Safe Harbour: A port and temporary respite for all in the storm
TMA Australia welcomes the Federal Government’s implementation of emergency measures to give temporary relief for directors from any personal liability for trading while insolvent.
The Government announced in March that the Corporations Act 2001 will be amended to provide temporary and targeted relief for companies to deal with unforeseen events that arise as a result of the Coronavirus.
“… To make sure that companies have confidence to continue to trade through the Coronavirus health crisis with the aim of returning to viability when the crisis has passed, directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This will relieve the director of personal liability that would otherwise be associated with the insolvent trading. It will apply for six months…”.
Members of the TMA Board along with Business leaders lobbied government to promote the temporary easing of the insolvent trading measures and we are pleased to see government act decisively in this respect. We continue to advocate other key initiatives.
The TMA recognises these changes remove a roadblock, but businesses still need to restructure and employ turnaround techniques. Standstills, refinancing, cost outs and operating model redesigns etc will still be required. The relief is not a panacea. Safe harbour is in many ways reflective of the best restructuring practices the TMA advocates – namely realising that there is an issue, identifying options, having a plan, engaging TMA advisors and implementing the plan.
It may be seen as an opportunity for pre insolvency Phoenix proponents. However, directors’ duties are not relieved. We remain vigilant and continue to call out any such activity for what it is and remind our membership of our TMA values, strong ethics and guidelines.
The TMA believes the environment warrants an emergency response from Government including providing clear and simple messaging to the directors of viable businesses to focus on a plan to survive rather than an irrevocable plan to formalise insolvency options or liquidate. The immediate priority must be to keep the economy and businesses going.
This is in effect a port in the storm and a safe harbour for all.
More detail and what this means at a practical level to follow in due course as this business critical development unfolds.
Navigate your way to a Safe Harbour
TMA Australia has developed TMA Australia – Safe Harbour Guidelines for companies facing financial distress. Make TMA your first port of call.
Based on the Australian Institute of Company Directs surveys, the personal liability risk in relation to insolvent trading is very important to directors in times of financial distress. Recently, the Government has moved to soften the prospect of personal liability by introducing Safe Harbour reforms. But it is all very well and good knowing that there is a Safe Harbour but how does a director navigate it?
Financial distress is not something planned for or desired. It is the exception, not the rule. To ease that angst, the Turnaround Management Association of Australia (TMA) has developed Best Practice Guidelines for both directors and advisors in relation to navigating Safe Harbour.
The guidelines are based on current best practice for workouts. They have been drawn from internationally accepted principles, Australian case law, detailed consideration of the new legislation and input from top tier accounting, investment banks and law firms.