Improving bankruptcy and insolvency laws.
On 29 April, the Treasury released a Proposals Paper seeking feedback on proposed new bankruptcy and insolvency laws. Three measures were introduced:
- Reducing the current default bankruptcy period from three years to one year.
- Introducing a ‘safe harbour’ for directors from personal liability for insolvency trading if they appoint a restructuring advisor to develop a turnaround plan for the company.
- Making ‘ipso facto’ clauses, which have the purpose of allowing contracts to be terminated solely due to an insolvency event, unenforceable if a company is undertaking a restructure.
The underlying premise of the proposed law reform is to encourage economic growth through innovation and entrepreneurship. The proposed amendments seek to remove the stigma of business failure as well as barriers to market re-entry for entrepreneurs, many of whom require multiple attempts to achieve business success.
In response to this proposal, Worrells submitted a paper detailing our support of the modernisation of insolvency laws and the proposed reform’s objectives, along with our answers to the questions posed. These included but weren’t limited to questions on; objection to discharge; bankrupt compliance—pre and post discharge; the introduction of a ‘safe harbour’ defence; appointment and qualifications of a ‘restructuring advisor’; and the introduction, circumstantial application and potential extension of ipso facto clauses.
Though not specifically requested, we also provided other recommendations relating to insolvency law reform by the Productivity Commission in its Inquiry Report on Business Set-Up Transfer and Closure. These include, but are not limited to streamlined SME liquidations and pre-positioning sales.
While our submission professed our support for the law reform, Worrells was also careful to highlight the necessity of preserving existing measures that serve to secure creditor rights and warn against any introduced changes that could hinder insolvency practitioners’ ability to recover assets from bankrupts.
To read our submission in full, please click here.