Deciding the parameters of directors' personal liability for actions, or omissions, when a company continues to trade while it is or near insolvent requires a balance to be struck between allowing directors latitude to try to rescue the company and protecting the company's creditors.

The Supreme Court has recently released a decision on directors' duties, which should serve as a timely reminder to all directors of their duties under the Companies Act in circumstances of insolvency. Continuing to trade while insolvent will be a breach of your duties, even if you believe that overall creditors may be better off or the extent of losses will be reduced. It is however welcome confirmation for liquidators that the Courts will enforce the provisions of the Companies Act based on the clear wording of these sections.

Long-awaited law reform to bring Australia's insolvency regime into step with many of its trading counterparts is slated to be enacted in the second half of 2017. The text of the law is currently before parliament for debate. If passed, Australia will see:

The Australian government has released draft legislation which proposes significant legislative change to insolvency laws in Australia. One of the changes proposed, is that directors will not be liable for insolvent trading in certain circumstances where the company is undertaking a restructure.

Under the proposed safe harbour reform, directors will not be liable for debts incurred whilst the company is insolvent if they can show that:

The increase in the availability of alternate capital in Australia over the past decade has provided a landscape for well-tested global restructuring techniques to be applied locally. This includes 'loan to own' strategies.