This week has arguably been one of the most significant we have
seen since the introduction of voluntary administration in 1993,
when it comes to the reform of Australia's insolvency regime.
Transformational change is officially afoot, with the introduction
of a safe harbour defence for directors in Australia expected
In August 2014, DibbsBarker urged Treasury and the Financial
System Inquiry (FSI) by way of submission copied to the then
Minister for Communications (now his honourable Prime Minister of
Australia), to contemplate "transformational change that
alters our business landscape, providing greater scope for
innovation and entrepreneurship, including in the face of
failure". Our submissions to Treasury and the FSI spoke of the
benefits to Australia in pursuing such change, noting that such
reform would "better encourage collaborative innovation
through periods of change and financial vulnerability".
Government signals change
On Monday, the Federal Government announced its National
Innovation & Science Agenda, signalling that legislation will
be passed in mid-2017 to implement three key changes to Australian
insolvency laws to encourage entrepreneurship as follows:
reducing the current default bankruptcy period from three years
to one year
introducing a 'safe harbour' for directors from
personal liability for insolvent trading if they appoint a
restructuring adviser to develop a turnaround plan for the
making 'ipso facto' clauses, which allow contracts to
be terminated solely due to an insolvency event, unenforceable if a
company is undertaking a restructure.
That same day, the Productivity Commission released its Business
Set-Up, Transfer and Closure Final Report in which it set out a
detailed proposal for the shape that a safe harbour defence might
What might the safe harbour defence look like?
The Productivity Commission's proposed framework includes
the following elements:
a company will have available to it a safe harbour, which will
operate as a defence to insolvent trading, where the company makes
and records a decision to appoint an adviser with a view to
constructing a turnaround plan
the safe harbour will commence upon the appointment of the
the adviser must be a registered adviser, and must have at
least 5 years' experience as an insolvency and turnaround
at the time of the appointment the adviser must be provided
with proper books and records
at the time of the appointment the company must be (and the
adviser must certify that the company is) solvent, even if it
becomes insolvent during the safe harbour period
the appointment must be for the express purpose of providing
restructuring advice focused on the company's continued
solvency and viability
the adviser will end their appointment, and the safe harbour
period will end, if the company is no longer viable
the directors must demonstrate that they took all reasonable
steps to pursue the restructuring as advised by the adviser
the safe harbour will end once the restructuring advice has
been (reasonably) implemented.
Having made various submissions over the past 18 months about
the need for insolvency law reform and cultural reform in
Australia, with aspects of those submissions being expressly noted
by the Commission in its Final Report, DibbsBarker is excited to
see that real change is on its way. Importantly, it is
transformational change that is intended to promote early
intervention and proactivity on the part of directors. It signals a
shift away from blame and fear of failure, towards a more
collaborative, supportive approach.
In this paper, we provide a more detailed summary of the
Productivity Commission's proposed framework for a safe harbour
defence in Australia.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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