In December 2015, the Federal Government proposed changes to its insolvency laws as part of its National Innovation and Science Agenda (NISA). Changes included a proposal to reduce the minimum bankruptcy period from three years to one year, with the aim of encouraging innovation and risk taking by reducing the consequences associated with bankruptcy.
Other reforms proposed as part of NISA include a proposed safe harbour carve out to protect directors from insolvent trading liability and a stay on the enforcement of ipso facto clauses while a company is under voluntary administration. These three reforms are separate to those contained in the Insolvency Law Reform Act 2016 (Cth).
The Government received 72 submissions in response to a proposals paper on these proposed reforms. Multiple submissions questioned the effectiveness of reducing the minimum bankruptcy period, including the submission from the Australian Restructuring, Insolvency & Turnaround Association which expressed ‘mixed views’ about whether this measure would be effective.
The volume and content of the submissions may explain the Government’s delay in introducing legislation to reflect the proposed reforms.1 The Attorney General, who is the responsible Minister for bankruptcy reform2, is yet to release draft legislation. There has also been a notable lack of information provided since submissions were received. In contrast, the ipso facto and safe harbour reforms are currently being considered by Parliament.
A statement released by Treasury in March 2017 maintains that a reduction of the default bankruptcy will be legislated.3 However, for the moment, it remains unclear when this will occur.
This article was written with the assistance of William Richards, Seasonal clerk.
1Submission by Australian Restructuring Insolvency & Turnaround Association (2016), ‘Improving Bankruptcy and Insolvency Laws -Proposals Paper 2016’, p 4, accessed here.
2The Treasury, ‘National Innovation and Science Agenda – Improving Corporate Insolvency Law (2017)’, accessed at here.
3The Treasury, ‘National Innovation and Science Agenda – Improving Corporate Insolvency Law (2017)’, accessed at here.