12 September 2017

Supporting innovation through insolvency law reform

The Government has delivered on its commitment under the National Innovation and Science Agenda (NISA) to improve Australia’s corporate insolvency system, with the Treasury Laws Amendments (2017 Enterprise Incentives No. 2) Bill 2017 receiving passage through the Parliament.

This Bill promotes a culture of entrepreneurship and innovation by providing a ‘safe harbour’ for company directors from personal liability for insolvent trading if they are pursuing a restructure outside formal insolvency. It also makes ‘ipso facto’ clauses unenforceable during and after certain formal insolvency procedures.

“We’re encouraging Australians to become more innovative and ambitious. These measures will help promote an entrepreneurial culture to drive business growth, local jobs and global success,” the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, said. 

“This Bill will protect diligent and competent company directors from personal liability for insolvent trading if they are pursuing a restructure outside of a formal insolvency process. Directors will be able to remain in control of the company and take proactive steps to restructure a company when that is reasonably likely to deliver a better outcome for creditors, employees and shareholders.”

The Bill ensures safeguards to make it unattractive to dishonest directors who might want to fraudulently phoenix their company. 

Viable but financially stressed businesses under external administration or schemes of arrangement may find it difficult to trade following contract cancellations. These reforms will create breathing space for a company to continue to trade through insolvency and improve its chances of being turned around.

“This Bill will protect asset values for the benefit of the company, its employees and its creditors and remove a deterrent to investors who might otherwise try to help turn the company around,” Minister O’Dwyer said.

The safe harbour provisions will commence on Royal Assent.  The stay on the operation of ipso facto clauses will commence from 1 July 2018 to provide time for businesses to adapt to the new settings.

The operation of the Safe Harbour will be subject to an independent review two years after commencement.

The Government will shortly consult with key stakeholders on the Regulations to support the operation of the stay on ipso facto clauses