You can lead a director to the safe harbour, but you
can't make him drink.
The Government's new approach to insolvency is long on
rhetoric about risk taking and the need to remove the stigma of
However, it is short on detailed consideration of exactly why we
have legal rules for corporate and personal insolvency.
Those rules aim to balance the interests of creditors against
the need to encourage business start-ups.
There is no objective evidence that the current system is
slanted too heavily against entrepreneurs.
For every trade creditor of a failed business who receives more
than 50 in the dollar, there are hundreds, if not thousands, who
see only a tiny fraction of that The government's proposal to
allow companies to trade while insolvent is unlikely to improve
And what will be the countervailing benefit?
The idea that directors of falling companies will somehow
embrace the new safe harbour proposal by commissioning a
professional restructuring plan runs counter to everything that we
The current voluntary administration regime provides incentives
for directors to call in professional restructuring help. Talk to
any liquidator-administrator and you'll be told that
they're mostly called in when the company is already beyond
Where is the evidence that that behaviour will change under the
safe harbour proposal?
In short, you can lead a director to the safe harbour, but you
can't make him drink.
This was first published in the Australian Financial Review,
Monday 14 December 2015
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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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