Creditor Rights in Liquidation & Administration

Supporting Creditors Rights in Liquidation

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Supporting Creditors Rights in Liquidation

Safe Harbour In Detail

The Safe Harbour laws essentially create a “safe harbour” for directors from personal liability for insolvent trading when they begin to develop one or more courses of action that are reasonably likely to lead to a better outcome for the company than the immediate appointment of a liquidator or administrator.

Suggested steps to consider when using insolvency Safe Harbour

  1. Check that any outstanding employee entitlements are paid, and ensure that the company will be able to continue to pay employee entitlements by the time they fall due.
  2. Check that the company is meeting all its tax reporting obligations, and ensure that systems are put in place to enable the company to continue meeting these obligations.
  3. Check that there are no outstanding issues relating to misconduct of employees and officers which need to be resolved. Directors should focus on ensuring employees are complying with company policies and misconduct should be identified and dealt with appropriately.
  4. Check existing insurance and indemnity policies, including D&O insurance, is up-to-date and adequate.
  5. Before incurring any further company debt, consider making an initial assessment regarding whether it will lead to a better outcome for the company to immediately appoint an administrator or liquidator. At this stage, directors should consider obtaining advice from an appropriately qualified entity, and ensure that the entity was given all the information required to provide advice regarding the company’s prospects.
  6. If the initial assessment and advice points to the likelihood of a better outcome for the company than the immediate appointment of an administrator or liquidator, directors should consider developing a restructuring plan in earnest. Directors should consider making arrangements to also ensure that relevant documents are recorded carefully and archived.
  7. Consider placing the following items on the agenda of the board as “standing” items for consideration and discussion:
  8. The adequacy of financial records, and how these financial records might be improved;
  9. The financial position of the company, and whether it has deteriorated or improved, and how this might impact the availability of the safe harbour;
  10. Whether further advice needs to be obtained from an appropriately qualified entity;
  11. Whether the restructuring plan is being implemented, and whether adjustments will be required to ensure that the desired outcome will be achieved; and
  12. Whether, all things considered, it would be better for the company to immediately appoint an administrator or liquidator.

Do you need help with Insolvency Safe Harbour?

Bruce Pasetti