First hurdle cleared for safe harbour and related laws

Articles Written by David Proudman (Consultant), Nicholas Edwards (Senior Associate)

Members of the Senate have temporarily put aside considerations of postal votes, plebiscites and dual citizens to approve the safe harbour and related laws.

The Bill* amends the Corporations Act 2001 (Cth) by:

  • creating a safe harbour for company directors (and holding companies) from personal liability for insolvent trading under subsection 588G(2) of the Act if the company is undertaking a restructure outside of formal insolvency; and
  • making contractual rights (created post-amendment) that amend or terminate an agreement on an insolvency appointment (known as ipso facto clauses) unenforceable.

In implementing these reforms, the government has stated that it aims to 'promote entrepreneurship and innovation to drive business growth, local jobs and global success'. There have been a number of concerns expressed about the details in these reforms. However, there is general consensus that the proposed reforms will have a positive impact on boardroom culture in Australia and will in many circumstances avoid value dilution for distressed companies.

These reform address important concerns about the current insolvency regime, and may also shift the focus away from punishing business failure and instead promote entrepreneurship and provide protection for honest directors.

Given the recommendations by the Economics Legislation Committee (a copy of their report can be found here) the Bill would be expected to pass into law.

Treasury Laws Amendment (2017 Enterprise Incentives No.2) Bill, which has since been passed and received royal assent so it is now the Treasury Laws Amendment (2017 Enterprise Incentives No.2) Act 2017 (Cth).

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

Related insights Read more insight

Section 588FDA: indirect benefits to directors risk voiding a mortgage transaction

A recent Federal Court decision provides a useful distillation of the key principles that apply to unreasonable director-related transactions under s 588FDA of the Corporations Act.

More
Voidable transactions: act within the statutory time limit

A Federal Court decision, handed down on Friday, is a blunt reminder that the statutory limitation period in section 588FF(3) of the Corporations Act 2001 (Cth) needs to be adhered to strictly, and...

More
Liquidator's remuneration vs employee creditors: who gets priority to circulating assets?

In this decision, the Court of Appeal of the Supreme Court of NSW considered the interplay between the priority regimes under ss 556 and 561 of the Corporations Act 2001 (Cth) (Act) in resolving a...

More