The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) (Act) introduced new laws which operate to stay the enforcement of ipso facto clauses that are triggered upon a company suffering an insolvency event. These new laws come into effect for contracts entered into on or after 1 July 2018.
The Commonwealth has released an exposure draft of the Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018 (Bill) for consultation which will make key amendments to the Corporations Act 2001 (Cth) (Corporations Act). The Bill strengthens the current provisions aimed to deter companies from diverting assets to avoid the payment of employee entitlements on insolvency. The proposed changes will impact:
Several decisions handed down in the Personal Property Securities Act 2009 (Cth) (PPSA) space have emphasised the importance of registering security interests within the legislative timeframes and also examined the discretionary factors courts will consider in their deliberations over whether extensions of time for registration of security interests should be granted.
Advisers are seeing some challenging and difficult scenarios with clients in the current situation. When times are tough, or when life brings up unique challenges, it is often an adviser that guides their client through these difficult scenarios.
In three related judgments delivered on 27 May 2020, Justice Davies found in favour of the liquidators of Gunns Limited (in liquidation) (Liquidators) against creditors Badenoch Integrated Logging Pty Ltd (Badenoch),[1] Bluewood Industries Pty Ltd (Bluewood),
The COVID-19 restrictions are slowly easing but the economic impacts are far from over. While businesses struggle to find ways to free up cash, it is likely we will see restructuring of loans and waiving of debts.
Taxpayers and their advisors need to be aware of the taxation implications of restructuring and forgiving loans, including the Commercial Debt Forgiveness (CDF) rules, Division 7A and the CGT rules.
Key takeaway
COVID-19 has had a debilitating effect on many sectors of the economy and unfortunately, the coming 12 months will see more businesses in financial distress and an uptick in business insolvency.
In such an environment, the commercial reality is that many businesses will be owed debts that will not be paid in full or at all. For many businesses, this could spell disaster. For this reason, debtor management is crucial in the present environment.
As we know, the Federal Government has implemented a package of changes to Australian insolvency and bankruptcy laws to provide relief from the economic impacts of COVID-19.
Bankruptcy concerns are becoming very real for many clients in the succession planning space.
More clients are concerned with the risk of having their family assets exposed to a bankruptcy during their lifetime, or the risk that the beneficiaries of their estate may have an inheritance exposed to creditors.
This is a particular concern for clients with partners and children in high-risk occupations, such as professionals and directors of companies, as they can be personally liable for debts owed by their business or negligence claims.
The temporary safe harbour introduced by the Federal Government is not a panacea for directors of distressed businesses. It may be time to act now.
The Coronavirus Economic Response Package Omnibus Act 2020 introduced relief measures in the second stage of the Federal Government’s plan to 'cushion the economic impact of the coronavirus and help build a bridge to recovery'.[1]