Guide Overview

Informal workouts

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The pivotal step to be taken in safe harbour is "developing one or more courses of action". That is, preparing a restructuring plan.

For that purpose:

"Regard may be had to whether the director:

(a) is properly informing himself or herself of the company's financial position; or

(b) is taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company's ability to pay all its debts; or

(c) is taking appropriate steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or

(d) is obtaining advice from an “appropriately-qualified entity” who was given sufficient information to give appropriate advice; or

(e) is developing or implementing a plan for restructuring the company to improve its financial position."4

That provision, in its practical effect, requires that:

(a) there must be a restructuring plan; and

(b) that plan must be supported by both:

(i) a proper understanding of the company's financial circumstances; and

(ii) fully informed and appropriately qualified advice.

Of course, a restructuring plan may involve a creditors’ scheme of arrangement, but, in circumstances where the company’s directors retain control of its management and business, approval of the scheme and, possibly, of its implementation after that time. It is just as important in that scenario for the directors to demonstrate that they are pursuing a course of action which, by reference to the available objectively verifiable information, is calculated to produce a better outcome for the company.5

An alternative scenario would involve an agreement with the company’s financiers under which they would commit to support a refinancing of the company’s existing borrowings (presumably with longer maturity dates, but more demanding covenants) as well as provide additional finance to enable the company to continue to trade. In that scenario, appropriately qualified advice might come from someone appointed to act as the company’s Chief Restructuring Officer (CRO).

No statutory guidance is provided as to the basis upon which an “entity” might be assessed to be “appropriately qualified”. Experienced insolvency practitioners would seem to satisfy this requirement, provided that their experience extends beyond the liquidation of companies and includes, eg managing the businesses of companies that are in receivership or subject to a creditors’ scheme. This experience is reinforced if the businesses were being prepared for sale were, in fact, sold and have continued to operate.

The terms upon which a CRO is appointed will be a matter for negotiation. However, an issue of concern will be the limitations on the company when it comes to indemnifying its officers from liability or effecting insurance cover for their protection.6

Irrespective of who has been appointed as CRO (whether an independent consultant or an employee), a further issue may arise as a result of the legislative reforms in the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020. Which will have implications in both cases if that advice includes recommendations in relation to a possible sale of assets. The relevant provision in the Act prohibits a person from engaging in the “conduct of procuring, inciting, inducing or encouraging the making by a company” of a sale which adversely affects the interests of creditors.7 Consider the example of a retailer undertaking a stocktake sale. If that sale was held on the basis of the recommendation of a consultant as to possible courses of action which might relieve the company’s cashflow difficulties, the consultant, prospectively at least, would be exposed to a claim for liability on account of a breach of that provision.


If directors wish to rely on the safe-harbour defence, they must:

(a) ensure that the company's financial records are being properly maintained; 8 and

(b) ensure that its officers are not conducting themselves in a way which could adversely affect the company's ability to pay its debts.9

Additionally, the company's employees must be getting paid and the company must be up to date with its tax obligations under the Income Tax Assessment Act 199710.


The assessment as to whether the restructuring plan will deliver a better outcome for the company should be made at the time the plan is adopted and be reassessed from time to time.11 The analysis has to be undertaken by reference to the information available to the directors at the time the plan is formulated or adjusted.12

The benchmark for assessment is whether the plan will deliver a better outcome for the company, i.e:

"an outcome that is better for the company than the immediate appointment of an administrator, or liquidator, of the company".13

This involves undertaking a liquidation analysis of the value of the company’s assets at the time of the implementation of the plan and comparing the respective anticipated outcomes. If the comparison favours the adoption of the restructuring plan, this will be a central consideration when establishing the safe-harbour defence.

Shortcomings of the safe harbour
Shortcomings of the safe harbour

Further reading


In November 2021, the Treasury published its Review of the Insolvent Trading Safe Harbour Report, which outlines, among other things, the following uncontroversial proposed amendments to the Safe-Harbour regime:

(a) “The Panel recommends that section 588GA(1)(a) be amended to include a reference to a person starting to suspect the company is in financial distress (in addition, and as an alternative to, a person starting to suspect that the company may become or be insolvent).

(b) “The Panel recommends that the safe harbour protections extend to the obligations of directors under section 596AC, and that section 588GA be amended to refer to subsections 596AC(1) and (3).

(c) “The Panel recommends that the safe harbour protections extend to the obligations of directors under section 596AC, and that section 588GA be amended to refer to subsections 596AC(1) and (3).”

(d) "The Panel recommends section 588GB be amended, to clarify that:

if books and records are in a director’s possession and control (even if they are not the books and records ‘of the company’), and

those books and records are not provided to the administrator or liquidator at the time of a formal appointment,

then the director will also be prevented from producing those books and records to establish safe harbour in any relevant proceeding.

(e) “The Panel recommends either the reference to the term ‘restructuring’ in section 588GA(2) be replaced or the definition of restructuring in section 9 be updated to include a definition of that term for the purpose of section 588GA(2)(e).

(f) “The Panel recommends that section 588GA(2)(d) be amended by replacing the reference to ‘an appropriately qualified entity’ with ‘one or more appropriately qualified advisers’.”

(g) “The Panel recommends amending subsections 588GA(4)(a) and 588GA(4)(a)(i) to align the wording of those provisions with the wording of the employee entitlement safeguard in Regulation 5.3B.24.”

(h) “The Panel recommends that a finite list of tax reporting obligations be included in subsection 588GA(4)(a)(ii).”

(i) “The Panel recommends the deletion of subsection 588GA(4)(b)(ii).

(j) “The Panel recommends that a definition of substantial compliance be included in the Act, to assist stakeholders to interpret the requirements of subsection 588GA(4).”

The full report by the Treasury can be found here.


The Turnaround Management Association of Australia (TMA) has issued best practice guidelines entitled Navigate your way to a Safe Habour. These guidelines concisely set out the best approach for directors who suspect insolvency so as to ensure compliance with the Safe Harbour provisions under the Corporations Act.

The TMA Best Practice Guidelines can be found here.


In the early 2000s, Ashurst, together with the Asian Development Bank and the Asian Bankers Association, prepared a model agreement to promote company restructuring (Model Agreement). The Model Agreement was designed to operate cross-border in relation to an industry-wide collaborative scheme to facilitate workouts in Asia.

The Model Agreement is, in essence, particularly useful as a template for a standstill agreement, from which it originates.

A copy of the Model Agreement (as last updated on 12 September 2013) can be accessed here.

The below is a useful guide to the best practice on approaching an informal workout under the Model Agreement for a debtor with multiple financiers.

The table below is a useful guide to best practice on approaching an informal workout under the Model Agreement for a debtor with multiple financiers.

  • A bank that is owed more than 10% of the total liabilities of the relevant debtor may invoke the Model Agreement by giving a notice or Workout Application to the debtor's other bankers convening a First Meeting to consider the formation of a Workout Committee.
  • The First Meeting must be held within 10 to 15 days of notice.  Beyond that, there may be a moratorium on banks pursuing their claims against a debtor until the conclusion of the First Meeting.
  • Banks may either appoint a Workout Committee or determine that the financial affairs of the debtor are such that no sensible workout proposal can be developed and that it should be liquidated. 
  • If a Workout Committee is appointed, the standstill continues for a period of up to 60 days, subject to the satisfaction of various conditions, as the process of formulating a workout progresses.
  • Otherwise, if the Workout Application imposes a moratorium on the banks, that standstill comes to an end. 

  • If the banks establish a Workout Committee, its members will comprise one representative from each of those three banks with the largest claims and one representative each from three of the remaining banks. 
  • The Chairperson may either be entirely independent or be the representative of the bank with the largest exposure to the debtor.
  • Once a Workout Committee has been appointed, one of its first tasks is to obtain from the debtor financial information, an indemnification of the members of the Workout Committee, and payment of the costs of the Workout Committee. Additionally, the debtor and the Workout Committee should maintain the status quo so far as each of the debtors businesses and of its relationships with creditors are concerned.
  • The Model Agreement stipulates that the debtor's commitment to provide support is formalised by a Debtor Company's Covenant. Without the covenant, or equally if there has been a breach by the debtor or the debtor has become the subject of an insolvency proceeding, the banks may resolve to terminate the moratorium.

  • The principal functions of the Workout Committee are to undertake a detailed review of the financial affairs of the debtor and to negotiate the terms of a Workout Agreement, which may be submitted to the banks for their adoption.
  • In circumstances where either the terms of a Workout Agreement cannot be resolved or the Workout Committee comes to the unanimous view that no useful commercial purpose will be served by undertaking a Workout Agreement, a meeting of banks can terminate the moratorium.

  • If the Workout Committee is able to both reach agreement with the debtor on the terms of an “out-of-court” settlement and to conclude that such a settlement has commercial merit, a meeting of banks is convened to consider the proposed Workout Agreement. The options for the banks are either to adopt the agreement by way of a special resolution (75% of all banks representing at least 90% of all claims against the debtor) or to bring the moratorium to an end.

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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.

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