ASIC has released Consultation Paper 372 Guidance on insolvent trading safe harbour provisions: Update to RG 217 seeking feedback on our proposed updates to Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors (RG 217).
CP 372 is seeking feedback on ASIC’s proposed approach to:
- updating existing guidance to include information about when a holding company may be liable for debts incurred by a subsidiary when the subsidiary has continued to trade while insolvent,
- providing information and general guidance about the operation of the safe harbour provisions and the factors ASIC will consider when assessing whether safe harbour protection is available to a director, and
- providing guidance for directors about the key principles they should consider in carrying out their duty to prevent insolvent trading.
ASIC encourages comments from industry and other interested stakeholders on its proposed approach to Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors. Comments should be sent by 5:00pm AEST on Wednesday, 26 October 2023.
The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 introduced the safe harbour provisions contained in sections 588GA and 588GB of the Corporations Act 2001. The provisions commenced on 18 September 2017. The provisions introduced a safe harbour for company directors from civil liability for insolvent trading under section 588G(2) of the Corporations Act. A further limited safe harbour for directors of companies in small business restructuring commenced in 2021.
The safe harbour amendments required that the Minister must cause an independent review of the safe harbour provisions (the Review) be conducted as soon as possible after they had been in effect for two years (s588HA).
A review by an independent panel took place from August to November 2021 with extensive consultation with a broad range of stakeholders. A report setting out the panel’s recommendations (the Review Report) was tabled in Parliament on 24 March 2022 and Government released its response the same day.
The Review Report identified a lack of awareness and understanding by directors and their advisers of a director’s duty to prevent insolvent trading (and the related safe harbour provisions) and made a suggestion that ASIC update RG 217 “to refer to the insolvent trading prohibition, and the safe harbour provisions, together with general guidance on the operation of the relevant provisions”.