Question 5

Would the new ‘safe harbour’ defence assist the directors? If yes, how? If no, why not?
The safe harbor defence is provided in the section 558GA(1). According to this section, the
provisions in the secton 588G(2) doesn’t apply to the debt and a director if the following two
conditions are met:
1. A person sets out specific course of action or actions that are reasonably likely to lead the
company to better direction despites of appointing the liquidator or the administrator
immediately.
2. the debt is incurred directly or indirectly as the result of such action taken by a person at that
time and ends on the earliest of the following times:
 When the director ceases to take the action
 When the led course of action is likely not to lead to the better outcome than the outcome
obtained by immediate appointment of an administrator or liquidator.
 When the company appoints the liquidator or the administrator.

In the case of the directors of the Linchpin, the directors did not proactively take any course of
action that would lead the company towards the better direction. The directors hide the financial
deterioration of the company and made no effort to appoint the administrator or liquidator.
These two conditions under the safe harbor defence are not met by the directors of the company.
Hence, the new safe harbor defence does not assist the directors.
Reference
Attorney-General’s Department. (2010). Insolvent trading: A safe harbour for reorganisation
attempts outside of external administration, Austl.
Corporate Law Economic Reform Program 1999 (Austl.).
Corporations Act 2001(Austl.).
https://www.abc.net.au/radionational/programs/backgroundbriefing/updated-the-talented-
mrdaly/10282810
Lipton, P., Herzberg, A., Welsh, M. (2017), Understanding Company Law. Thomson Reuters.
Productivity Commission 2015, Business Set-up, Transfer and Closure, Final Report 75,
Canberra