The AICD is strongly supportive of reform to Australia’s insolvency laws, particularly the insolvent trading prohibitions in s 588G of the Corporations Act 2001 (Cth) (Corporations Act), which are considered to be among the ‘strictest’ in the world.1 These laws can lead to a premature invocation of insolvency, resulting in job losses, contract terminations, destruction of goodwill and overall value diminution.
The Proposed Reforms, if designed effectively, should facilitate innovation and entrepreneurship by encouraging responsible risk-taking by companies and directors. The potential of these changes – subject to getting the legislation right – cannot be underestimated. They will save rather than destroy billions in wealth and tens of thousands of jobs. Directors of an ailing company should be given a fair opportunity to take reasonable steps to turn around viable businesses for the benefit of all.
The AICD supports an insolvent trading safe harbour that facilitates reasonable efforts to rehabilitate distressed businesses, while appropriately protecting corporate stakeholders such as employees, suppliers, customers, creditors and shareholders from reckless and unscrupulous actions. However, after significant consultation with members and stakeholders, we are concerned that the ED Safe Harbour may not provide directors with sufficient certainty to encourage good faith restructuring. Accordingly, in Section 2 of this submission we make recommendations to enhance the effectiveness and operation of the ED Safe Harbour.
In addition, the AICD supports the government’s initiative to introduce a stay on certain ipso facto clauses. While we broadly endorse the approach taken in the ED Stay, we have again made some suggestions to improve the draft legislation.
You can read our submission here (154 KB).
1The Hon. Wayne Martin, ‘Official Opening Address’, Insolvency Practitioners’ Association of Australia 16 th National Conference, Perth, 28 May 2009.