Safe harbour protects directors from insolvent trading liability while they pursue a plan reasonably likely to improve on an immediate administration or liquidation. A credible plan is specific, costed, tested against that alternative and written down. The basics must be in order too: employee entitlements, including super, paid on time and tax lodgements up to date.
Why this matters now
More than 14,000 companies entered external administration for the first time in 2025–26, according to ASIC. Many boards faced the same choice: attempt a turnaround, or appoint an administrator.
Safe harbour, in s 588GA of the Corporations Act 2001 (Cth), lets directors attempt the turnaround without personal liability for new debts. But it is only as good as the plan and the evidence behind it.
The 2022 independent review found safe harbour works well for listed and large companies, but small business directors use it far less. They are less aware of it, less able to pay advisers and more likely to miss its entry conditions.
The rules are not about to change. In August 2026, the Government said it would consider the review’s remaining recommendations alongside the Productivity Commission’s business dynamism inquiry. Our article Insolvency reform on hold explains the timetable.
Start the clock, and record it
Safe harbour covers only debts incurred after a director, having suspected insolvency, starts developing a course of action. Every week of delay is a week without protection.
Since 10 July 2024, it has expressly covered debts incurred in the ordinary course of business, so normal trading can continue.
The first board minute matters. It should record when the directors first suspected insolvency, that they resolved to develop a plan, and which adviser they engaged. A director relying on safe harbour must point to evidence that it applied (s 588GA(3)). In practice, that evidence is the board papers.
Five features of a credible plan
- An honest diagnosis. Why the company is in difficulty, and which parts of the business are viable.
- Reliable numbers. A rolling cash flow forecast, usually 13 weeks, updated weekly and checked against actual results.
- The comparison. An estimate of what creditors would receive if an administrator or liquidator were appointed now. That is the benchmark for a “better outcome”.
- Specific actions. Cost cuts, asset sales, refinancing, new capital or a deal with creditors, each with an owner and a deadline.
- Triggers. Milestones that, if missed, require the board to change course or appoint an administrator.
ASIC’s Regulatory Guide 217, updated in December 2024, gives worked examples. Hope is not a plan: a forecast that relies on a new contract needs evidence it will arrive.
Choosing the adviser
The Act points to advice from an “appropriately qualified entity” but does not define the term. ASIC looks at qualifications, professional memberships, relevant experience, resources and professional indemnity insurance.
Most plans need two advisers: an accountant or turnaround adviser for the numbers, and a lawyer for duties, creditor negotiations and the paper trail.
Choose with the end in mind. A practitioner who gives safe harbour advice will usually be conflicted from later acting as the company’s liquidator. The Administrative Review Tribunal’s decision in FQGW [2025] ARTA 218 concerned a liquidator disciplined for doing so.
The tripwires that end protection early
Protection is lost for debts incurred while the company is failing to pay employee entitlements when due, or to make its tax lodgements. It is enough that compliance falls short of substantial, or that there have been two or more failures in 12 months (s 588GA(4)). The tax condition concerns lodgement, not payment.
Super counts as an employee entitlement. Under Payday Super, it must now reach the fund within seven business days of each payday. A business that pays fortnightly has 26 deadlines a year, and two misses can be enough.
Safe harbour does not cover director penalty notices, personal guarantees or criminal liability. It ends when the plan stops being reasonably likely to lead to a better outcome, or when an administrator or liquidator is appointed.
Directors must also hand over the books and help any later administrator or liquidator. Otherwise, safe harbour is treated as never having applied (s 588GA(5)).
What directors should do now
- Minute the date you first suspected insolvency, and engage an appropriately qualified adviser straight away.
- Build a rolling cash flow forecast and an estimated return in liquidation, and update both regularly.
- Pay wages and super on every payday, and keep tax lodgements current, even if the tax cannot yet be paid.
- Review the plan at every board meeting, and record decisions and reasons.
- If a trigger is missed and the plan is no longer viable, act promptly and consider voluntary administration.
What to watch
- The Productivity Commission. Its interim report on business dynamism is due in November 2026, and its final report by May 2027. Any change to safe harbour is likely to follow from it.
- Payday Super enforcement. Under the ATO’s first-year approach, employers who clear July–September shortfalls by 28 October 2026 avoid its high-risk group. Missed super also puts safe harbour at risk.
- Case law. Courts have said little so far about the “better outcome” test, so the first detailed judgment will matter.
To discuss how these developments affect you, contact us on +61 7 3229 9800 or send us an enquiry online.
This article is general information only and is not legal advice.
Sources: Corporations Act 2001 (Cth), ss 588G, 588GA and 588GB; Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024 (Cth); Treasury — Review of the insolvent trading safe harbour: final report (tabled 24 March 2022); Australian Government response to the Parliamentary Joint Committee on Corporations and Financial Services report, Corporate insolvency in Australia (August 2026); ASIC — Regulatory Guide 217: Duty to prevent insolvent trading: Guide for directors (6 December 2024); ASIC — Insolvency statistics, Series 1; ATO — Payment deadlines for Payday Super; ATO — Getting it right: compliance in the first year of Payday Super (PCG 2026/1); Productivity Commission — Reducing barriers to business dynamism; FQGW and A committee convened under section 40-45 of the Insolvency Practice Schedule (Corporations) [2025] ARTA 218.