While all directors may use safe harbour, it is more likely to be used by medium to large sized corporations.
In small companies, directors are often required to provide personal guarantees.
For them there is little benefit in protecting themselves from insolvent trading and taking on further risk, as they are already personally liable for the debt. In addition, the cost of undertaking the safe harbour process may be prohibitive.
No doubt, some advisors will look to use safe harbour for the benefit of the company and its directors and to the detriment of creditors. This may include entering safe harbour to avoid insolvent trading while delaying the appointment of an administrator or liquidator.
On the flip side, in larger corporations where directors are often professional directors, previously there was no benefit to a professional director trading a distressed business. Safe harbour will provide an environment where it is safe for directors if the company fails.
The balance as to when safe harbour will be used or not used will fall somewhere in between the small and large companies, where the directors’ own future is tied to the success or failure of the company. For, in these medium-sized companies, there is often a mix of creditors with personal guarantees and bank securities are tied to the directors own personal assets.