A director contravenes s 588G(2), a civil penalty provision, by failing to prevent the company incurring a debt (including by paying a dividend, reducing capital, buying back or redeeming shares, giving financial assistance or entering an uncommercial transaction) when the company is insolvent or becomes insolvent by incurring it, and there are reasonable grounds to suspect insolvency of which the director is aware or a reasonable person in a like position would be aware. Dishonest failure is an offence (s 588G(3)). The safe harbour in s 588GA removes s 588G(2) for debts incurred in connection with a course of action, developed once the director starts to suspect insolvency, that is reasonably likely to lead to a better outcome than immediate administration or liquidation, or in the ordinary course of business, until the course stops or becomes unreasonable or an administrator or liquidator is appointed. Relevant matters include properly informing themselves of the financial position, preventing misconduct, keeping appropriate financial records, obtaining advice from an appropriately qualified adviser and developing or implementing a restructuring plan. The safe harbour is unavailable while the company is failing to pay employee entitlements (including superannuation) or to lodge tax returns and documents, unless the court orders otherwise (s 588GA(4)).
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