---
title: "Letter of advice to directors on insolvent trading and the safe harbour"
url: "https://ailawframework.com/precedents/insolvency-restructuring-and-bankruptcy/safe-harbour-advice-letter"
type: "precedent"
site: "AI Law Framework"
id: "a8-safe-harbour-advice-letter"
area_id: "A8"
kind: "letter"
ai_level: "red"
version: 1
law_stated_as_at: "2026-10-17"
---

# Letter of advice to directors on insolvent trading and the safe harbour

> Letter advising a company's board on the duty to prevent insolvent trading, how the s 588GA safe harbour works and what it requires, director penalty exposure, the formal options, and the steps to take now.

Canonical page: https://ailawframework.com/precedents/insolvency-restructuring-and-bankruptcy/safe-harbour-advice-letter  
Law stated as at: 2026-10-17

Site index for agents: https://ailawframework.com/llms.txt

## Key facts

- Kind: Letter. A letter or email you adapt and send.
- Practice area: [Insolvency, Restructuring & Bankruptcy](https://ailawframework.com/precedents/insolvency-restructuring-and-bankruptcy.md)
- Jurisdictions: Australia
- AI level: Red. Keep AI out of the decisive steps. A lawyer does the work.
- Law stated as at: 2026-10-17
- Status: Maintained. Checked on 2026-10-17 against the 6 authorities it cites, for Australia.

## When to use it

Use when a company client is, or may soon be, insolvent and the board needs written advice on its duties and options. Do not use as advice to an individual director in their personal capacity where interests may conflict; advise them to get separate advice.

## How AI may be used

Lawyer-led. Whether the company is insolvent and whether a plan is reasonably likely to lead to a better outcome are judgments on the facts with personal consequences for directors. AI may organise the evidence and check references only.

**AI may:**

- Build a dated index of the accounts, cash-flow forecasts, aged payables, ATO portal statements and board papers supplied, flagging gaps and inconsistencies.
- List solvency indicators that appear in the documents (for example overdue tax lodgements or dishonoured payments), with references, without drawing any conclusion.
- Check every section reference in the lawyer's draft against the current Act text and list mismatches.

**AI must not:**

- Must not state or imply whether the company is solvent or when it became insolvent.
- Must not decide or draft the conclusion on whether a course of action is reasonably likely to lead to a better outcome.
- Must not process the company's financial records in a tool whose terms allow training or offshore access the client has not approved.
- Must not send, or prepare for sending, any version of the letter without the responsible lawyer's sign-off.

**The lawyer checks:**

- Facts and assumptions in section 2 match the documents actually reviewed.
- Employee entitlements (including super) and tax lodgement status have been confirmed with evidence, because they decide whether the safe harbour is available.
- The current restructuring eligibility threshold and director penalty position are confirmed.
- Conflicts between the company and individual directors have been considered and addressed.

## Authorities

- [Corporations Act 2001 (Cth) s 95A (meaning of solvent and insolvent)](https://www.legislation.gov.au/C2004A00818/latest/text)
- [Corporations Act 2001 (Cth) ss 588G, 588GA, 588GB, 588H, 588M (insolvent trading, safe harbour, defences, compensation)](https://www.legislation.gov.au/C2004A00818/latest/text)
- [Corporations Act 2001 (Cth) ss 436A, 453B, 453C (voluntary administration and small business restructuring)](https://www.legislation.gov.au/C2004A00818/latest/text)
- [Corporations Regulations 2001 (Cth) regs 5.3B.03, 5.3B.24 (restructuring eligibility and preconditions to a plan)](https://www.legislation.gov.au/F2001B00274/latest/text)
- [Taxation Administration Act 1953 (Cth) Sch 1 Div 269 (director penalties)](https://www.legislation.gov.au/C1953A00001/latest/text)
- [ASIC Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors (issued 6 December 2024)](https://www.asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-217-duty-to-prevent-insolvent-trading-guide-for-directors)

## Official form

[Official form](https://www.asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-217-duty-to-prevent-insolvent-trading-guide-for-directors)

## Full text and drafting notes

The full text and the drafting notes are not part of this public page. Signed-in firm accounts can read them at https://ailawframework.com/precedents/insolvency-restructuring-and-bankruptcy/safe-harbour-advice-letter and through the signed-in MCP connector https://ailawframework.com/mcp/firm.

*Practice guidance for planning and review. Confirm current primary sources and the requirements of the actual matter. This is general information, not legal advice.*