New offences in the Corporations Act, a cab rank system for liquidators, and changes to tax laws have been put forward by the Australian Government in its consultation package of anti-phoenixing reforms released yesterday. Consultation closes on 27 October 2017.

Agencies need to get ready for ipso facto reform by making changes to their contracts, funding agreements and contract administration practices.

Australian Government Agencies face constraints on their ability to terminate agreements where a contractor has entered into voluntary administration or certain other forms of insolvency procedure. The Treasury Laws Amendment (2017 Enterprise Incentives No 2) Act, which amends the Corporations Act 2001 (Cth):

On 11 September 2017, major reforms to Australia's insolvency laws including an insolvent trading safe harbour and a restriction on the enforcement of ipso facto rights in certain circumstances passed through the Senate. These insolvency reforms amend relevant provisions of the Corporations Act.

The safe harbour provisions commenced on 19 September 2017.

In a big 24 hours for restructuring and insolvency, the safe harbour reforms were passed by the Senate late last night, and anti-phoenixing reforms were announced this morning.

Safe harbour reforms

The safe harbour laws will commence operation the day after the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 receives Royal Assent, with the ipso facto provisions set to commence on 1 July 2018 (or earlier by proclamation).

To perfect a security interest by possession, a secured party must have actual or apparent possession of the property. A contractual right to possess is not enough.

We now have the first judicial guidance in Australia on the concept of "perfection by possession" under the Personal Property Securities Act 2009 (PPSA) (Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] FCA 866).

What is "perfection by possession"?

The limitations of set-off in a liquidation scenario and the nature and effect of a security interest under the Personal Property Securities Act 2009 (Cth) (PPSA) have been clarified, with significant ramifications for principals and financiers, who should now review their rights, following the WA Supreme Court's decision in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] WASC 152 (Clayton Utz acted for the successful receivers).

Safe harbour and ipso facto clauses reforms are closer, with the consultation on the Insolvency Laws Amendment Bill 2017 having closed last week, but further work is needed.

The Federal Government's consultation on the safe harbour and ipso facto reforms in the draft Insolvency Laws Amendment Bill 2017 closed on 17 May 2017, so we now have a better idea of what they will look like.

Assets held by an insolvent corporate trustee in its capacity as trustee may not be "property of the company".

For more than 30 years, Victoria has stood apart from the rest of Australia in how it treats the assets of an insolvent corporate trustee. That may have changed, following the Supreme Court's decision in Re Amerind Pty Ltd (receivers and managers appointed) (in liq) [2017] VSC 127.

We are seeing attempts by the Chinese Government to provide the market with more sophisticated tools for dealing with unprofitable companies.

China is attempting to align its insolvency regime to international standards and introduce additional tools for dealing with the country's rising debt load.

Australian lenders with exposures to these debts (particularly in the coal, steel, manufacturing, cement, shipbuilding, solar, heavy machinery, mining and property sectors) should reassess insolvency risk and understand their options.

Particularly in smaller external administrations, the court will not blindly accept time-based remuneration as reflecting the value of the work, but will consider the proportionality of the remuneration.

In a number of recent judgments, the courts appear to be favouring considerations of proportionality coupled with an assessment of the realisations achieved when assessing application for the approval of remuneration for external administrators.