real estate,” she says. “And this is particularly acute with small business, where access to finance is usually conditional on the bank securing the loan against the director’s house.”
Directors are resourceful and when faced with the squeeze they tend to enter into repayment arrangements with the ATO, use other creditors by stretching out terms, sell surplus business assets, reduce overheads and streamline staff. However, this could lead directors to unwittingly trade while insolvent, Muller says.
“Australia has some of the most draconian insolvent trading laws in the world and the reality is, if you are a director and you take any of these actions, you may be about to commit an offence,” she explains.
Safe Harbour was introduced in 2017 and is progressively being used as an insurance policy by directors in a bid to minimise the risk of breaching directors’ duties.
“We are starting to see it appear in more liquidations where directors are claiming immunity from prosecution and similarly being exempt from paying compensation to the liquidator,” Muller explains. “The whole process makes companies more resilient because to stay in Safe Harbour, directors need to be fully focused on their operations and across the details. This has its own rewards.”
Directors are advised to seek Safe Harbour protection prior to negotiating repayment terms.
“Safe Harbour protection is confidential and is not expensive as the director and senior staff remain in control,” Ginette explains. “There are rules they need to comply with to ensure they have a plan and are not driving themselves and creditors off a cliff. In exchange for their diligence, they can avoid the potential threat of insolvent trading. Safe Harbour is just another word for insurance.”
About Jirsch Sutherland
Established in 1984, Jirsch Sutherland is one of Australia’s leading national independent insolvency specialists. The Jirsch Sutherland team works closely with small and mid-size accounting, finance and legal firms – and their clients – to provide a wide range of expert corporate and personal insolvency services including liquidations, voluntary administrations, receiverships and bankruptcy.
With head offices in Sydney, Melbourne, Brisbane, Newcastle and Perth, supported by a network of regional offices, Jirsch Sutherland’s national reach combined with a local presence underpins the company’s ongoing success. For over three decades, Jirsch Sutherland has earned a well-deserved reputation for protecting and guiding clients through the insolvency process in a fair and ethical way.
In Western Australia, Jirsch Sutherland trades as WA Insolvency Solutions.
For further information:
0419 401 362