Safe Harbour in Corporate Law: Analysis of Section 588 GA of the Corporations Act of 2001

Corporate Law

Table of Contents
Part A.........................................................................................................................................3
Answer to Question 1.............................................................................................................3
Answer to Question 2.............................................................................................................3
Answer to Question 3.............................................................................................................3
Answer to Question 4.............................................................................................................4
Answer to Question 5.............................................................................................................4
Part B..........................................................................................................................................5
Answer to Question 1.............................................................................................................5
Answer to Question 2.............................................................................................................5
Answer to Question 3.............................................................................................................6
Answer to Question 4.............................................................................................................6
Answer to Question 5.............................................................................................................6

Introduction
The concept pertaining to safe harbour implies the provision of a law or a statute which
would not result the undertaking of certain kinds of conducts to be in violation of the law in
force accordingly. The main aim of the paper is to analyse the aspect of safe harbour in
Australia as per Section 588 GA of the Corporations Act of 2001 as far as breach of fiduciary
duties of a director pertaining to insolvent trading is concerned. The case study pertaining to
Mr. Daly would also be analysed accordingly.
Part A
Answer to Question 1
As observed form Section 588 GA of the Corporations Act of 2001, it is imperative that the
director of a company or a corporation is under an obligation to undertake necessary steps,
measures and obligation to prevent trading in an insolvent manner. The aspect pertaining to
the fiduciary duty of a director as per the common law of England and Wales implies that the
action undertaken by the director with regard to the beneficial interests of the organization in
question. Such an aspect is implied by Sub-section1 of Section 181 of the Corporations Act
of 2001. As a result, it is imperative that the duty of a director with regard to the prevention
of trading in an insolvent manner is categorized as a fiduciary duty. In the case of Perrine v
Carrello, there was an arrangement pertaining to flexible payment between the Perrinepod
and its subsidiary company Perrine Architecture (Digby, Riddell and Wang, 2018). The
directors were held liable in this case by the Supreme Court of Appeal of Western Australia
thereby the appeal file by them to set aside the decision made by the trial judge being
dismissed. As a result, the decision made by the trial judge was upheld in this case by the
Supreme Court of Appeal of Western Australia (Austlii, 2019). There was credible evidence
implying that the debt could have been repaid accordingly at the moment when the company
was at a position to do so.
Answer to Question 2
The aspect pertaining to the defence of safe harbour in accordance with Section 588 GA of
the Corporations Act of 2001 implies that a director is exempt from liabilities pertaining to
insolvency in trading if necessary steps, precautions and actions are undertaken by the
director on realising that the company is on the verge of insolvency. The onus with reference
to the capitulation of the defence pertaining to safe harbour is on the director as far as Sub-
section 3 of Section 588 GA of the Corporations Act of 2001 is concerned (Boadle, 2017). As
far as Sub-sections 4 and 5 of Section 588 GA of the Corporations Act of 2001 are
concerned, the defence pertaining to safe harbour cannot be elucidated upon by the director if
the company is not in compliance pertaining to the payment of the entitlements of the
employees and failure on part of the director with regard to compliance pertaining to payment
of debts accordingly (ABC, 2019). In the case of MG Corrosion Consultants Pty Limited v
Gilmour, the aspects and facts involved that the director approved of payments in excess
thereby resulting in a negative effect as far as the interests of the company are concerned. In