Safe harbour for directors: how it works and when it applies

Safe harbour is a defence for company directors against personal liability for insolvent trading. It is set out in section 588GA of the Corporations Act 2001. It protects a director who, once they suspect the company may be insolvent, starts developing a course of action that is reasonably likely to lead to a better outcome for the company than appointing an administrator or liquidator straight away. It only applies while employee entitlements are being paid and tax lodgements are up to date. It only covers debts incurred in connection with that course of action. It is not a general licence to keep trading.

Why safe harbour exists

Under section 588G, a director can be personally liable for debts a company incurs while it is insolvent, if there were reasonable grounds to suspect insolvency. Before 2017, that risk pushed many directors to appoint an administrator or liquidator at the first sign of trouble, even when the business could have been saved.

Safe harbour was introduced in September 2017 to change that incentive. It gives directors room to attempt a genuine restructure or turnaround outside formal insolvency, with the help of qualified advisers, without carrying personal liability for the debts incurred while they do it.

When the protection applies

The protection starts when a director, suspecting the company may be or may become insolvent, starts developing one or more courses of action that are reasonably likely to lead to a better outcome for the company. “Better outcome” means better than the immediate appointment of an administrator or liquidator.

It covers debts incurred directly or indirectly in connection with that course of action. It ends at the earliest of these points:

• the director fails to take the course of action within a reasonable period;
• the director stops taking it;
• the course of action stops being reasonably likely to lead to a better outcome; or
• an administrator or liquidator is appointed.

The plan does not have to succeed for the protection to apply. What matters is whether, at the time each debt was incurred, the course of action was still reasonably likely to produce a better outcome.

The two conditions that must be met

Safe harbour is not available if, when the debt is incurred, the company is:

1. Not paying employee entitlements as they fall due. This includes wages and superannuation.
2. Not meeting its tax reporting obligations. BAS, income tax returns and other required lodgements must be up to date.

The second condition is about lodging, not paying. A company with an ATO debt can still be within safe harbour if its lodgements are current. A company that has stopped paying super cannot be.

The company’s books and records also need to be in order. If a director later fails to hand books or information over to a liquidator or administrator when required, section 588GB can stop that material being used to support a safe harbour defence.

What makes a course of action “reasonably likely” to work

Section 588GA(2) lists factors a court may consider. They are indicators, not a checklist, but each one is worth being able to show. Has the director:

• properly informed themselves of the company’s financial position;
• taken appropriate steps to prevent misconduct by officers or employees;
• taken appropriate steps to ensure the company keeps appropriate financial records;
• obtained advice from an appropriately qualified entity that was given enough information to give appropriate advice; and
• developed or implemented a plan to restructure the company to improve its financial position?

ASIC’s updated Regulatory Guide 217 sets out how it expects directors to apply these factors, with practical examples. Its consistent theme is that a plan built with qualified advice, and monitored as circumstances change, is far easier to defend than one put together alone.

What safe harbour does not do

• It does not stop Director Penalty Notices. Personal liability for unpaid PAYG withholding, GST and superannuation guarantee charge under the Director Penalty Notice regime is separate, and safe harbour does not protect against it.
• It does not cover other director duties. Duties of care and diligence, good faith and proper use of position still apply.
• It does not cover every debt. Only debts incurred in connection with the course of action are protected.
• It does not stop creditors. Creditors can still pursue the company, issue statutory demands and apply to wind it up.
• It does not last indefinitely. Once the plan stops being reasonably likely to produce a better outcome, the protection ends and a formal appointment usually needs to follow.

Safe harbour, SBR or voluntary administration?

These are not always alternatives. A safe harbour plan often concludes that a formal process gives the better outcome. The protection then helps cover the period in which the director worked that out. SBR also carries its own separate safe harbour, under section 588GAAB, for debts incurred during the restructuring.

How to put safe harbour in place

1. Bring employee entitlements and lodgements up to date first. Without them there is no safe harbour.
2. Get a clear picture of the financial position: cash flow, debts, and which creditors are pressing.
3. Engage an appropriately qualified adviser and give them full information.
4. Write the plan down, including why it is likely to produce a better outcome than an immediate appointment.
5. Record every decision and every review. The director bears the burden of pointing to evidence that safe harbour applied.
6. Keep testing the plan. If it stops being reasonably likely to work, act on that straight away.

How Greengate Advisory can help

Our registered liquidators act as safe harbour advisers for directors of small and medium businesses. That means reviewing the financial position, testing whether a better outcome is achievable, and documenting the plan. If informal restructuring is not enough, we advise on Small Business Restructuring, voluntary administration or an orderly liquidation. The first consultation is free and confidential, and we can explain things in English, Mandarin, Cantonese or Korean. Sydney (02) 8318 3699, Brisbane (07) 3868 1888.

Frequently asked questions

What is safe harbour for directors?

A defence under section 588GA of the Corporations Act that protects directors from personal liability for insolvent trading. It applies while they develop and take a course of action that is reasonably likely to lead to a better outcome for the company than an immediate administration or liquidation.

Can I use safe harbour if my company owes the ATO money?

Yes, if the company’s tax lodgements are up to date. The condition is about reporting, not payment. Unpaid super or wages, however, rule safe harbour out.

Does safe harbour protect me from a Director Penalty Notice?

No. Personal liability under the Director Penalty Notice regime is separate, and safe harbour does not cover it.

How long does safe harbour last?

There is no fixed time limit. It ends when the course of action stops, stops being reasonably likely to lead to a better outcome, is not taken within a reasonable period, or when an administrator or liquidator is appointed.

Do I need an adviser to get safe harbour?

The law does not strictly require one. However, getting advice from an appropriately qualified entity is one of the main factors a court considers, and ASIC’s guidance stresses its importance.

Does safe harbour stop creditors suing the company?

No. Safe harbour protects directors personally. It does not stop creditors from pursuing the company. A moratorium on creditor action only comes with a formal process such as SBR or voluntary administration.

Is safe harbour made public?

No. Unlike SBR or voluntary administration, there is no public notice or ASIC lodgement.

Sources: Corporations Act 2001 (Cth) ss 588G, 588GA, 588GAAB and 588GB; ASIC Regulatory Guide 217 Duty to prevent insolvent trading; Treasury, Review of the Insolvent Trading Safe Harbour (2022). This page is general information, not advice about your circumstances. Last reviewed: 1 October 2026.