ASIC updates guidance to help directors prevent insolvent trading
Background
RG 217 provides guidance for directors and their professional advisers to help them understand and comply with the duty to prevent insolvent trading. It also provides guidance for directors who wish to rely on safe harbour protections.
There have been several developments that have influenced the need for updates to RG 217, including the 2017 introduction of ‘safe harbour’ provisions under the Corporations Act 2001 and recommendations from Treasury’s Review of the Insolvent Trading Safe Harbour in 2021 to update RG 217 to provide plain English ‘best practice guidance’ and to include references to the safe harbour provisions.
Update
ASIC has updated its regulatory guide for directors and their professional advisers on the duty to prevent insolvent trading and to provide new guidance on the safe harbour provisions.
The updates to Regulatory Guide 217 Duty to prevent insolvency trading: Guide for directors (RG 217) follow a consultation with industry to seek their input on our proposed changes.
ASIC released Consultation Paper 372 Guidance on insolvent trading safe harbour provisions: Update to RG 217 (CP 372) in September 2023.
Industry response to CP 372 included requests to:
• simplify the guidance
• provide clarity on obtaining professional advice
• improve the guidance for directors of small-to-medium enterprises (SMEs), and
• provide additional guidance on safe harbour.
ASIC responded to the key issues raised by:
• including additional practical examples
• providing further guidance on obtaining professional advice
• providing enhanced guidance on safe harbour, including practical examples, and
• updating Information Sheet 42 Insolvency for directors (INFO 42) to include guidance on safe harbour.
Report 803 Response to submissions on CP 372 Guidance on insolvent trading and safe harbour provisions (REP 803) provides further detail about ASIC’s responses to the submissions received during the consultation process.
Disclaimer: This does not purport to be comprehensive or to render legal advice. You should not act based on any information contained in this publication without first obtaining specific professional advice. Consult your legal advisor to determine if this applies to you.