A Series A SaaS company runs into a cash wall. Net burn is $420,000 a month, cash on hand is $1.1 million, and the priced round the founders started raising six months ago has not closed. The lead investor’s IC pushed back twice on revenue concentration; two other funds have passed. On a Tuesday evening the CEO and the CFO sit in a meeting room with the company’s auditor, who tells them — for the first time in writing — that the going-concern note in next quarter’s accounts will be qualified unless a bridge round is committed within four weeks. The next morning the company’s lawyer asks the question every founder eventually has to answer: is the safe harbour available, and what do we need to do today to be inside it?
That is the moment s588GA of the Corporations Act 2001 (Cth) is designed for. Introduced by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017, the safe harbour was meant to encourage informal restructuring and reduce the rate at which marginal companies are tipped into voluntary administration. Almost nine years on, it remains the most misunderstood provision in Australian directors’ duties — particularly among startup founders, who reach for it as if it were a moratorium when it is actually a narrow, gated defence that can fall over on lodgement hygiene before it has begun.
What the Safe Harbour Actually Does
s588GA(1) carves out one specific liability — civil liability under s588G(2) for incurring a debt while the company is insolvent — for any debt incurred directly or indirectly in connection with a course of action that, when the director starts developing it, is “reasonably likely to lead to a better outcome for the company” than the immediate appointment of an administrator or liquidator. The benchmark is critical. The director does not have to prove the turnaround will succeed. They have to show that, at the time the debt was incurred, the plan was reasonably likely to beat administration. A bridge round with a signed term sheet and committed lead clears that bar comfortably. A speculative “we’ll find someone” does not.
The safe harbour ends — and the s588G(2) clock restarts — when the course of action ceases to be reasonably likely to produce a better outcome, when the director stops pursuing it within a reasonable period, or when an external administrator is appointed. It is not a one-time election. It is a status the director must continue to satisfy day by day.
The “debt” the section is concerned with is wider than founders often assume. It includes the obligation that crystallises when a convertible note reaches its maturity date without converting, and — depending on the form — the discharge obligation under an Australian SAFE on its trigger event. A startup that pulls a bridge convertible in week ten of a runway it cannot finance is incurring a debt for s588G purposes from the moment the cash hits the account. Whether s588GA covers that debt depends on whether, when the bridge closed, the bridge itself formed part of a course of action reasonably likely to beat administration.
The Two Gates That Knock Startups Out
Two preconditions in s588GA(4) disqualify the defence outright. When the debt is incurred, the company must not be failing to pay employee entitlements (which include superannuation guarantee contributions) as they fall due, and it must not be failing to lodge returns and statements required by taxation laws. A single failure that is less than substantial compliance is enough; a pattern of two or more failures in the preceding 12 months is enough. The court has a narrow discretion in s588GA(6) to relieve a director from these preconditions in exceptional circumstances, but it is precisely that — exceptional.
This is the trap that catches startups. The very behaviour founders fall into when cash is tight — deferring a super payment, slipping a BAS lodgement by a few weeks — is the behaviour that locks the safe harbour shut at the moment they most need it. The lesson from Re Balmz Pty Ltd (in liq) [2020] VSC 652, still the principal reported decision on s588GA, is uncompromising: a small-business director who let tax filings and super lapse could not invoke the defence even where the underlying course-of-action analysis might otherwise have helped them. The Treasury-commissioned independent review released in 2022 noted that the regime is generally underused — but where directors do invoke it, the s588GA(4) gates are where defences most often die.
What the Safe Harbour Does Not Do
The defence is narrower than its branding suggests. It does not protect a director against:
- Director Penalty Notices for unpaid PAYG withholding, GST or SGC, which arise under Division 269 of Schedule 1 to the Taxation Administration Act 1953 and are a parallel personal liability regime entirely. Recent ATO enforcement (more than 84,000 DPNs in FY25) makes this the most likely personal exposure for a startup director in any case.
- Other directors’ duties in ss 180–184 of the Corporations Act — care and diligence, good faith and proper purpose, misuse of position or information. A safe-harbour director who continues to make unreasonable decisions during a turnaround can still be sued for breach of statutory duty.
- Criminal insolvent trading under s588G(3), which requires dishonesty. Largely theoretical for most founders, but the carve-out in s588GA is expressly limited to s588G(2).
- Creditor enforcement. Safe harbour is a defence, not a stay. Suppliers can still sue, the ATO can still issue statutory demands, and a winding-up application can still be heard.
Safe Harbour, SBR, or Administration?
For a startup with total liabilities under $1 million (excluding employee entitlements and contingent liabilities), the Small Business Restructuring regime in Part 5.3B is now a serious alternative. ASIC Report 810 (June 2025) showed SBR appointments climbing to roughly 20% of all initial formal insolvency appointments and 92% of finalised SBR plans being fulfilled rather than terminated. The trade-off: SBR is a formal, debtor-in-possession process led by a Small Business Restructuring Practitioner and disclosed publicly; safe harbour is an informal defence the director runs internally.
A simple rule of thumb: if the path forward is a credible bridge round or a sale that needs four to twelve weeks to land and the company can keep paying employee entitlements and lodging on time, safe harbour is the right tool. If the company is below the $1 million liability threshold and a compromise with creditors (especially the ATO) is the only way out, SBR is usually a better fit. If neither course of action is reasonably likely to beat liquidation, voluntary administration should be on the table the same week.
The Documentation a Court Will Look For
A director relying on safe harbour bears an evidential burden under s588GA(3). Reconstruction after the fact does not work. The minimum file an insolvency lawyer will expect to see, prepared contemporaneously, is:
- a dated 13-week cashflow forecast updated weekly;
- board minutes recording the date the director first suspected possible insolvency and the decision to develop a course of action;
- a written turnaround plan with milestones and decision triggers;
- an engagement letter and written advice from an appropriately qualified entity — a registered liquidator, an insolvency-specialist law firm partner, or an experienced restructuring accountant, not a generalist commercial lawyer;
- evidence of employee entitlements paid and tax statements lodged through the safe harbour period;
- a creditor communications log and any standstill correspondence; and
- term sheets and investor correspondence evidencing the bridge round’s progress.
The Bottom Line
The s588GA safe harbour is real, and for the right startup at the right moment it is genuinely useful — but it rewards directors who have built lodgement discipline and a board paper trail long before the cash wall is in sight. It does not stay creditor enforcement, it does not solve DPNs, and it does not displace the broader directors’ duties. The founders who get the most out of it are the ones who treat safe harbour eligibility as a standing posture, not a button to press in week eleven of a four-week runway. If you find yourself reaching for it for the first time during a crisis, the door has often already closed on s588GA(4). The decision-tree at that point is narrower, and the next call is usually to a registered liquidator about voluntary administration or, where the liabilities fit, small business restructuring.
Viridian Lawyers advises Australian startup founders and boards on directors’ duties, safe harbour eligibility and the practical mechanics of bridge-round restructuring. If you are weighing a course of action under s588GA, considering Small Business Restructuring, or need to harden your governance posture before the next downturn, get in touch.
