The Federal Government today announced the temporary six-month moratorium from insolvent trading liability has been extended until 31 December 2020. Temporary changes to statutory demands and bankruptcy notices requiring a debt of $20,000 and allowing six months to pay the amount demanded will also be extended to this date. These measures had otherwise been due to expire later this month.

The announcement gives much-needed clarity and certainty for the remainder of 2020.

With REDgroup administrators, Ferrier Hodgson, desperately searching for a buyer for REDgroup's Australian book business, the consequences for franchisees remains uncertain.  Whilst the nine remaining Borders bookstores are set to close, no decision has yet been made on the future of Angus & Robertson (A&R).

Following the 2011/2012 Federal Budget announcement that directors will be made personally liable for any unpaid superannuation guarantee contributions, Treasury has released the Tax Laws Amendment (2011 Measures No. 7) Bill 2011 (Bill).

The legislation extends the current director penalty regime for unpaid PAYG. Whilst the announcement from Bill Shorten MP on 5 July 2011 highlights the need to prevent companies engaging in phoenix activities, the legislation will have a much broader impact.

Every director of an Australian company is under a legal duty to prevent the company incurring a debt when the company is insolvent (or where that debt will cause the company to become insolvent).

The Australian Securities and Investments Commission's (ASIC) new Regulatory Guide sets out four key principles which directors should follow to meet their obligation to prevent insolvent trading.

The Regulatory Guide also sets out ASIC's approach to assessing whether a director has breached their duty.

Background

The Bankruptcy Act 1966 (Cth) was amended to address the outcome of the High Court's decision in Cook v Benson1. It was held in that case that a trustee in bankruptcy could not recover amounts transferred from a retirement fund to another superannuation fund after the bankruptcy of the member as the amounts rolled over to the fund by or on behalf of the member were made in good faith and for consideration (ie the member had a right to receive benefits on retirement).

In response to a degree of uncertainty as to a director's statutory duty to prevent insolvent trading, the Australian Securities and Investments Commission (ASIC) has released a consultation paper containing a number of proposals on this fundamental duty (Consultation Paper 124: Duty to prevent insolvent trading: Guide for directors). Importantly for directors, the consultation paper (which contains a draft Regulatory Guide) identifies the factors ASIC considers when deciding to commence an investigation in relation to possible insolvent trading.

The different types of insolvency

When a corporate tenant becomes insolvent, the landlord's rights depend upon the type of insolvency administration to which the tenant is subjected. Being familiar with the different options and the ways in which they are administered will enable property owners to act early and put themselves in the best possible position when faced with an insolvent (or potentially insolvent) tenant.

The three most common forms of insolvency administration which may affect corporate tenants are discussed below.

On 11 September 2017, the Commonweath Parliament passed the Treasury Law Amendments (2017 Enterprise Incentives No.2 Bill). The new legislation:

In a decision of considerable concern to creditors1, the High Court has determined that a bankruptcy notice founded on a judgment debt is open to challenge on the basis that there is a “sufficient reason” for questioning the underlying debt – even if that judgment was the product of a fully contested trial in which both parties were legally represented, and was not procured by fraud or collusion.

The Senate Economics Legislation Committee has recommended that the Treasury Laws Amendment (2017 Enterprise IncentivesNo. 2) Bill 2017 (Bill) which provides a ‘safe harbour’ defence and automatic stays on certain ipso facto clauses be passed. We expect that the Bill will be passed by Parliament this year, giving company directors more flexibility when dealing with financial distress.

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