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:
On 28 March 2017, the Australian Government announced its proposals to reform the law relating to insolvent trading, and the right to terminate contracts based on insolvency ('ipso facto clauses').
New Law to Encourage Informal Restructuring
On 28 March 2017, the Federal Government released its long awaited draft legislation that is designed to encourage restructuring of distressed businesses.
The proposed legislation is open for consultation with the finalised legislation expected to come into effect on 1 January 2018. There are two proposed changes:
This case provides some useful guidance on some key aspects of oppression claims, and also illustrates that courts will be reluctant to wind up solvent companies, even where the parties are in deadlock and oppression has been established, in this case preferring to make buy out orders at a price to be determined.
Australia Restructuring and InsolvencyAlert
On 28 March 2017, the Federal Government released its long awaited draft legislation for reforms to insolvency laws in Australia. The changes focus on providing a safe harbour for directors of distressed companies and a stay on the enforcement of ipso facto clauses in contracts.
External administrators of companies can now assign any right to sue that is conferred on them by the Corporations Act, for example voidable transaction claims and insolvent trading claims. Previously these were considered rights that could only be utilised by the appointed liquidator and so could not be assigned. Now they can.
When did this start?
- This has already begun. It commenced on 1 March 2017.
What legislation brought this about?
On 28 March 2017, the Federal Government released draft reform legislation to Australia’s insolvency laws to promote a culture of entrepreneurship and help reduce the stigma associated with business failure.
The reforms, known as ‘safe-harbour’ provisions propose changes to directors’ personal liability for insolvent trading under the Corporations Act 2001 (Cth) (Act).
Background
Throughout 2016 a series of judgments were delivered that gave conflicting guidance to practitioners about what they should consider when accepting a voluntary administration appointment.
The New South Wales Court of Appeal granted leave to appeal following a finding that certain documents relating to attempts to secure litigation funding were not privileged.