In the recent case of Preiner & Anor v Shin & Anor [2025] NSWDC 341 the District Court of NSW has, for the first time, explored the application of the "COVID-19 safe harbour" provisions which offered temporary relief for directors from insolvent trading liabilities during the COVID-19 pandemic.

Key takeaway

Broadly speaking, the safe harbour provisions under section 588GAAA of the Corporations Act 1901 (Cth) (Act) offer directors temporary relief from personal liability in relation to claims of insolvent trading for debts (COVID-19 Safe-Harbour) incurred between 25 March 2020 to 31 December 2020 (relief period).

However, the District Court of NSW in Preiner & Anor v Shin & Anor [2025] NSWDC 341 has clarified, for the first time, that the COVID-19 Safe-Harbour provisions do not automatically absolve directors from insolvent trading claims for debts incurred during the relief period if the company was already insolvent. As such, directors cannot retrospectively invoke s588GAAA if the company was insolvent prior to the relief period.

A director wishing to rely on the COVID-19 Safe-Harbour provisions during the relief period must satisfy the evidential burden of pointing to a reasonable possibility of solvency and that the debt was incurred during the relief period and in the ordinary course of the company’s business.

This case serves as an important reminder for directors to be proactive and seek professional advice when necessary to navigate the complexities of insolvency law, and for insolvency practitioners to give due consideration to a company’s solvency position prior to the temporary relief period.

Background to the case

The liquidator of Sorenzo Pty Ltd (in liquidation) (Company) commenced proceedings against a former director and holding company under sections 588G and 588V of the Act for trading whilst insolvent.

The liquidator’s primary claim against the former director sought recovery of debts incurred during the period from 29 May 2018 to 14 November 2023 in the sum of almost $280,000.

The former director argued the COVID-19 Safe-Harbour provisions applied during the relief period, thereby exempting liability for insolvent trading during this time. The Court rejected this argument.

The Court found that the Company was insolvent from at least 30 June 2019, due to its inability to pay debts and the lockout by its landlord from its business premises.

The Court emphasised that the COVID-19 Safe-Harbour provisions do not alter the test for insolvency but rather suspend directors' liability during the temporary relief window. Justice Gibson noted:

…I do not consider that this amounts to an acceptance that companies already insolvent for nine months before the “safe harbour” period commenced would be given a free ride for being insolvent before and after the period or, for that matter, have a “let off” for the period in between. These emergency provisions did not change the test for insolvency, nor should it impact on whether a court will find a company insolvent; it suspends the directors’ civil liability during the relief window. According to the regulation, this “safe harbour” window was for the period 25 March 2020 to 31 December 2020. Once a company becomes insolvent, it remains insolvent.

Accordingly, as the Company was insolvent well before the temporary relief period commenced, the COVID-19 Safe-Harbour provisions had no application and the former director was personally liable for the debts incurred by the Company whilst it was insolvent.