Question 3

Who does it (s588GA) protect, and is this different to the business judgment rule s180 (2)?
Give reasons.
It protects the director’s, de-facto directors and the shadow directors from incurring the personal
liability and reputational loss. According to the Section 9 i) of the of the Corporation Act 2001,
“Director” is the person who holds the position of the director of the company and the term
“directors” means the directors of the company for the time being as per the act of the company.
The s588GA and the business judgment rule both imply that the directors must act with
reasonable care, skill and diligence in handling the financial matters of the company.
There are difference between the s588GA and the business judgment rule. s588GA specifically
elaborates what a director can do to improve the financial health of the company before and after
opting for the appointment of liquidator or administrator. It basically deals with the insolvent
trading.
However the business judgment rule lays out the basis for the judgment to be taken by the
directors. It focuses on the aspects like the judgment of the directors must be devoid of conflict
of interest, in good faith, purposeful and appropriately informed one. It does not specifically
address the issue of insolvent trading while the s588GA specifically addresses the issue of
insolvent trading. It does not comes into act in relation to breaches of 181s(1) , 182s(2), 183s(3)
and s588G.

Question 4
Are there any restrictions on the operation of the s588GA defence? If so, what are they?
Yes, there are restrictions on the operation of the S588GA defence. The defence is limited to
those directors who abide by their duty and their company complies its legal obligations.

Section 588GA(4) and 588GA(5) of the Corporation Act 2001 lays down the circumstances
where the safe harbor defence is not applicable. They are:

1. The company is not paying the due entitlements of its employees. It fails to give returns,
notices, statements, applications or other documents as required by taxation laws or has failed to
fulfill such obligations at least twice within the 12 months period ending when the debt was
incurred.

2. The director fails to comply with any of the following obligations after the debt is incurred.
 The requirement to provide the controller of the company’s property with a report about
the affairs of the company at the control day.
 When an order is made to wind up the company, the requirement to provide a liquidator
with the report containing the affairs of the company.
 When the appointment of the liquidator is the voluntary decision of the company, the
requirement to give the liquidator a report about the company’s business, property, affairs
and financial circumstances.
 Where the company ordered or resolved to be wound up , the requirements to:
a) Deliver the books of the company to the liquidator
b) In case the liquidator requires, to attend the meetings with the liquidator. Company
creditors or members and provide the information about the company affairs to them.
c) Help the liquidator in winding up the company
Help the professional liquidators to exercise their functions and powers
d) To provide and update personal address and business address details with the
liquidator if the liquidator requires so.