Same, Same, Different: Appropriately Qualified Entities (AQEs) in Safe Harbour

WHAT DOES THE HISTORY TELL US?

The various Discussion Papers and Reports, and the responses to those, have assisted with this evolution:  

The 2010 Federal Government Discussion Paper, as part of the Model A Proposal, referred to the modified Business Judgement Rule as a defence to insolvent trading where the directors obtained appropriate advice on the accounts and records, from an appropriately qualified person;

The 2014 ARITA Platform for Recovery supported an extension of the business judgement rule where “the director was informed with restructuring advice from an appropriately experienced and qualified professional engaged or employed by the company, with access to all pertinent financial information, as to the feasibility of and means for ensuring that the company remains solvent, or that it is returned to a state of solvency within a reasonable period of time’

The 2015 Productivity Commission Report proposed (at Recommendation 14.2) a safe harbour defence available when:

• directors of a company have made, and documented, a conscious decision to appoint a safe harbour adviser with a view to constructing a plan to turnaround the company
• the adviser was presented with proper books and records upon appointment, and can certify that the company was solvent at the time of appointment
• the adviser is registered and has at least 5 years’ experience as an insolvency and turnaround practitioner
• the advice must be proximate to a specific circumstance of financial difficulty, and subject to general anti-avoidance provisions to prevent repeated use of safe harbour within a short period.
• If the adviser forms the opinion that restructure into any form of viable business or businesses is not possible, they are under a duty to terminate the safe harbour period and advise the directors that a formal insolvency process should commence.
• The safe harbour adviser may only be appointed in a subsequent insolvency process with leave of the court(editor:  That Report concluded on Page 371 that Reform should focus on specific, rather than fundamental change!)

The 2016 Treasury Proposals Paper set out at Section 2.2.1 the proposed requirements for a Restructuring Adviser.

• The Proposal included members of organisations are likely to include (but not be limited to) the Law Society, CPA Australia, Chartered Accountants Australia and New Zealand, the Australian Restructuring, Insolvency and Turnaround Association and the Turnaround Management Association.
• The many (61) submissions included a range of comments about the requirements of Advisors, their qualifications, experience, expertise, approved organisations, and the appreciation of the different skill sets required  

The 2017 Explanatory Memorandum referred to at Paragraph 1.32 that the Factors supporting Safe Harbour included “to see if the director has … obtained appropriate advice” and at 1.35 that “ a small business may need only to seek the advice of an accountant, lawyer or other professional, while a large listed entity might retain an entire team of turnaround specialists, insolvency practitioners, and law and accounting firms to advise on a reasonable course of action”.

WHAT DID THE SAFE HARBOUR REVIEW PANEL TELL US?

Section 588GA(2)(d) tells us that one of the factors to be taken into account in working out whether a course of action will lead to a better outcome for the company, is whether the director ‘is obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice’.

This issue was covered in some detail in our recent Podcast Are we making a Difference?  Safe Harbour and a Growing Up Moment for Restructuring. The Review Report did some heavy lifting to clarify expectations.  The Panel:

• Stopped short formal independence but urged boards to think critically about potential conflicts.
• Were concerned that in creating a role of a ‘safe harbour master’ or a singular ‘safe harbour adviser’, resulted in a a threat that the directors seek to delegate their responsibility to determine a better outcome for the company.
• Recognised the reality that a ‘safe harbour master’ may be a central adviser that acts as a project manager of the relevant advisers in large turnarounds, but not that such a role should be enshrined in the legislation
• Embraced the idea of multi-disciplinary AQEs, legal, financial, and operational minds working together, as long as responsibilities are clear and the advice cohesive.
• In relation to qualifications, found the argument for flexibility compelling and are reluctant to endorse a view that requires a specific person to be appointed in all circumstances.
• Recommended the reference to ‘an appropriately qualified entity’ be amended to ‘one or more appropriately qualified advisers’, to clarify that the necessary factor is the receipt of appropriate advice, not that it needs to come from, or through, one entity.
• Endorsed team-based AQEs, acknowledging that legal, financial, and operational expertise may be spread across several advisors, provided roles and responsibilities are clearly defined and advice is cohesive.
• Recognised that in most circumstances a registered liquidator or someone with deep insolvency experience will be the appropriate adviser to provide the liquidation and voluntary administration analysis that informs and underpins the better outcome analysis.
• Stopped short of mandating independence, recognising the complexities of long-term engagements. However, it urged directors to assess conflicts of interest and reputational risks carefully.

We covered the issue of independence in our recent articles; SPOTLIGHT ON SAFE HARBOUR: HAVING YOUR CAKE AND EATING IT TOO  and SPOTLIGHT ON LAW: CASE COMMENTARY - SAFE HARBOUR TO LIQUIDATOR  We note: 

• Respondents such as Wexted, ARITA and Deloitte recommended that registered liquidators engaged under Safe Harbour should not later act as administrators or liquidators, to avoid the perception of conflict
• Others, such as the Law Council and McGrathNicol, thought the position uncertain as to whether a registered liquidator who provided safe harbour advice is capable under the law of accepting a formal appointment.

ASIC RG217: CLARIFYING EXPECTATIONS

The December 2024 update to ASIC’s Regulatory Guide 217 (RG217) marks a pivotal moment in the evolution of Safe Harbour governance. While the concept of an Appropriately Qualified Entity (AQE) has existed since the 2017 legislative reforms, RG217 now brings sharper clarity and higher expectations for both directors and their advisers.
ASIC’s updated Regulatory Guide 217 (December 2024) provides practical guidance for directors:

• AQEs must be appropriately qualified, competent, insured, and reliable;
• Directors should document the rationale for selecting an AQE and the advice received; and
• The AQE’s advice should cover solvency risks, restructuring options, and the viability of continued trading. 

This guidance transforms Safe Harbour from a defensive posture into a proactive governance strategy. As ASIC points out, Safe Harbour protection must be earned, not assumed. The regulator also cautions against relying on AQEs who may pursue formal insolvency appointments later, due to the risk of real or perceived conflict. 

AICD TOOLKIT AND GOVERNANCE PRACTICE

The AICD’s Director Tools and governance resources reinforce the importance of:

• Conduct rigorous due diligence before appointment;
• Maintain active oversight of Safe Harbour strategies; and
• Implement periodic reviews, especially for long-term engagements. 

The AICD’s guidance aligns with the Panel’s view that AQEs should not be a “set-and-forget” appointment. Instead, Boards should consider implementing a review mechanism, either via internal audit or external peer review, to ensure the AQE’s advice remains fit-for-purpose as circumstances evolve.