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Options available to directors of insolvent companies

18 April 2022 Communications & PR Executive Abigail Cheadle e: abi@mcorpadvisory.com.au d: +61 448 139 340 m: +61 448 139 340
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Alternatives to formal insolvency appointments exist. Safe Harbour, is it disruptive to the insolvency profession?

Before Safe Harbour, directors would be personally liable unless they put the company into Administration or even Liquidation.

Liquidation and Voluntary Administration are both formal insolvency appointments for companies conducted independent of the directors.

Administration allows a brief time to find an alternative to Liquidation. The Administrator controls the company in the interim and the creditors determine the outcome. If a turnaround is possible it will be documented in a Deed of Company Arrangement – but if not, the company will almost always end up in Liquidation.

In Liquidation: trading ceases, company assets are sold, and any remaining proceeds, after the Liquidators fees, are distributed to creditors according to the Corporations Act.
Bankruptcy is a similar process, but it only applies to individuals, who don’t trade through a company but are sole traders or in a partnership.

Separately, lenders might insist that a company hire an Investigating Accountant to assess the situation on the bank’s behalf and make a recommendation as to what the bank should do. More often then not, they would recommend a formal appointment.

Now we have Safe Harbour. The major benefit of it, is that it allows directors to turnaround their insolvent or financially stressed companies, without incurring personal liabilities for any debts incurred whilst doing so.
Additional benefits of Safe Harbour over formal insolvency appointments include:

  1. Directors remain in control, not the Administrator or Liquidator.
  2. Less fees involved as directors remain in control and the Safe Harbour advisers negotiate a fee for overseeing Safe Harbour compliance.
  3.  Administration has formerly been used to restructure entities but more often than not results in liquidation.
  4. Administration typically causes the suppliers to demand cash payment for goods and services as opposed to operating on trade credit- further restraining the business cash flow.
  5. Assets sold through Administration and Liquidation are often at a forced sale price.
  6. If a listed company makes a formal appointment or appoints an Investigating Accountant, the appointment must be announced, whereas under Safe Harbour no announcement is required. That means a listed entity can restructure without the disruption caused by the negative publicity of appointing an Administrator, Liquidator or a Investigating Accountant.
  7. When a formal appointment is made, all communications from the company must state so, whereas under Safe Harbour there is no such requirement.
  8. Lenders have welcomed the new Safe Harbour regime because they want directors to recognise if they have a problem, then plan to remedy it in the most efficient way possible. Safe Harbour advisers afford this comfort to the financiers.

For more information on this topic or our services with regards to selecting appropriate consultants for Safe Harbour for your company, go to at www.safehabournet.com.au

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Options available to directors of insolvent companies

18 April 2022 Abigail Cheadle e: abi@mcorpadvisory.com.au d: +61 448 139 340 m: +61 448 139 340

Alternatives to formal insolvency appointments exist. Safe Harbour, is it disruptive to the insolvency profession?

Before Safe Harbour, directors would be personally liable unless they put the company into Administration or even Liquidation.

Liquidation and Voluntary Administration are both formal insolvency appointments for companies conducted independent of the directors.

Administration allows a brief time to find an alternative to Liquidation. The Administrator controls the company in the interim and the creditors determine the outcome. If a turnaround is possible it will be documented in a Deed of Company Arrangement – but if not, the company will almost always end up in Liquidation.

In Liquidation: trading ceases, company assets are sold, and any remaining proceeds, after the Liquidators fees, are distributed to creditors according to the Corporations Act.
Bankruptcy is a similar process, but it only applies to individuals, who don’t trade through a company but are sole traders or in a partnership.

Separately, lenders might insist that a company hire an Investigating Accountant to assess the situation on the bank’s behalf and make a recommendation as to what the bank should do. More often then not, they would recommend a formal appointment.

Now we have Safe Harbour. The major benefit of it, is that it allows directors to turnaround their insolvent or financially stressed companies, without incurring personal liabilities for any debts incurred whilst doing so.
Additional benefits of Safe Harbour over formal insolvency appointments include:

  1. Directors remain in control, not the Administrator or Liquidator.
  2. Less fees involved as directors remain in control and the Safe Harbour advisers negotiate a fee for overseeing Safe Harbour compliance.
  3.  Administration has formerly been used to restructure entities but more often than not results in liquidation.
  4. Administration typically causes the suppliers to demand cash payment for goods and services as opposed to operating on trade credit- further restraining the business cash flow.
  5. Assets sold through Administration and Liquidation are often at a forced sale price.
  6. If a listed company makes a formal appointment or appoints an Investigating Accountant, the appointment must be announced, whereas under Safe Harbour no announcement is required. That means a listed entity can restructure without the disruption caused by the negative publicity of appointing an Administrator, Liquidator or a Investigating Accountant.
  7. When a formal appointment is made, all communications from the company must state so, whereas under Safe Harbour there is no such requirement.
  8. Lenders have welcomed the new Safe Harbour regime because they want directors to recognise if they have a problem, then plan to remedy it in the most efficient way possible. Safe Harbour advisers afford this comfort to the financiers.

For more information on this topic or our services with regards to selecting appropriate consultants for Safe Harbour for your company, go to at www.safehabournet.com.au