On 11 September 2017, the Commonweath Parliament passed the Treasury Law Amendments (2017 Enterprise Incentives No.2 Bill). The new legislation:
- introduces a ‘safe harbour’ exclusion from civil liability for directors faced with insolvent trading claims and
- makes unenforceable ipso facto clauses in certain contracts which allow a party to terminate the contract for the sole reason of an insolvency event.
During the vote on the Bill, the Australian Labour Party moved amendments to the Bill including:
- making the ‘safe harbour’ a defence rather than a carve out from liability and
- adding a requirement that the ‘appropriately qualified entity’ (who gives the restructuring advice to the director’s company) be a registered liquidator.
Both of the amendments failed.
However, the ALP was successful in seeking an amendment which creates a requirement that a review of the effectiveness of the legislation be conducted after two years.
On 18 September 2017, the legislation received Royal Assent. The safe harbour reforms are now in effect and the ipso facto reform will commence upon proclamation (and if not proclaimed, then 1 July 2018).
This is a significant development in corporate insolvency law and one that has been welcomed by the insolvency profession. The new law goes some way in developing a genuine restructuring culture in Australia and encouraging business owners to take pro-active steps when their companies are in or nearing financial distress.