The Senate Legal and Constitutional Affairs Legislation Committee has endorsed the passing of the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 in its report dated 21 March 2018.

The Bill will align the bankruptcy period in Australia with the United Kingdom. Under the Bankruptcy Act 1996, the period of bankruptcy (unless a successful objection is made) is three years. If passed, the Bill will reduce the period to one year.

Key points to note are that:

Following the implementation of the Safe Harbor protections introduced last September, new changes to the Corporations Act 2001 come into force on 1 July 2018, significantly limiting the ability of parties to rely on insolvency as a means to terminate a contract. These changes intend to help facilitate the restructure and turnaround of struggling companies and are being hailed by insolvency practitioners as a long overdue softening of existing insolvency laws.

Foreign representatives may be required to pay security into court for their recognition applications under the Model Law on Cross Border Insolvency (Model Law). The measure is proposed to correct irregularities between proceedings conducted in multiple jurisdictions.

A recent NSW Supreme Court decision has decided that an insolvent contractor can claim under Security of Payment legislation, rejecting Victorian Court of Appeal precedent as "plainly wrong". It might have significant ramifications for participants in the building and construction industry across Australia.

In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWSC 412, the NSW Supreme Court considered the extent to which Security of Payment (SOP) legislation can be relied upon by an insolvent contractor.

The entitlement to recover remuneration and costs for work performed in conducting an external administration is an ever-present fundamental concern for insolvency practitioners.

This week’s TGIF considers the case of White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) v Robertson in which administrators sought directions on whether they hold a lien over consignor property to secure an alleged levy.

Background

Treasury has released draft regulations and a draft declaration for public consultation. The regulations and declaration support the stay on enforcement of ipso facto clauses against relevant entities. Ipso facto clauses allow parties to enforce a right, and terminate or amend a contract, when their contractual counterparties have entered into formal insolvency, regardless of the counterparties continued performance of their obligations under the contract.

The proliferation of the trust as a vehicle for commercial activity presents issues in litigation – principally, whether a beneficiary can step around an impecunious or assetless trustee and recover against other beneficiaries or third parties.

Snapshot

Proposed exceptions to the stay on enforcing ipso facto clauses now published; public consultation open

The reform

From 1 July 2018, the moratorium on reliance by solvent counterparties on “ipso facto” clauses in voluntary administration, certain receiverships and creditors schemes of arrangement will come into effect (unless it is proclaimed to commence earlier, which is not presently expected).

The New South Wales Supreme Court recently confirmed that an insolvent construction contractor is not able to immediately enforce its right to payment of an adjudication decision under the NSW Security of Payment legislation (Building and Construction Industry Security of Payment Act 1999 (NSW)) against another party which has an offsetting claim.