The Senate Economics Legislation Committee has strongly recommended that the Australian Parliament pass the reforms to Australia's safe harbour and ipso facto regime currently before the Senate. As the reforms have already passed through the House of Representatives, this means that as early as the end of August 2017, in prescribed circumstances, directors could be entitled to a safe harbour from personal liability for insolvent trading claims.

Safe harbour

The use of pre-packs or pre-positioned asset sales in Australia has traditionally been limited. This is a result of impediments to such transactions under the Australian legislative insolvency regime.

The interplay of these impeding factors means that there are few true pre-pack transactions in Australia. However, significant reform to the Australian insolvency regime is expected to be implemented in 2017. We wrote about the main aspects of that reform in our last article, `Australian insolvency law reforms aim to increase business restructuring opportunities'

The Australian government is working to significantly reform Australia’s current insolvency laws by mid-2017.

The reforms are intended to achieve greater likelihood of business preservation by introducing the flexibility to achieve real turnaround of businesses in crisis.

The proposed changes include:

The ability to "surcharge" a secured creditor's collateral in bankruptcy is an important resource available to a bankruptcy trustee or chapter 11 debtor in possession ("DIP"), particularly in cases where there is little or no equity in the estate to pay administrative costs, such as the fees and expenses of estate-retained professionals. However, as demonstrated by a ruling handed down by the Third Circuit Court of Appeals, the circumstances under which collateral may be surcharged are narrow. In In re Towne, Inc., 2013 BL 232068 (3d Cir. Aug.

Section 506(a) of the Bankruptcy Code contemplates bifurcation of a debtor's obligation to a secured creditor into secured and unsecured claims, depending on the value of the collateral securing the debt. The term "value," however, is not defined in the Bankruptcy Code, and bankruptcy courts vary in their approaches to the meaning of the term. In In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir.

The ability to sell an asset in bankruptcy free and clear of liens and any other competing “interest” is a well-recognized tool available to a trustee or chapter 11 debtor in possession (“DIP”). Whether the category of “interests” encompassed by that power extends to potential successor liability claims, however, has been the subject of considerable debate in the courts. A New York bankruptcy court recently addressed this controversial issue in Olson v. Frederico (In re Grumman Olson Indus., Inc.), 445 B.R. 243(Bankr. S.D.N.Y. 2011).