24 March 2022

Insolvency reforms to give company directors greater certainty

The Morrison Government is backing in reforms that provide greater certainty for company directors seeking to save financially distressed but viable companies.

The insolvent trading safe-harbour provisions are designed to promote a culture of entrepreneurship and innovation by providing breathing space for distressed businesses.

The Government introduced the insolvent trading safe harbour in 2017 as part of its National Innovation and Science Agenda. It ensures directors can focus on options to turnaround distressed companies without unnecessarily worrying about their personal liability, provided the company is genuinely attempting to restructure.

Today, the Government is tabling the statutory Review of the Insolvent Trading Safe Harbour in Parliament. The Review identified many examples where the safe harbour has helped achieve restructures to the benefit of both creditors and employees. The Review found that, overall, the safe harbour offers considerable assistance in encouraging turnarounds.

The Government commissioned an independent panel of experts to conduct the Review between August and November 2021, and thanks Ms Genevieve Sexton (Chair), Ms Leanne Chesser and Mr Stephen Parbery for contributing their time and expertise.

The Review’s recommendations focus primarily on simplifying and clarifying the wording of the safe harbour provisions, and providing greater plain English guidance, to ensure the safe harbour is accessible to directors. The Government supports this focus, and in response will develop legislation to make several clarifying changes to the provisions. The Government will consult on the legislative detail in due course.

The final report of the Review and the Government’s response are available on the Treasury website.