Protecting legal professional privilege in safe harbour: Lessons from the Federal Court’s Mosaic decision

For company directors seeking to rely on the protections afforded under the safe harbour provisions of the Corporations Act 2001 (Cth), promptly obtaining professional advice is an important step. The Federal Court’s recent decision of McCabe v Mosaic Brands Limited, in the matter of Mosaic Brands Limited (In Liquidation) (Receivers and Managers Appointed) [2026] FCA 1569 demonstrates that preserving the confidentiality of that advice is equally important.

The decision highlights the practical difficulties directors face in relying on safe harbour advice and risks associated with its subsequent disclosure.

Safe harbour

For directors, the safe harbour provisions contained in section 588GA of the Corporations Act 2001 (Cth) provide protection from personal liability for insolvent trading claims that may be made by a subsequently appointed liquidator of the company.

The provisions apply where a director begins to suspect the company may become or is insolvent, and takes a ‘course of action’ that is reasonably likely to lead to a better outcome for the company and its creditors than the immediate appointment of an administrator or liquidator to the company.

If a director fails to implement a course of action within a reasonable time after the incursion of a debt, they won’t be protected in any subsequent claim made in respect of that debt. In order for safe harbour protections to be effective, directors must take prompt steps. This will often involve obtaining safe harbour advice from an appropriately qualified person.

Background

The decision concerns the safe harbour advice given to the board of Mosaic Brands Ltd (Mosaic) by their external lawyers and financial advisors from March 2020. Following Mosaic’s voluntary administration in October 2024 and the subsequent appointment of general purpose liquidators, special purpose liquidators were appointed in December 2025.

The special purpose liquidators sought directions from the Federal Court to ascertain if privilege can be claimed by the company directors, to the exclusion of the Mosaic companies, in respect to safe harbour advice given by their external lawyers and financial advisors and contained within the books and records of the company.^[1]

The Court’s decision

While it was determined that the directors did indeed hold a retainer with the external law firm for the purpose of receiving safe harbour advice, to the exclusion of the Mosaic Companies, it was found that the directors had waived that privilege by allowing safe harbour advice to be expressly included within the minutes of board meetings.

Key takeaways

Obtaining safe harbour advice is important, but directors must also take care to preserve any legal professional privileged attached to that advice. The following practical considerations arise from the decision of directors seeking to obtain safe harbour advice:

• The directors should retain the safe harbour advisors, not the company, even if the company is picking up the bill.
• Only record in board minutes that advice was given and that privilege is claimed. Do not discuss the substantive privileged advice within the minutes or at a Board meeting.
• Directors should assess the scope of requests from external administrators for documents. If the scope of the request is unclear, directors should seek independent legal advice before disclosing any information which may result in a waiver of privilege.
• Keep the safe harbour advice and associated confidential documentation limited to recipients who are essential people that have a legitimate interest in receiving that advice (e.g. advisers). If unsure, seek advice on the bounds of lawful disclosure. Directors must be aware of who confidential information is forwarded to, especially in regard to safe harbour advice.

If you are seeking advice as to whether the safe harbour provisions apply to you, please reach out to Aaron McDonald, Leith Ayres or Nick Malone directly.

^{[1] McCabe v Mosaic Brands Limited, in the matter of Mosaic Brands Limited (In Liquidation) (Receivers and Managers Appointed) [2026] FCA 1569, [4].}