NEWS & INSIGHTS
HAVING YOUR CAKE AND EATING IT TOO
With the rise in safe harbour awareness and appointments, there is an increase in Insolvency Practitioners (IP) as Appropriate Qualified Entities (AQE’s), acting directly or indirectly (under privilege through lawyers, who are also acting as AQE’s), in a financial advisory capacity to the directors and / or the company, and subsequently consenting to act as voluntary administrators.
The law and ARITA guidance is clear, any insolvency practitioner providing financial advice to the directors of a company under the safe harbour legislation, Section 588GA of the Corporations Act 2001, directly or indirectly, in full or in part, is in breach of the legislation if they are subsequently appointed as external administrators of the company (e.g. voluntary administrators or creditors voluntary liquidators).
This article is in addition to our Spotlight on law: Case Commentary – Safe Harbour to Liquidator, and outlines our reasons why a financial advisor, under section 588GA (safe harbour) or in any capacity, would have a perceived conflict of interest for providing advice to directors, and then subsequently acting for creditors to consider action against the directors, which may result in cross claims from the directors to the directors’ advisors (i.e. the AQE, who is now the external administrator). Where an IP has provided eligibility advice for safe harbour, or provided a better outcome assessment, or possible any financial advice to the Company or the Directors, and then take an appointment as voluntary administrators or creditors voluntary liquidators.
We unpack the following scenarios and provide our views:
| Scenario | WXA views |
| 1. An IP only provides eligibility advice to the Directors. | Conflict – can not accept VA or CVL appointment. Where directors are advised they are not eligible for safe harbour by the IP, then no conflict. |
| 2. An IP only provides better outcome assessment to the Directors | Conflict – can not accept VA or CVL appointment |
| 3. An IP only provides eligibility advice and / or better outcome assessment to the lawyers (acting for the directors or for the company), but not directly to the directors or the company. | Conflict – can not accept VA or CVL appointment. |
| 4. IP provides eligibility, better outcome assessment or both, in a period +2 years prior to the VA appointment. | Conflict – can not accept VA or CVL appointment |
A safe harbour advisor is conflicted from acting as a voluntary administrator or creditors voluntary liquidator. The need for a special purpose liquidator is confirmation the administrator is not independent.
Reflections
While the above views, are Wexted’s views and interpretation of the law and guidance notes, as one of the leading providers of safe harbour advice to directors, ultimately we require further test cases for judges to confirm this position.
Only when the courts publish their findings and start calling out IP’s for seeking to have their cake and eating it too, will these practices cease.
In practice, a liquidator will undertake public examinations of the directors, and their advisors, including the lawyers, IP’s and any accountant acting as AQE’s (directly or indirectly) or providing advice, to assist with understanding the company’s affairs. The AQE’s advice, while to the directors, is required to have received sufficient information on the company’s affairs to provide advice. The AQE’s are examinable in any public examination.
In the circumstances where an IP is acting as an AQE or providing financial advice to the directors lawyers, and subsequently acts as the external administrator (VA and CVL), we ask how does the liquidator undertake public examinations against themselves. Further, how hard does the liquidator press to pierce through their own safe harbour advice, to pursue the directors for an insolvent trading claim, where if successful, will increase the prospects of the directors commencing litigation against the liquidator, in their former capacity as the former AQE / safe harbour advisor / financial advisor to the directors lawyers.
Does the subsequent appointment of a special purpose liquidator (SPL) cure any independence issues of the IP who has undertaken the safe harbour work and the taken the VA. Yes, an SPL will allow an independent liquidator to undertake investigations. However, eventually the courts may start to question the circumstances and background of how the IP, having previously provided safe harbour advice provided to consent to act as a Voluntary Administrator and Liquidator. The longer the VA period and longer the need for an SPL, the more entrenched the VA is, and more likely the courts will grant an SPL appointment as a cure to the independence.
| In conclusion, a safe harbour advisor is not independent to act as a voluntary administrator or creditors voluntary liquidator. That is, insolvency practitioners should not be able to have their cake and eat it too. |
Published 18th July 2025
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