Being a company director isn’t just about setting strategy and leading people — it also comes with significant legal responsibilities. One of the most important is making sure your company doesn’t trade while insolvent (that is, when it can’t pay its debts as they fall due). If a director allows this to happen, they could face personal liability.

The good news? The law also recognises that businesses can hit financial challenges. That’s why the “safe harbour” provisions exist under ASIC’s regulatory guide 217. These protections are available to directors who take genuine, proactive steps to turn things around. But to rely on them, directors need to be on top of their company’s financial position at all times.

Why Active Monitoring Matters

It’s not enough to glance at the books once or twice a year. Directors are expected to actively monitor the company’s finances — keeping track of profits, expenses, tax obligations, and upcoming bills. This means asking the right questions, regularly reviewing reports, and ensuring proper financial systems are in place.

By doing this, directors can spot problems early — such as slow debtor payments, cash shortages, or creditors not being paid on time. Early detection gives options, like renegotiating terms with suppliers, reducing costs, or finding new funding before the situation worsens.

One of the best tools a director can use is a cash flow forecast. Unlike historical financial reports, a forecast looks ahead, showing when money is expected to come in and when payments are due. This forward view helps directors plan, avoid nasty surprises, and ensure the company can continue meeting its obligations.

Cash flow forecasting is also critical if directors want to rely on safe harbour. To qualify, directors must be able to show they had a plan that was reasonably likely to lead to a better outcome than immediately appointing an administrator or liquidator. A well-prepared forecast is the evidence that demonstrates this.

Staying Eligible for Safe Harbour

Safe harbour only applies if certain conditions are met. For example, the company must be paying its employee entitlements (including superannuation) and lodging tax documents on time. Regular financial monitoring and forecasting are what allow directors to keep on top of these obligations.

Directors should also document their decision-making — keeping minutes of board meetings, cash flow forecasts, and turnaround strategies. This paper trail is invaluable if their decisions are later reviewed.

The Bottom Line

Safe harbour gives directors the breathing space to try to restructure or turn a company around without the immediate threat of personal liability. But to access this protection, directors must show they were proactive: monitoring finances, forecasting cash flow, and taking sensible steps to deal with difficulties.

In short, directors who stay engaged with their company’s numbers protect both the business and themselves. Regular reporting and forward planning aren’t just good business practice — they’re the key to staying compliant and steering through tough times.

Lambourne Partners Consulting specialises in providing monthly board reporting, meetings and advice. We actively monitor and forecast cash flow on behalf of companies of all scales, ensuring directors are up to date and informed about their financial situation.

Contact Ben Wilson below to find out how we can help your business.