New Zealand: Australia proposes insolvency law rewrite

Brief Counsel

Australia has an Insolvency Law Reform Bill in Parliament and plans for more change further down the track in the form of recommendations from the Australian Productivity Commission, which the Australian Government has signalled it will adopt.

These developments will be of interest to New Zealand insolvency practitioners, company directors and creditors. We summarise the proposed changes and comment briefly on the possibility of similar reform in New Zealand.

Insolvency Law Reform Bill

The Bill, introduced to the House on 3 December 2015, provides for procedural reforms to align the regulation, registration and remuneration of insolvency practitioners in both corporate and personal insolvencies. They include:

  • changes to the registration systems for corporate and personal insolvency practitioners so that they are more mutually consistent
  • a statutory minimum default remuneration amount for liquidations
  • increased rights for creditors, including the ability to appoint an independent specialist to review the performance of an insolvency practitioner, and
  • further surveillance and audit powers for the Australian Securities and Investments Commission (ASIC) in relation to the conduct of insolvency practitioners.

The Bill, which will be supported by Insolvency Practice Rules, is likely to be passed this year. A copy is available here.

Productivity Commission report

The inquiry concluded that a wholesale change to the corporate insolvency regime, such as the adoption of a "chapter 11" framework, is neither justified nor likely to be beneficial. However it has recommended specific reforms, two of which the Federal Government has committed to introducing:

  • a safe harbour for directors from liability for insolvent trading if they appoint a restructuring advisor to develop a turnaround plan, and
  • making "ipso facto" clauses, which allow contracts to be terminated because of an insolvency event, unenforceable if a company is undertaking a restructure.

The Government has said that the current laws require reform because they "focus too much on penalising and stigmatising business failure".

Other reforms proposed by the Commission include:

  • a new "small liquidation" process for companies with unrelated creditors of less than $250,000
  • protections making it more difficult for liquidators to tip over "pre-pack" sales
  • extending the ipso facto reform to schemes of arrangement
  • requiring voluntary administrators to certify within one month of appointment that a company, or a large "component entity of it", can be restructured. If no certification is given, the VA must become a liquidation
  • reducing the default exclusion period and restrictions on bankrupts from three years to one year. The obligation to repay debts to continue to be required for three years or until discharge, and
  • creating a unique "director identification number" for directors to help monitor phoenix transactions.

It has also suggested a review of the receivership procedure and the appointment of a committee of unsecured creditors to oversee the conduct of a receivership. A copy of the Report is available here.

The Government has said that it will consider all of the Commission's reform recommendations and that it will deliver its formal response this year.

When will the changes take effect?

Not for some time. A proposal paper will be released in the first half of the year but legislation to effect the changes through amendments to the Corporations Act is not expected until mid-2017.

Our comments

This marks the first serious re-think of Australian insolvency law in over 20 years. We understand that the safe harbour and ipso facto reforms are well understood and accepted by the Australian market. The Australian Restructuring Insolvency & Turnaround Association (ARITA) has welcomed the Federal Government's announcement.

Many aspects of the reforms require further debate. The Federal Government has said that "...if a business gets into trouble, the operators and owners [should] have a real opportunity to get themselves out of it".

Few would disagree with this statement, but the restructuring opportunity must be balanced against the primary purpose of insolvency law, the protection of creditors. If this objective is not to be undermined, there must be limits on the leeway available to directors before an insolvency practitioner is appointed. Perhaps this is why one of the pre-requisites of the safe harbour defence is certification of solvency when a restructuring advisor is appointed.

In our experience, directors often wait too long before seeking formal turnaround advice. If the safe harbour reform became part of New Zealand law, it may encourage directors to seek early advice. We would expect most New Zealand insolvency practitioners to embrace the opportunity to do more restructuring work, rather than featuring as the proverbial "ambulance at the bottom of the cliff".

For directors, the safe harbour defence would be a welcome counter-point to recent changes to the Companies Act that have criminalised director conduct.

If the safe harbour and ipso facto reforms work well in Australia, we would expect them to eventually become part of New Zealand law. However, such changes could be some time away. If our government were to consider similar reforms, the starting point should be revision of the under-used and poorly understood VA regime. There is potential to make this procedure much more useful for businesses and creditors alike.

We will cover potential reforms in a further article this year. In the meantime, we will continue to monitor Australian developments with interest.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Michael Arthur
Michael Harper
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions