Yesterday (9 August) the Senate Economics Legislation Committee recommended the Senate pass a bill introducing a ‘safe harbour’ for company directors from personal civil liability for insolvent trading.
Under the reforms, directors of companies in financial distress would be able to rely on the safe harbour protection if they start developing one or more courses of action that are ‘reasonably likely’ to lead to a ‘better outcome’ for the company than the immediate appointment of an administrator or liquidator. The safe harbour is conditional on meeting employee entitlements, tax reporting obligations and directors fulfilling existing statutory obligations to provide assistance in the event of administration or liquidation.
The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 also introduces a stay on a counterparty’s ability to enforce an ipso facto clause.
“By encouraging company directors to take responsible and measured steps to turn around businesses in financial distress, the committee is confident that the reforms in the bill will support effective company restructuring and, in turn, promote innovation and entrepreneurship for the benefit of all stakeholders, and the Australian economy overall,” concluded the Committee.
The Committee’s report draws on the AICD’s submission, along with other stakeholders. The AICD supported the reforms while suggesting some improvements.
To become law, the Senate would now need to pass the Bill.