Flow Diagram for 588GA PDF

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Flow Diagram for 588GA Corporations Act...

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Safe Harbour Provision – 588GA 588GA(1)(a) – After starting to suspect that the company may become or be insolvent, has the director started developing one or more courses of action that are reasonably likely to provide a better outcome for the company? NOTES: - 588GA(7) clarifies that ‘better outcome for the company’ means better than the immediate appointment of an administrator, or liquidator, of the company. - 588GA(2) provides guidance as to the sort of factors that can be considered when working out whether a course of action is ‘reasonably likely to lead to a better outcome’: o Is the person properly informing themselves of the company's financial position? o o o

are they taking appropriate steps to prevent misconduct by officers or employees that could adversely affect the company's ability to pay its debts? Are they taking appropriate steps to keep financial records consistent with the size and nature of the company? Are they obtaining advice from an appropriately qualified entity with sufficient information?

o Are they developing a plan to restructure the company to improve its financial position? - 588GA(3) indicates that it is the director who has the ‘evidential burden’ of proving the elements of 588GA(1). - 588GA(7) further clarifies that this ‘evidential burden’ is to adduce or point to evidence that suggests a reasonable possibility that the matter exists (or does not exist). The Explanatory Memorandum indicates that the chance of achieving the outcome must be ‘fair’, ‘sufficient’ or ‘worth noting’. no

yes

588GA(1)(b) – Is the debt incurred: - directly or indirectly in connection with any such course of action? AND - during the period of time defined in s 588GA(1)(b)? NOTES: - Provided the director starts to implement the course of action within a reasonable time and is still implementing it when the debt occurs, and provided a liquidator or administrator has not been appointed, the relevant period of time is while any such course of action is still ‘reasonably likely to lead to a better outcome for the company’. - The director has the evidential burden of proving s588GA(1)(b) (see 588GA(3), (7) – summarised above) no

yes

588GA(4)(a) - When the debt was incurred, was the company EITHER failing to pay entitlements of its employees by the time they fall due* OR failing to give returns, notices, statements, applications and other documents as required by taxation laws? * Employee entitlements are defined in s596AA(2) and include superannuation. yes

no

no

588GA(4)(b) - Did that failure (or failures) EITHER amount to less than substantial compliance with the matter concerned OR was it one of two or more failures by the company to do any or all of those matters during the 12 month period ending when the debt is incurred?

yes

588GA(6) - Has the Court ordered that subsection (4) does not apply ? NOTE: The Court is empowered to do this if the director applies for such an order and the Court is satisfied that the director’s relevant failures were due to exceptional circumstances OR that it is in the interest of justice to make the order.

no

yes

S588GA(5)(1) – After the debt was incurred, did the director fail to comply with 429(2)(b), 475(1), or 530A(1) in relation to the company AND did that failure amounts to less than substantial compliance with the provision concerned? NOTE: 429(2)(b), 475(1), or 530A(1) relate to a situation where a liquidator or other controller (e.g. a voluntary administrator or receiver) has been appointed to take control of the company. These provisions contain rules regarding the information that the company’s officers must share with the external administrator.

yes no

588GA(6) - Has the Court ordered that subsection (5) does not apply ? yes

NOTE: The Court is empowered to do this if the director applies for such an order and the Court is satisfied that the director’s relevant failures were due to exceptional circumstances OR that it is in the interest of justice to make the order.

In relation to this debt, the director CAN rely on the safe harbor provision set out in s588GA(1) to escape liability for insolvent trading.

no

588GA(1) is taken never to have applied to the director. That is, the director CANNOT rely on this safe harbor provision for ANY debt that the company took on before the liquidator or other controller was appointed.

In relation to this debt, the director CANNOT rely on the safe harbor provision set out in s588GA(1) to escape liability for insolvent trading....