Purpose of the review
An independent review is required under section 588HA of the Corporations Act 2001 to examine and report on the operation of the permanent safe harbour for directors from liability for insolvent trading which commenced on 18 September 2017.
The review will assess whether the safe harbour is achieving its aims, including giving financially distressed but viable companies more ‘breathing space’ to restructure their affairs.
The review builds on the Government’s insolvency reforms to support small businesses, including the establishment of a new formal debt restructuring process to provide a faster and less complex mechanism for financially distressed but viable incorporated small businesses to restructure their existing debts. An effective safe harbour is important to ensure that companies of all sizes have the best possible chance to successfully restructure and continue trading, to the benefit of the company and its creditors as well as the broader economy.
Terms of reference
- The review will examine and report on the impact of the availability of the safe harbour (provided for by sections 588GA and 588GB of the Corporations Act 2001) on:
- the conduct of directors, including decisions to seek advice about the company’s financial position or to undertake a corporate restructure or turnaround plan outside of a formal insolvency process;
- the conduct of directors of small and medium-sized enterprises and any particular issues experienced by these directors when engaging with financial distress;
- the interests of creditors and employees of those companies, including benefits gained under a successfully implemented restructure or turnaround plan or in formal insolvency processes; and
- the effectiveness of the underlying prohibition on insolvent trading and associated penalties.
- The review will examine and report on the role of advisers in the safe harbour.
The review should conduct consultations with stakeholders, including roundtable discussions to provide the opportunity for interested members of the community to share their experiences under the current law and regulatory settings and to discuss any potential reforms.
The review will provide the Assistant Treasurer with a written report detailing its findings within 3 months of the review being announced to be tabled in Parliament as required by section 588HA(4).