On 12 September 2017, the Hon Kelly O'Dwyer MP, Minister for Revenue and Financial Services, announced the Government's plans to crack down on illegal phoenixing activity (ie, the stripping and transferring of assets from one company to another to avoid paying liabilities) and ensure that those involved face tougher penalties. 

The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth), which introduces a safe harbour for directors of insolvent companies and a stay on the operation of ‘ipso facto’ clauses during and after certain formal insolvency processes, received Royal Assent on 18 September 2017.

Director safe harbour

In the recent Federal Course case of Lane (Trustee), in the matter of Lee (Bankrupt) v Deputy Commissioner of Taxation [2017] FCA 953 (Lane v DCT), Justice Derrington provided an in-depth analysis of the principles relating to an insolvent trustee’s right of indemnity over trust assets.

The amendments to the Corporations Act1 to broaden the ‘safe harbours’ for directors on an insolvency were passed by Parliament on 12 September 20172 and are awaiting a date for commencement.

The intention of the legislation is to “drive cultural change amongst company directors by encouraging them to keep control of their company, engage early with possible insolvency and take reasonable risks to facilitate the company’s recovery instead of simply placing the company prematurely into voluntary administration or liquidation.”3

On 12 September 2017, some of the most significant reforms of Australia’s corporate insolvency laws in recent years were passed by both Houses of the Australian Federal Parliament. These reforms will introduce:

The Senate Economics Legislation Committee has released a report (Report) regarding its inquiry into the provisions of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 (Bill) which amends:

The innocuously named Treasury Laws Amendment (2017 Enterprise Incentives No 2) Bill 2017 (Cth) (the Bill) makes only a small number of amendments to the Corporations Act 2001 (Cth) insofar as the safe harbour reforms of Australia’s insolvent trading law are concerned.

The Queensland Supreme Court in the case of Scott & Ors v Port Hinchinbrook Services Limited & Ors [2017] QSC 92 has again confirmed the utility of a Deed of Company Arrangement (DOCA) in respect of director appointments and members’ rights as part of a restructure.

Issues

The Court was asked to consider the following issues:

A recent court decision is a timely reminder of the limitations that can affect a person’s ability to rely on set-off rights when a debtor or contract counterparty becomes insolvent.

It is not uncommon for administrators to be appointed in the period between a company being served with a creditor’s winding up application and the date on which that application is to be heard. Despite their appointment, and unless the administrator attempts to intervene, the Court can and often will hear the winding up application and, if appropriate, order that the company be wound up and terminate the administration.