Insolvency law development a step up from 'punitive' regime

Insolvency law development a step up from 'punitive' regime

A mid-tier network firm director has praised the amendments to previously “punitive” corporate insolvency legislation, which have officially passed through the Parliament.

Earlier this week, the government confirmed that the Treasury Laws Amendments (2017 Enterprise Incentives No. 2) Bill 2017 passed through the Parliament.

The bill provides a ‘safe harbour’ for company directors from personal liability for insolvent trading if they are pursuing a restructure outside formal insolvency. It also makes ‘ipso facto’ clauses unenforceable during and after certain formal insolvency procedures.

Riad Tayeh, who is a director of turnaround and insolvency consultancy at Walker Wayland Australasia member firm dVT Group, has welcomed the news that the legislation has passed.

According to Mr Tayeh, Australia has been well known internationally for having the most punitive corporate insolvency laws in the world.

“While many western economies liberalised their insolvent trading and director penalty provisions some time ago, such reforms have not been undertaken here until now,” he said.

“These initiatives will enable good businesses that may have found themselves in troubled waters to reassess, restructure and continue to trade profitably for the benefit of employees, creditors, shareholders and the community generally.”

Mr Tayeh believes that the previous laws put the focus on penalising failure and punishing directors, often prematurely pushing companies into formal insolvency administrations, and that the new measures will hopefully provide a viable alternative when a business fails.

“The issue is striking an appropriate balance between protecting creditors and providing mechanisms for preserving value and saving companies. This allows entrepreneurs to take appropriate risks and grow an economy,” he said.

“It is early days yet, but it is hoped this legislation will encourage directors to restructure and continue the business with its attendant benefits for all stakeholders.”

The safe harbour provisions will commence on Royal Assent, while the stay on the operation of ipso facto clauses will commence from 1 July 2018 to provide time for businesses to adapt to the new settings.

The operation of the safe harbour will be subject to an independent review two years after commencement.

Insolvency law development a step up from 'punitive' regime
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