Quick answer
Safe harbour, in section 588GA of the Corporations Act, can protect directors from personal liability for insolvent trading while they develop a course of action reasonably likely to lead to a better outcome than immediately appointing an administrator or liquidator. A realistic refinance can be part of that plan. The protection can be lost if employee entitlements aren't paid when due or tax lodgements aren't kept up.
Key points
- Safe harbour starts when a director suspects insolvency and begins developing a better-outcome plan.
- The plan must be reasonably likely to beat an immediate administrator or liquidator.
- Paying employee entitlements on time and keeping tax lodgements current are essential.
- A refinance can be a key part of the plan — if it's realistic.
- Law
- Corporations Act s588GA
- Test
- Reasonably likely to lead to a better outcome
- Lost if
- Employee entitlements or tax lodgements fall behind
- ASIC guidance
- RG 217 (updated December 2024)
Directors of a struggling company often feel caught between two fears: keep trading and risk personal liability for insolvent trading, or appoint an administrator and lose the business. Safe harbour exists for the space in between. It’s designed to give honest directors room to try to turn things around — and a well-structured refinance is often the engine of that turnaround.
What does safe harbour actually protect?
Directors have a duty not to let their company incur debts while it’s insolvent. Safe harbour, in section 588GA of the Corporations Act, carves out a protection. In ASIC’s summary, it can apply when:
- After you start to suspect the company may become or be insolvent, you begin developing one or more courses of action;
- those courses of action are reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or liquidator; and
- the debt is incurred in connection with that course of action, or in the ordinary course of the company’s business.
The protection lasts for a reasonable period, ending if the plan isn’t pursued, stops being reasonably likely to work, or an administrator or liquidator is appointed.
What can void safe harbour?
This is where many directors come unstuck. Under section 588GA(4), the protection doesn’t apply if, when the debt is incurred, the company is failing to:
- pay employee entitlements by the time they fall due; or
- give returns, notices, statements and other documents required by taxation laws.
In practice, that means wages and super paid on time, and BAS and other tax lodgements up to date — even if the tax itself can’t yet be paid. That’s also exactly what the ATO asks of businesses in difficulty, and what keeps a DPN from being locked down.
| Must stay current | Why |
|---|---|
| Wages and employee entitlements | Required for safe harbour to apply |
| Super (payday super from 1 July 2026) | Employee entitlement; also covered by DPNs |
| BAS and tax lodgements | Required for safe harbour; avoids lockdown DPNs |
| Tax payments | Not required for safe harbour, but ATO action continues |
Where does a refinance fit into the plan?
ASIC’s guidance for directors says that unless it’s possible to restructure, refinance or obtain equity funding to recapitalise the company, an insolvency appointment should be considered. Refinancing is one of the recognised roads out.
A refinance can support a better-outcome plan by:
- paying the ATO in full, ending firmer action and the director’s DPN exposure
- clearing or settling pressing creditors, stopping statutory demands and wind-up risk — see business debt consolidation
- funding employee entitlements, so the safe harbour conditions are met
- giving the business time to complete a restructure: closing a loss-making site, selling an asset, or winning back margin
Lenders we work with offer property-secured loans from $20,000 to $5,000,000 and unsecured or cash-flow options typically from $5,000 to $500,000. If you’re a director working on a plan and want to know what funding is realistic, send us an enquiry. No credit check is involved.
What makes a refinance “reasonably likely” to help?
A lender and an adviser will both look for the same things:
- A business that is profitable, or will be, once the plan is complete
- A specific, documented plan — not just “borrow and hope”
- Security or cash flow that supports the new facility
- A clear exit for the loan
- Evidence the directors are acting promptly and taking advice
A plan that only postpones the inevitable isn’t a better outcome, and a responsible funder won’t pretend otherwise.
An illustrative example
Illustrative only. The two directors of a Melbourne manufacturing company realise it may be insolvent after losing a major customer. They engage an adviser, keep wages, super and BAS lodgements current, and document a plan: close one production line, sell surplus equipment, and refinance ATO arrears and two supplier debts against the factory. The refinance settles, the surplus equipment sale reduces the loan, and the leaner business returns to profit within the year.
Where should a director start?
- Get advice early from an appropriately qualified adviser.
- Keep wages, super and lodgements current from today.
- List every creditor and deadline — the which-debt-first sorter helps.
- Test funding options alongside the plan, not after it.
- Document decisions as you go.
If you’ve been told administration is the only option, read alternatives to voluntary administration and how to avoid liquidation.
What will a lender ask a director in safe harbour?
Expect questions like these, and have the answers ready:
- Who is advising the company, and what does the plan involve?
- Are wages, super and tax lodgements current today?
- Which debts will the loan pay, and what’s left afterwards?
- What does the business look like in six and twelve months?
- What security is available, and who owns it?
- What happens if part of the plan, such as an asset sale, takes longer than expected?
A lender doesn’t decide whether safe harbour applies — that’s a legal question. But a funder who can see a coherent plan is far more likely to support it.
Want to test whether funding supports your plan?
Safe harbour rewards directors who act early and realistically. A funding answer — yes, no, or “yes if” — is one of the most useful inputs a plan can have.
Enquiring takes about a minute, and nothing is run against your credit file at that stage. We don’t circulate your details to a list of lenders; a real person looks at your situation and calls you. Please be accurate about the debts, the security and the plan, so we can give your adviser and you a clear read on what’s fundable.
Frequently asked questions
What is safe harbour for directors?
It's a protection in section 588GA of the Corporations Act. Directors who suspect their company may be or become insolvent, and who start developing a course of action reasonably likely to lead to a better outcome than immediately appointing an administrator or liquidator, may be protected from personal liability for debts incurred in connection with that course of action.
Can refinancing be part of a safe harbour plan?
Yes. ASIC's guidance for directors lists restructuring, refinancing and raising equity as ways a company may avoid insolvency. A refinance that clears pressing debts and leaves a viable business can be central to a better-outcome plan.
What stops safe harbour applying?
Under section 588GA(4), it doesn't apply if, when the debt is incurred, the company is failing to pay employee entitlements when they fall due, or failing to give returns, notices and statements required by taxation laws.
Do I need an adviser for safe harbour?
Directors usually work with an appropriately qualified adviser when developing a safe harbour plan, and it's strongly recommended. Getting that advice is one of the factors taken into account.
Does safe harbour protect me from a director penalty notice?
No. Safe harbour relates to insolvent trading liability. A DPN is a separate regime under tax law, and it needs to be dealt with on its own terms — usually by payment.