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National Innovation and Science Agenda - Improving corporate insolvency law

28 March 2017 | Exposure Draft

As part of the National Innovation and Science Agenda (NISA), the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer, has released draft legislation which reforms Australia’s insolvency laws and an accompanying draft explanatory statement for public consultation. The draft legislation will amend the Corporations Act 2001 to promote a culture of entrepreneurship and innovation and help reduce the stigma associated with business failure. This will help drive business growth, local jobs and global success.

The amendments will create a ‘safe harbour’ for company directors from personal liability for insolvent trading if the company is undertaking a restructure in certain circumstances. This will drive cultural change amongst company directors by encouraging them to engage early with financial hardship, keep control of their company and take reasonable risks to facilitate the company’s recovery instead of placing the company prematurely into voluntary administration or liquidation.

The amendments will also make ‘ipso facto’ clauses unenforceable if a company has entered into a formal insolvency process. Currently, ‘ipso facto’ clauses allow contracts to be terminated solely due to an insolvency event. The aim of this reform is to prevent these types of clauses from reducing the scope for a successful restructure or preventing the sale of the business as a going concern.

The Government has also released a further explanatory document setting out the types of contracts and contractual rights which are expected to be excluded from the broad stay on the operation of ipso facto clauses. These excluded contract types and rights will be formalised through forthcoming regulations, with the stay on ipso facto clauses becoming effective on 1 January 2018. The Minister welcomes feedback on the appropriateness of the proposed exclusions and whether further exclusions may be warranted.

The Attorney-General is the responsible Minister for the proposed reduction of the default period of bankruptcy from 3 years to 1 year, which was announced along with these reforms, and will be legislated separately.

Making a Submission

Interested parties are invited to comment on the consultation papers.

While submissions may be lodged electronically or by post, electronic lodgement is preferred. For accessibility reasons, please submit responses sent via email in a Word or RTF format. An additional PDF version may also be submitted.

All information (including name and address details) contained in submissions will be made available to the public on the Treasury website unless you indicate that you would like all or part of your submission to remain in confidence. Automatically generated confidentiality statements in emails do not suffice for this purpose. Respondents who would like part of their submission to remain in confidence should provide this information marked as such in a separate attachment.

Legal requirements, such as those imposed by the Freedom of Information Act 1982, may affect the confidentiality of your submission.

Closing date for submissions: Monday, 24 April 2017

Address written submissions to:

Mr James Mason
Financial System Division
The Treasury
Langton Crescent
PARKES ACT 2600

For enquiries please call James Mason +61 (2) 6263 4405.

Key Documents

Ref Num: {D8361790-B423-4EC8-A3B0-DFCB7D8FA3EF}
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