Bills Digest No. 33,
2017–18
PDF version [1329KB]
Jaan Murphy
Law and Bills Digest Section
11
September 2017
Contents
Purpose of the Bill
Structure of the Bill
Background
Types of external administration for
insolvent companies
Receivership
Voluntary administration
Deeds of company arrangement
Schemes of arrangement
Liquidation
Why would directors initiate external
administration?
Ipso facto clauses
Impact on company turnarounds
Previous reports and consultations
2015—Productivity Commission inquiry
2016—Treasury proposals paper and
consultation
2017—Treasury exposure draft
consultation
Aims of the reforms
Committee consideration
Senate Economics Legislation
Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Proposed safe harbour
Ipso facto clauses
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions: proposed
safe harbour for insolvent trading
Current offences
Current defences liability for insolvent
trading
Limitations
Safe harbour rather than defence
Element: suspects the company may
become or be insolvent
Element: developing one or more
courses of action
Element: reasonably likely
Issue: is ‘reasonably likely’ an
appropriate threshold?
Issue: better outcome for the
company, creditors, or both?
Issue: the application of the five
factors
Issue: advice from appropriately
qualified entity
Productivity Commission
recommendation
Alternative proposals from interest
groups
Issue: unregulated pre-insolvency
advisors
Element: debt must be incurred
directly or indirectly in connection with the course of action
Element: length of time of safe
harbour
Figure 1: timelines and operation of
safe harbour as recommended by the Productivity Commission
Other requirements
Paying employee entitlements and complying
with tax obligations
Failure to provide information and
books
Consequences of failure to provide
information and books
Court discretion regarding other
requirements
Safe harbour for holding companies
Key issues and provisions: ipso
facto clauses
Types of external administration
affected by the proposed stay on ipso facto clauses
Types of agreements captured
Issue: distortion of market due to
non-retrospective application
Applicable triggering events
Issue: stay against enforcement of ipso
facto clauses to appointment of liquidators
Issue: administration stay extends to
liquidation but not deeds of company arrangement
Duration of the stay against
enforcing ipso facto clauses
Schemes and duration of the stay
Controllers and duration of the stay
DOCAs and duration of the stay
Extension of stay against enforcement
of ipso facto clauses after the nominal end period
Court power to override operation of
the stay against enforcement of ipso facto clauses
Anti-avoidance powers of the court
Exceptions to the stay against
enforcement of ipso facto clauses
Interaction with other legislation
Appendix : previous consideration of
corporate insolvency and ipso facto clauses
Date introduced: 1
June 2017
House: House of
Represntatives
Portfolio: Treasury
Commencement: Schedule
1, Part 1 commences on the day after Royal Assent. Schedule 1, Part 2 will
commence on the later of 1 July 2018 or six months after Royal Assent. However,
Schedule 1, Part 2 may commence at an earlier date as proclaimed by the
Governor-General.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at September 2017.
Purpose of
the Bill
The purpose of the Treasury Laws Amendment (2017
Enterprise Incentives No. 2) Bill 2017 (the Bill) is to amend the Corporations Act
2001 to:
- create
a ‘safe harbour’ for directors from personal liability for insolvent trading if
the company is undertaking a restructure outside formal insolvency and
- make
‘ipso facto’ clauses in contracts unenforceable while a company is
restructuring under:
- voluntary
administration
- a
compromise or arrangement aimed at avoiding being wound up in insolvency (a
‘scheme of arrangement’) or
- when
a managing controller has been appointed over all or substantially all of the
property of the company.[1]
Structure
of the Bill
The Bill has one Schedule, divided into two Parts:
- Part
1 contains the amendments related to the proposed ‘safe harbour’ for directors
and
- Part
2 contains the amendments that will make ‘ipso facto’ clauses in
contracts unenforceable, in certain situations.
Background
The terms ‘solvency’ and ‘insolvency’ are defined in
section 95A of the Corporations Act as follows:
1.
a person is solvent if, and only if, the person is able to pay
all the person’s debts, as and when they become due and payable and
2.
a person who is not solvent is insolvent.
As such, a company will be insolvent when it cannot pay
all its debts as and when they become due and payable.
Types of
external administration for insolvent companies
The Corporations Act provides for five main types
of external administration for insolvent companies:
1.
receivership
2.
voluntary administration
3.
deeds of company arrangements
4.
liquidation (sometimes referred to as ‘winding up’) and
5.
schemes of arrangement.
As the amendments deal with all five types of external administration,
they are briefly outlined below.
Receivership
Instruments executed by companies that create a security
interest over their assets in favour of a secured party (for example, a
creditor), usually contain provisions authorising the secured party, in the
event of default by the company, to appoint a receiver to enforce the security
interest by taking control of the secured property.
The function of the receiver depends on the range of
property over which the security interest is granted, and the terms of the
relevant contract. In a typical case the company creates a security interest
over all of its assets and undertakings.[2]
In that case, any receiver appointed will take control of both the company’s
business and property from the directors (this is called a receiver and
manager). In other cases the receiver may only have to sell assets without controlling
the company’s business.[3]
Importantly, receivers and receivers and managers are typically appointed by a
creditor, and therefore their objective is to act in the interests of the
creditor, not the company.[4]
|
Receivership and controllership
Receivers and controllers fulfil much the same roles under
Part 5.2 of the Corporations Act. The Explanatory Memorandum to the
Bill refers generally to controllers rather than receivers. To ensure
consistency in the terminology in the Bill and the Explanatory Memorandum,
this Bills Digest also refers to controllers and controllership.
|
In practice controllership involves the appointment of an
independent, registered insolvency practitioner by a secured creditor to take control
of the company and/or possession of the secured property and make various
business decisions (including whether to sell secured property and, out of the
proceeds, repay the secured debt owed by the company).[5]
Voluntary
administration
Voluntary administration involves the appointment of an
independent, registered insolvency practitioner (an ‘administrator’) to take
control of the company for a relatively short period of time.[6]
The aim of voluntary administration is to maximise the chances of the company
and its business remaining in existence and, failing that, to achieve a better
return to creditors than the immediate winding up of the company would achieve.[7]
However, as noted by the Productivity Commission, ‘almost
60 per cent of Australian companies that enter voluntary administration are
deregistered within three years of the commencement of the administration’.[8]
This suggests that the current regime does not maximise the chances of the
company and its business remaining in existence, at least over the long-term. The
Productivity Commission also noted a strong stigma associated with voluntary
administration (leading to loss of value of the business), and that in effect,
voluntary administration processes, ‘are seen to favour the interests of
creditors over the continuation of the company’.[9]
This led the Productivity Commission to conclude:
The current culture, incentives and legal framework around
voluntary administration inhibit its effectiveness as a genuine restructuring
mechanism.[10]
Deeds of
company arrangement
A deed of company arrangement (DOCA) is one of the
possible outcomes for a company put into voluntary administration.[11]
A DOCA is an agreement between the company and its creditors
that follows from a voluntary administration and is one potential mechanism of
restructuring a company and returning it to solvency.[12]
An administrator for the DOCA must be appointed (typically, but not always, the
former voluntary administrator), hence why a DOCA can also be considered a form
of external administration. During the operation of a DOCA, the company
continues to trade and, importantly for the directors, the company is not
insolvent while under a DOCA.[13]
The DOCA can include an agreement to waive or delay
payment of debts, allow payments of debts in instalments, or compromises under
which creditors agree to accept payment of a lesser amount in final settlement
of their debts.[14]
Schemes of
arrangement
Schemes of arrangement are a form of external
administration that provide an alternative to companies seeking to restructure
and avoid liquidation, by enabling the rights and liabilities of shareholders
and creditors of a company to be reorganised and allowing the company to
continue to trade.[15]
The goal of a scheme of arrangement is to obtain a binding
agreement that modifies, reorganises or alters the legal rights of shareholders
and creditors.[16]
The Corporations Act does not restrict the nature
of a scheme but typical features of schemes include a partial curtailment of
the creditors’ rights such as accepting less than the full amount owed,
allowing for interest free periods, payment by instalment over an extended period
of time, or debt for equity swaps.[17]
While the content of schemes is flexible, the process to
establish them is not, requiring six formal steps. The proponent of the scheme must
formulate—in concert with an insolvency practitioner—a proposal, which
ultimately must be approved by the court and filed with the Australian
Securities and Investments Commission (ASIC).[18]
The Productivity Commission noted that whilst schemes of
arrangement ‘can, in theory be entered into separately from other insolvency
processes (specifically voluntary administration)’ in practice:
... a lack of a moratorium on creditor actions during a
scheme creates a risk that individual creditors can undermine the attempts
of the scheme to restructure the company, or use the threat of action to
extract favourable concession. As such moratoriums are available in
voluntary administration, companies have some incentive to seek that protection.[19]
(emphasis added)
It has been noted that setting up a scheme or arrangement
is a time-consuming, complex and expensive process.[20]
According to the Productivity Commission whilst they appear to be an
‘unattractive option’ compared to other forms of external administration (as
evidenced by the very few scheme administrators appointed in recent years), are
‘rare, and cumbersome’, nonetheless schemes of arrangement ‘have one advantage,
that they are not seen as an insolvency process’ and hence ‘are seen as
valuable tools, where Court oversight is appropriate in a ‘big business’
corporate restructure given the size and complexity of the transactions
involved’.[21]
Liquidation
Liquidation is a form of external administration under
which the company’s affairs are wound up, its property sold, debts owed to
creditors repaid (in full or in part) and the surplus (if any) distributed
amongst its shareholders. As such, liquidation ultimately results in the
company ceasing to exist as a legal entity.[22]
The Productivity Commission noted:
... liquidations were by far the most common type of the nearly
14 000 appointments of an external administrator in 2013-14 — liquidators
accounted for 71 per cent of appointments, receivers for over 16 per cent,
voluntary administrators 9 per cent and deed administrators (for DOCAs) nearly
3 per cent ... The prominence of liquidation compared to other forms of
appointment is in accordance with experience in other countries.[23]
Why would directors
initiate external administration?
With the exception of receivership, directors of financially
troubled or insolvent companies are able to initiate the other forms of
external administration referred to above.[24]
There are a number of reasons why they may do so, such as:
- to
achieve a better outcome for shareholders and creditors than maintaining the
status quo or
- because
they are ‘encouraged’ to take such action by ‘a number of legislative
incentives’.[25]
The decision about whether a corporation is insolvent is
one which is made by its directors. Importantly, the duty to prevent insolvent
trading includes a duty not to incur debts when a company is insolvent.
Compensation proceedings for amounts lost by creditors as a result of the
company trading while insolvent can be initiated against a director personally
by ASIC, a liquidator or, in certain circumstances, a creditor.
This is one of the ‘legislative incentives’ for directors
of financially troubled companies to initiate external administration.[26]
The others are:
- directors
can avoid personal liability if they put the company into voluntary administration
and ensure that it executes a DOCA that is acceptable to the company’s
creditors
- directors
may also avoid personal liability for insolvent trading where they can
establish that they took all reasonable steps to prevent the company from incurring
debts when there were reasonable grounds to suspect it was insolvent[27]
and
- placing
a company that is insolvent (or company that is suspected to be, or soon to be,
insolvent) into external administration is especially attractive to directors
who have personally guaranteed the debts of the company, as section 440J of the Corporations Act operates to prevent creditors from enforcing those
guarantees whilst the company is under voluntary administration.
The Productivity Commission notes these incentives have
created:
... a perception that Australia’s insolvency regime provides
insufficient focus on, or incentives to, restructure ... and instead, puts too
much focus on penalising and stigmatising corporate failure.[28]
Ipso facto
clauses
An ‘ipso facto’ clause is a default or termination
clause that is commonly found in modern commercial contracts.[29]
Such a clause entitles a party to terminate a contract when certain
circumstances arise, such as when a counterparty is placed into external
administration, regardless of the continued payment or performance by
the counterpart of the contract as a whole.
Impact on
company turnarounds
In the case of small and medium sized enterprises the
termination of contracts will generally lead to the deterioration of company
value. For example, a manufacturer of shoes may have a number of contracts with
suppliers for raw materials. If these contracts are terminated the result for
the shoe manufacturer can be quite drastic. Firstly, the company loses key
contracts with suppliers which will result in the company no longer having raw
materials to service future product sales. Secondly, the company will have to
re-negotiate new terms with the supplier, provided, of course, that the
supplier is still willing to transact with the company. If terms are
re-negotiated, the supplier will be in a significantly higher bargaining
position as it will be conscious of the company’s strained financial position.
As a result, more stringent terms may be placed in the new contract which will
intentionally favour the position of the supplier.
It is also evident that ipso facto clauses have the
potential to cause significant value destruction in larger corporations,
particularly where the corporation has limited physical assets. The damaging consequence of ipso facto clauses
was evident in the collapse of the telecommunications retailer, One Tel
Limited. When the company was placed into voluntary administration in 2001, the
presence of ipso facto clauses enabled their major suppliers, Optus and
Telstra, to terminate their supply contracts. This effectively put the “nail in
the coffin” for the company, as without these supply contracts, the company
could no longer function as a going concern.[30]
The Productivity Commission noted that ipso facto
clauses ‘can severely constrain the ability of a business to continue trading
during restructure’ and operate to ‘reduce the scope for a successful
restructure or prevent the sale of the business as a ‘going concern’.[31]
It also noted that ‘many countries have restricted the use of such clauses’.[32]
The Bill aims to stay (that is, temporarily prevent) the
enforcement of ipso facto clauses that are triggered:
- when
a company enters administration
- where
a managing controller has been appointed over all, or substantially all, of the
company’s property or
- where
the company is undertaking a compromise or arrangement for the purpose of
avoiding being wound up in insolvency.[33]
For the purposes of this Bills Digest, the above are
referred to as ‘external administration’. The Explanatory Memorandum notes:
Making ipso facto clauses unenforceable during a company
restructure promotes the objectives of the existing voluntary administration
regime in the Act by assisting viable but financially distressed companies to
continue to operate while they restructure their business.[34]
Previous
reports and consultations
There have been a number of previous inquiries and reports
that have dealt with corporate insolvency. These are set out in the Appendix
at the end of this Bills Digest. Briefly, however, over time views about the
impact of ipso facto clauses and Australia’s corporate insolvency
laws on the efficacy of the operation of existing forms of external
administration as genuine turnaround or restructuring mechanisms has changed.
The current prevailing view is that laws directed at
preventing businesses from trading while insolvent and the operation of ipso
facto clauses may negatively impact on genuine work-out attempts and inhibit
the use of various forms of external administration as genuine restructuring
mechanisms.[35]
To give context to the amendments proposed by the Bill,
the most recent reports and consultations are outlined below.
2015—Productivity
Commission inquiry
In 2015 the Productivity Commission released its report
entitled Business
Set-up, Transfer and Closure.[36]
As part of that report, issues regarding business restructuring and corporate
insolvency were examined. The Productivity Commission found:
- the
current culture, incentives and legal framework around voluntary administration
inhibit its effectiveness as a genuine restructuring mechanism and
- while
some specific reforms are warranted ‘wholesale change to the Australian
insolvency system is not justified’.[37]
The Productivity Commission made a number of
recommendations, which in relation to the Bill included:
- the Corporations Act should be amended to allow for a safe harbour defence
to insolvent trading in certain circumstances[38]
- the Corporations Act should be amended such that:
- ipso
facto clauses that have the purpose of allowing termination of contracts solely
due to an insolvency event are unenforceable in certain circumstances whilst
- ensuring
that the party experiencing the insolvency is in no way absolved of any other
contractual obligations[39]
and
- the Corporations Act should be amended to create a moratorium on creditor
enforcement actions during the formation of schemes of arrangement.[40]
The Bill largely reflects these recommendations.
2016—Treasury
proposals paper and consultation
In April 2016, the Government released a proposals paper on
measures to improve Australia’s insolvency laws by introducing a safe harbour
for directors, and changing the operation of ipso facto clauses.[41]
Seventy-two submissions were received as part of that consultation process.[42]
2017—Treasury
exposure draft consultation
Based on feedback from the 2016 proposals paper
consultation process, an exposure draft was released for feedback and
consultation by Treasury in March 2017.[43]
Forty-five submissions were received as part of that consultation process.[44]
Aims of the
reforms
Announcing the release of the draft legislation for
consultation, Minister for Revenue and Financial Services, Kelly O’Dwyer
stated:
The creation of a safe harbour creates necessary breathing
room for directors to turn a company around rather than allowing it to fail for
fear of personal liability. This will not only promote a culture of
entrepreneurship and help reduce the stigma associated with business failure,
but offers businesses a better chance of restructuring outside of a formal
insolvency, which often produces significantly better outcomes for the company,
its employees and its creditors.[45]
The Minister for Small Business, Michael McCormack, stated
that the aim of the Bill is to improve Australia’s corporate insolvency regime
by:
- driving
cultural change among company directors by encouraging them to keep control of
their company, engage early with possible insolvency and take reasonable risks
to facilitate the company's recovery instead of simply placing the company
prematurely into voluntary administration or liquidation
- enabling
companies to continue to trade in order to recover from an insolvency event by
preventing ipso facto clauses interfering with their successful
rehabilitation
- reducing
the instances of companies proceeding to formal insolvency processes
prematurely, and, where companies do enter into formal insolvency procedures,
ensuring they ‘have a better chance of being turned around or of preserving
value for creditors and shareholders’
- promoting
the preservation of enterprise value for companies, their employees and
creditors and
- reducing
the stigma of failure associated with corporate insolvency and thereby
encouraging a culture of entrepreneurship and innovation.[46]
Committee
consideration
Senate Economics
Legislation Committee
The Bill was referred to the Senate
Economics Legislation Committee (the Committee) for
inquiry and report by 8 August 2017. The Committee recommended that the Bill be
passed, and made no recommendations regarding possible amendments in response
to the issues raised by submissions to the Committee’s inquiry because:
... the stringency of Australia's insolvent trading laws has
been publically debated for many years and ... the reforms proposed in the Bill
have been the subject of extensive stakeholder consultation ... The committee
acknowledges submitters' views with regard to the operation of the Bill and how
it may be improved to best achieve its intended policy objectives. However, the
committee also notes the broad support received for the Bill and considers that
a number of the matters raised in submissions would best be clarified in
regulations accompanying the legislation.[47]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
made no comments on the Bill.[48]
Policy
position of non-government parties/independents
At the time of writing no public comments by
non-government parties and independents were identified regarding the measures
proposed by the Bill or the Bill itself.
Position of
major interest groups
Major interest groups are supportive of the policy intent
of the measures contained in the Bill.[49]
Proposed
safe harbour
Some stakeholders raised specific concerns about the
operation of the proposed reforms in specific circumstances. These are
discussed below under the heading ‘Key issues and provisions: proposed safe
harbour for insolvent trading’ below. However, most stakeholders supported the
broad policy intent underpinning the Bill’s proposed ‘safe harbour’ from
insolvent trading.[50]
For example, accounting firm Ernst and Young supported the proposed reforms noting
they would be ‘a positive step in facilitating and fostering a rescue culture,
which ultimately produces a better return to stakeholders’.[51]
Likewise, the Law Council of Australia (LCA) supported the Bill because Australia’s
‘current insolvent trading laws put too much focus on stigmatising and
penalising failure’ and hence a ‘cultural shift’ in how corporate failure and
restructuring is approached is needed.[52]
Chartered Accountants Australia and New Zealand (CAANZ)
supported the measures in the Bill on the basis that ‘the package of proposals’
contained in the Bill:
... provide [an] appropriate balance between supporting
businesses to work through temporary difficulties and protection of rights for
those transacting with them.[53]
The Australian Restructuring Insolvency and Turnaround
Association (ARITA) also supported the proposed safe harbour provisions.[54]
Ipso facto
clauses
A majority of stakeholders are supportive of the broad
policy intent underpinning the Bill’s reforms to the operation of ipso facto
clauses.[55]
However, some stakeholders raised concerns about the operation of the reforms
on specific types of contracts or in specific circumstances. For example, the
Housing Industry Association (HIA) stated:
Although the broad intent of the Bill is supported, HIA has
concerns with aspects of the legislation, most particularly the potential
impact the proposed restriction on enforcing ipso facto clauses will have on
contracting and warranty insurance arrangements that already operate in the
residential building industry.[56]
Financial
implications
The Explanatory Memorandum states that the reforms
proposed by the Bill ‘do not have a direct and measurable financial impact’.[57]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. It
acknowledged that placing the evidential burden onto a director or holding
company seeking to rely on the proposed safe harbour might be an issue.
However, the Government considered that the Bill is compatible stating:
The application of an evidential burden on company directors
and holding companies wishing to rely on safe harbour is appropriate and
consistent with human rights because in both cases the approach is consistent
with the Commonwealth Guide to Framing Offences, Infringement Notices and
Enforcement Powers.[58]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights
considered that the Bill did not raise any human rights concerns.[59]
Key issues and provisions: proposed
safe harbour for insolvent trading
Current offences
Subsection 588G(1) of the Corporations Act applies
if:
- a
person is a director of a company at the time when the company incurs a debt
- the
company is insolvent at that time, or becomes insolvent by incurring that debt and
- at
that time, there are reasonable grounds for suspecting that the company is
insolvent, or would so become insolvent, as the case may be.
By failing to prevent the company from incurring the debt,
the person contravenes section 588G if:
- the
person is aware at that time that there are such grounds for so suspecting or
- a
reasonable person in a like position in a company in the company’s
circumstances would be so aware.[60]
Contravention of this provision gives rise to a pecuniary
penalty.[61]
A court may order a person to pay a pecuniary penalty of up to $200,000.[62]
Insolvent trading also gives rise to both civil and criminal offences.[63]
However, in contrast to the civil penalty provisions, the criminal offence
provision only applies where dishonesty is found to be a factor in insolvent
trading. The criminal offence attracts a maximum penalty of 2,000 penalty units
or imprisonment for five years, or both.[64]
The Government argues that the current law focuses on the
timing of when debts are incurred, rather than the conduct of the directors in
incurring that debt[65]
and often results in:
... the early appointment of an administrator with a
potentially unnecessary destruction of enterprise value which may occur even
where there are clear opportunities to adjust the company’s business and
continue operating for the overall benefit of the company, its shareholders,
employees and creditors ... the appointment of an administrator has the potential
to result in the company being liquidated because of the loss of confidence
amongst its suppliers, credit providers, employees and the general public ... unnecessary
liquidation of companies that could otherwise be successfully restructured and
continue to operate. This is not in the interests of the company’s directors,
employees, creditors and the economy as a whole.[66]
Current
defences liability for insolvent trading
Currently, section 588H of the Corporations Act provides
the following defences to civil liability for insolvent trading:
- reasonable
grounds to expect that the company was solvent when the debt was incurred and
would remain solvent even if it incurred that debt and any other contemporaneous
debts
- reasonable
reliance on a competent and reliable person who is responsible for providing
adequate information about the company's solvency
- non-participation
in the management of the company because of illness (or for some other good
reason)
- taking
all reasonable steps to prevent the company from incurring the debt, including by
the appointment of an administrator under Part 5.3A of the Corporations Act 2001
(the ‘reasonable steps’ defence).
A director can also seek relief from the court from civil
liability for insolvent trading if the director has acted honestly and, having
regard to all the circumstances, ought fairly to be excused.[67]
If none of the above defences are available, a director
can be personally liable for an amount equal to the amount of the loss or
damage suffered in relation to the debt because of the company's insolvency.[68]
This amount can be recovered by the liquidator or a creditor (with the
liquidator's consent or the leave of the court).[69]
Limitations
Whilst the above defences provide some measure of
protection for directors, there is no guarantee that they will apply in the
circumstances and they do not allow directors to:
- remain
in control of the company and
- protect
them from personal liability while they seek to develop, and then implement,
a restructuring for the company.
Safe
harbour rather than defence
Item 2 of Part 1 of the Bill inserts proposed
section 588GA into the Corporations Act to create a ‘safe harbour’ from
the civil penalty offence provision outlined above—in order to ‘facilitate more
successful company restructures outside of a formal insolvency process’.[70]
It does not apply to the criminal offence provision.
Currently, where all the requisite elements of the civil
contravention are present directors are prima facie liable for insolvent
trading. In order to access the current defences a director must provide
evidence that the legal elements of the defence are satisfied.
Under the proposed safe harbour, directors will not have
contravened the prohibition on insolvent trading provided that they satisfy the
following elements:
- it
will be available after a director ‘starts to suspect’ that the company may
become or is insolvent
- the
director starts developing one or more courses of action that are reasonably likely
to lead to a ‘better outcome’ for the company[71]
- the
debt(s) must be incurred directly or indirectly in connection with the course
of action[72]
and
- it
ends at the earliest of the following times:
- the
end of a reasonable period after a person starts to suspect the company's
insolvency if the person fails to take the required course of action within
that period[73]
- when
the person ceases to take the course of action[74]
- when
the course of action ceases to be reasonably likely to lead to a better outcome
for the company[75]
- the
appointment of an administrator or a liquidator of the company.[76]
These are discussed below.
Element:
suspects the company may become or be insolvent
The safe harbour is available after a director ‘starts to
suspect’ that the company may become or is insolvent. ASIC notes that signs
that may indicate a company is at risk of insolvency include:
- ongoing
losses, poor cash flow, increasing debt (liabilities greater than assets), creditors
unpaid outside usual terms, solicitors’ letters, demands, summonses, judgements
or warrants issued against your company, suppliers placing the company on
cash-on-delivery (COD) terms
- incomplete
financial records or disorganised internal accounting procedures
- problems
selling stock or collecting debts, unrecoverable loans to associated parties, overdraft
limit reached or defaults on loan or interest payments, problems obtaining
finance and
- overdue
taxes and superannuation liabilities.[77]
Case law in relation to insolvent trading suggests that determining
whether the director could have (or should have) suspected the company may
become (or is) insolvent is considered in light of all the circumstances of the
company, including that it is operating in a practical business environment.[78]
Further, it would appear that the director must be able to prove that they:
- took
an active interest in the affairs of the company
- put
checks in place to ensure that the information about the company’s financial
status was reliable and
- regularly
reviewed that information themselves.[79]
Therefore the safe harbour will only be available to
directors who closely monitor the financial position of the company and take an
active interest in its affairs.[80]
Element:
developing one or more courses of action
The safe harbour is only available when, after the
director starts to suspect the company may become (or is) insolvent, 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, of the company.[81]
The Explanatory Memorandum notes that whilst ‘developing a
course of action’ includes garnering initial advice and subsequent deliberative
and decision periods, ‘developing’ a course of action:
... requires more than merely thinking about the problem, but
rather denotes actively taking steps to move towards a definite action.[82]
|
Example
Sue’s accountant warns her that the company may soon
become insolvent. Sue decides that, rather than immediately appointing an
administrator or liquidator, she will investigate options for turning the
business around. She jots down some ideas on how she might proceed and
decides to seek the advice of a professional adviser with relevant experience.
A month later, Sue has still not sought professional
advice or taken any other actions as she has been occupied with other matters.
After missing two payments on her loan, her bank appoints a managing
controller. At this point, the company has been trading while insolvent for
the last two weeks.
Sue will be unable to rely on the safe harbour in any
subsequent proceeding. She started developing a course of action but then
failed to take any action within a reasonable period of time.[83]
(emphasis added)
|
In its submission to the Committee inquiry into the Bill,
ASIC suggested that consideration could be given to amending the Bill to
specifically require directors to document proposed restructuring plans, for a
number of reasons including because it would:
- support
and assist the director to adduce evidence that the course of action developed
and taken is reasonably likely to lead to a better outcome for the company
- promote
market confidence and militate against inappropriate access to a ‘safe harbour’
(that is, when achieving a genuine restructure or better outcome for the
company is unlikely) and
- assist
liquidators and creditors determine when the ‘safe harbour’ period commences
and to decide the merits of prosecuting a claim of insolvent trading.[84]
However, given that proposed subsection 588GA(3) of
the Corporations Act provides that directors seeking to rely on the safe
harbour will have the evidential onus of demonstrating it was available, such
an amendment may not be strictly necessary. This is because directors should
adequately document their turnaround plans, particularly during any
determinative period to assist them in meeting the evidential burden—should it
be necessary.[85]
|
Example
Daniel is a member of the board of Quick Fix Pty Ltd.
Daniel begins to suspect that Quick Fix may become insolvent and so starts
considering options and presents a well-documented plan to the board.
The board resolves to implement a new cost reduction strategy
and to seek a buyer for part of its business to try and resolve its financial
problems and negotiates a grace period with its main secured creditor in
order to do so.
Daniel will be protected by the safe harbour protections
from the time he starts developing the options available to the company as
this is an essential part of taking a course of action that is reasonably
likely to result in a better outcome for Quick Fix.[86]
(emphasis added)
|
From a practical perspective, it would not be sufficient
for a director to provide a statutory declaration that simply stated they had
considered a course of action and formed a view it was reasonably likely to
lead to a better outcome. Rather, a director would be required to lead other
evidence, such as proof of the qualified entity they engaged to provide advice,
when they were engaged, when the advice was considered, how the advice was used
in relation to the course of action and so forth.
Element:
reasonably likely
For the safe harbour to apply, a course of action developed
by the director must be reasonably likely to lead to a better outcome for the
company than the immediate appointment of an administrator, or liquidator, of
the company.[87]
Proposed subsection 588GA(2) of the Corporations
Act sets out an indicative, but not exhaustive, list of factors that may
be considered in determining whether a course of action is reasonably likely to
lead to a better outcome for a company, namely whether the directors:
- properly
informed themselves about the company's financial position
- took
steps to prevent misconduct by the company's officers and employees that could
adversely affect the company’s ability to pay its debts
- took
appropriate steps to ensure that the company is keeping appropriate financial records
- obtained
advice from an ‘appropriately qualified’ entity who was given sufficient information
to give appropriate advice or
- developed
or implemented a plan for restructuring the company to improve its financial
position.
Issue: is
‘reasonably likely’ an appropriate threshold?
Whilst most submissions supported the use of the
‘reasonably likely’ threshold, the Australian Institute of Company Directors
(AICD) argued that the threshold was ‘inherently uncertain as it involves
predictions about possible future events’ and hence recommended that the
addition of the concept of a ‘rational belief’ into the proposed safe harbour
provisions (a term already employed in the Act) along the following lines:
... the person starts developing one or more courses of action
that the person rationally believes are likely to lead to a better
outcome ...[88]
It is difficult to foresee how a course of action can be
‘reasonably likely’ to lead to a better outcome than the immediate appointment of
an administrator, or liquidator, of the company without having a rational basis
from which to draw such a conclusion (and hence provide a rational basis for
belief in likelihood that the course of action will lead to a better outcome). In
turn, it is difficult to see how a belief in a course of action can be rational
if there is no reasonable prospect it will lead to a better outcome for the
company.
As such, this amendment does not appear strictly
necessary.
Ernst and Young (EY) also argued that the threshold was
‘too low’ and ‘requires a more robust framework’. It recommended that the safe
harbour only be available where:
- it
is probable that the restructure plan is capable of being executed upon and
- it
is probable that a better outcome would be achieved for the company.[89]
EY argued that this would introduce an appropriate
threshold, namely that the pursuit of a restructure will be ‘more likely than
less likely (probable) to be successful’ and ‘more likely than less likely to
result in a better outcome for the company and its creditors’, that is, the
course of action would have more than a 50 per cent chance of being successful
and more than a 50 per cent chance of resulting in a better outcome for the
company and creditors than the immediate appointment of an administrator, or
liquidator, of the company.[90]
However, if such a threshold were adopted it would appear
likely to require predictions about possible future events to a degree of
detail that may significantly restrict access to the safe harbour, or at least
dissuade directors from considering its availability in the first place.
Issue:
better outcome for the company, creditors, or both?
As currently drafted, the safe harbour is available where
the course of action is reasonably likely to lead to a better outcome for the company
than the immediate appointment of an administrator, or liquidator, of the
company.
A number of submissions to the Committee suggested or
inferred that the safe harbour should be amended to apply only when the course
of action is reasonably likely to lead to a better outcome for the company
and creditors than the immediate appointment of an administrator, or
liquidator, of the company.[91]
However, a larger number of submissions supported confining
the safe harbour to courses of action that are reasonably likely to lead to a
better outcome for the company.[92]
For example, law firm Clayton Utz stated:
We welcome the move away from a focus on the interests of
both the company and its creditors. These interests may be quite different at
any particular time during a restructure and may otherwise cause some confusion
for directors who might be in the process of developing and implementing a “course
of action” reasonably likely to lead to an outcome better than the immediate
appointment of an administrator, or liquidator, of the company.
As currently drafted, it is clear that directors must
continue to act in accordance with all their legal obligations including, their
general director's duties under Part 2D.1 of the Act despite seeking the
protection of safe harbour and therefore, must continue to have regard to both
the interests of shareholders and creditors with the focus on creditors'
interests where a company is in financial distress.[93]
The Law Council of Australia expressed a similar view,
stating:
While it could be argued that these creditors will be at a
disadvantage because they will not be able to take action against the directors
for insolvent trading, it must be borne in mind that the purpose of the safe
harbour is to encourage and support directors while they try to successfully
restructure the company. If this succeeds then the company may return to
profitability and the company’s stakeholders will be better off because the
company will continue to trade.[94]
Whilst some interest groups have expressed concern that
the current drafting does not adequately consider the interests of creditors,
those concerns may be misplaced given that the interests of creditors are a
subset of the interests of the company as a whole. Further, given the degree of
value destruction associated with administration and liquidation it would
appear that where a restructure is successful, creditors should end up in a
better position than if the company had entered into administration or
liquidation. However, where the restructure is not successful creditors are
likely to face a similar outcome (for example, partial or non-repayment of
debts owing) to what would have occurred if the restructure had not been
attempted – the key difference being the delay in the outcome being known, due
to the restructuring attempt being undertaken.
Issue: the
application of the five factors
Proposed subsection 588GA(2) sets out the factors
which may be considered in determining if a course of action is reasonably
likely to lead to a better outcome for the company.
A number of submissions to the Committee recommended
amending the Bill to provide that where all five factors apply, that fact constitutes
‘prima facie evidence that a course of action was reasonably likely to lead to
a better outcome for the company than the immediate liquidation or voluntary
administration’.[95]
However, such an amendment would deprive the relevant decision maker of the
discretion which is inherent in the subsection as drafted.
Issue: advice
from appropriately qualified entity
One of the matters listed for consideration is whether advice
was obtained from ‘an appropriately qualified entity’.[96]
The phrase ‘appropriately qualified entity’ is not defined in the Bill.
Productivity
Commission recommendation
The Productivity Commission took the view that access to the
proposed safe harbour should be restricted to circumstances where:
- an
adviser has been appointed with the explicit purpose of providing restructuring
advice, aimed at ensuring the business’s continued solvency and ongoing
viability[97]
- the
safe harbour adviser is ‘registered as such with ASIC’, and is a ‘substantially
experienced’ practitioner.[98]
The Productivity Commission acknowledged that a broad
range of persons could potentially act as safe harbour advisers, including:
- turnaround
executives
- accountants
and lawyers and
- investment
bankers and shadow banking participants.[99]
Ultimately the Productivity Commission stopped short of recommending—as
some submitters to its inquiry had suggested—that registration as a safe
harbour adviser with ASIC be restricted to entities with ARITA Professional
Membership or persons who are registered liquidators.[100]
Instead, the Productivity Commission left open the precise
qualifications and expertise required for registration as a safe harbour
adviser with ASIC and simply noted ‘advisers should be of significant standing
within the profession’ and that elements of registration with ASIC as a safe
harbour adviser would involve ‘checks of qualifications, continuing
professional development and appropriate levels of practitioner insurance’
(that is, professional indemnity insurance).[101]
Alternative
proposals from interest groups
A number of submissions to the Committee inquiry into the
Bill recommended the Bill should specify that members of the following groups
meet the description of ‘appropriately qualified entity’:
- registered
liquidators (or a qualified sub-class of registered liquidator)
- tertiary
qualified individuals or
- prescribed
members of certain approved professional organisations, such as ARITA.[102]
Alternatively, in the absence of such a definition, the
Bill should instead be amended so that only entities with professional
indemnity insurance could be an ‘appropriately qualified entity’. This would ensure
that the entity is:
- a
member of a recognised professional body and/or is required by law to hold
insurance (for example, a lawyer, registered liquidator or member of an
accounting professional body) or
- has
independently applied for and obtained insurance against the risk of liability
for acts or omissions in providing advisory services.[103]
Despite these suggestions, a majority of submissions to
the Committee inquiry did not support inserting a definition of ‘appropriately
qualified entity’ into the Bill.[104]
Others recommended providing more clarity around the meaning of an
‘appropriately qualified entity’ without being unduly restrictive.[105]
For example, the Law Council of Australia recommended:
... the concept of an ‘appropriately qualified entity’ in
s588GA(2)(c) should be clarified in legislation and by regulatory guidance ...
Imposing tougher standards on who is an ‘appropriately qualified entity’ will
send a strong message to the business community that turnaround and
restructuring advice requires minimum standards of knowledge and skills and
give creditors greater confidence in the bona fides of those undertaking the
restructuring effort.[106]
In contrast, TMA Australia noted:
... we confirm that we support the present “appropriately
qualified entity” test. The existing wording of the test reflects the fact that
the variety of appropriate advisors to a company are as diverse as Australian businesses
themselves ... In our view, the test should remain broad to allow a company to
seek the advice that is right for their business. No exhaustive list of
accreditations can possibly cover the range of skill sets and practical
experience which can be effectively brought to bear on a turnaround ... For this
reason, the TMA does not support limiting the definition to require the advisor
be a member of/accredited by a special interest group – for example registered
liquidators ... Under the present test, advisors must be “appropriately qualified”
in the sense that they are “fit for purpose”. Advisors will be exposed to
adverse legal action if their advice and/or “better outcome opinion” is
incorrect. In our view, under the present test, firms and individuals are
appropriately incentivised to carefully consider their qualifications,
practical experience and resources before accepting an engagement. Over time,
we expect that industry standards and best practice will evolve regarding the
experience and qualifications necessary to engage in the various Safe Harbour
work streams.[107]
According to the Explanatory Memorandum to the Bill:
“Appropriately qualified” in this context is used in the
sense of “fit for purpose” and is not limited merely to the possession of
particular qualifications. It is for the person who appoints the adviser to
determine whether the adviser is appropriate in the context, having regard to
issues such as:
- the nature, size, complexity and
financial position of the business to be restructured;
- the adviser’s independence,
professional qualifications, good standing and membership of appropriate
professional bodies (or in the case of an advising entity, those of its
people);
- the adviser’s experience; and
- whether the adviser has adequate
levels of professional indemnity insurance to cover the advice being given.
The particular qualifications needed by the adviser will vary
on a case-by-case basis.[108]
Issue:
unregulated pre-insolvency advisors
Whilst the absence of a formal definition of
‘appropriately qualified entity’ in the Bill provides flexibility, it also
presents risks. In particular, it may allow ‘largely unregulated pre-insolvency
advisors’ to ‘give inappropriate advice and facilitate improper phoenix
activities’.[109]
|
About phoenixing
In its most basic form fraudulent phoenix activity
involves one corporate entity carrying on a business, accumulating debts
without any intention of repaying those debts (for the purpose of wealth
creation or to boost the cash flow of the business) and liquidating to avoid
repayment of the debt. The business then continues in another corporate
entity, controlled by the same person or group of individuals.
Fraudulent phoenix arrangements are, however, often more
sophisticated. In the ATO’s experience, a typical fraudulent phoenix
arrangement would be structured as follows:
- a
closely held private group is set up, consisting of several entities one of
which has the role of hiring the labour force for the business
- the
labour hire entity will usually have a single director who is not the
ultimate ‘controller’ of the group
- the
labour hire entity has few, if any, assets and little share capital
- the
labour hire entity fails to meet its liabilities and is placed into
administration or liquidation by the ATO
- a
new labour hire entity is set up and the labour moved across to work under
this new entity and
- the
process is repeated, with little disruption to the day-to-day operation of
the overall business and the financial benefits from the unpaid liabilities
are shared amongst the wider group.
|
Source: Australian Government, Action
against fraudulent phoenix activity: proposals paper, Treasury,
Canberra, November 2009, p. 2
Whilst such advisers may be ‘exposed to adverse legal
action’ if their advice and ‘better outcome’ course of action is incorrect or
negligently produced,[110]
recouping losses from the use of inappropriate pre-insolvency advisors would
require litigation and may leave the directors exposed to personal liability.[111]
As such, there may be some merit in amending the Bill to
allow either of the following to occur:
- ASIC
to set minimum registration guidelines that allow registration of the diverse
range of potential turn-around advisors noted by the Productivity Commission
and TMA Australia, subject to having appropriate professional indemnity
insurance or
- Regulations
to prescribe specific classes of recognised professional bodies that are required
(either by law or the rules of the body) to hold professional indemnity insurance,
such as lawyers and accountants, whilst still allowing companies to appoint
other types of turn-around advisors who hold appropriate professional indemnity
insurance.
Either of the above would allow companies to use a diverse
range of turn-around advisors, whilst decreasing (but not eliminating) the
risks of directors engaging unregulated and inappropriate pre-insolvency
advisors who may then give inappropriate advice and/or facilitate improper
phoenix activities.
Element:
debt must be incurred directly or indirectly in connection with the course of
action
The safe harbour applies to directors of an insolvent
company.[112]
Whilst it will protect those directors from the civil penalties that would
otherwise arise for engaging in insolvent trading, it will protect them only in
relation to debts that the company incurs:
- in
connection with developing and then taking
- a
course of action
- that
is reasonably likely to lead to a better outcome for the company than
proceeding immediately to voluntary administration or winding up.[113]
As such, the safe harbour will not apply to:
- debts
incurred that make the company insolvent or
- debts
incurred whilst the company is insolvent
where those debts do not relate to developing and
taking a course of action that is reasonably likely to lead to a better outcome
for the company than proceeding immediately to voluntary administration or
winding up.
It has been suggested that most debts would be considered
to be incurred in the ordinary course of the company’s business—rather than
specifically ‘in connection with’ the course of action. In that case, the scope
of the safe harbour may be substantially curtailed.[114]
Whilst the Explanatory Memorandum states that the phrase
‘incurred directly or indirectly in connection with’ should be interpreted in
such a way as to ‘include ordinary trade debts incurred in the usual course of
business’,[115]
when interpreting the actual words of the Bill, a Court will reach its own conclusion
based on the facts before it.[116]
Element:
length of time of safe harbour
Proposed paragraph 588GA(1)(b) of the Corporations
Act sets the time limits during which the safe harbour will be available.
The Bill, as drafted, is consistent with the Productivity
Commission’s view that the safe harbour ‘should apply for the period from the
adviser’s engagement until the implementation of the advice is complete’,
indicating an inherent degree of flexibility as to the length of time the safe
harbour would be available, based on the circumstances of each restructure.[117]
However, one submission to the Committee inquiry argued that the Bill should
provide specific ‘reasonable time frames’ during which the safe harbour could
operate, stating:
... whilst no two companies are the same and are likely to
require different timeframes to return to a viable trading position, the
absence of a reasonable timeframe leaves the proposed new laws open to abuse.
An accountability mechanism should be included to ensure that both objective
and subjective aspects of what 'a reasonable person, in the company's
circumstances would have done' occurs in a reasonable timeframe. Our concerns
arise due to the increased obligations of a liquidator to prove the safe harbour
protection is not available should restructuring attempts fail.[118]
Although the Productivity Commission did ‘not propose any
fixed time frames’ it considered that ‘there should be some limits to the
period and availability of advice’, should ‘operate to ensure that safe harbour
provides an opportunity for restructure while minimising opportunities for
abuse’.[119]
Therefore the safe harbour should be ‘subject to general anti-avoidance
provisions to prevent repeated use of safe harbour within a short period’.[120]
The Productivity Commission provided a diagram of how the timeline
of seeking and receiving safe harbour advice, and when it would apply during
the process of restructuring, would operate, set out below. The Bill is
consistent with that model.
Figure 1: timelines and operation of safe harbour as recommended by the Productivity
Commission
Source: Productivity
Commission (PC), Business set-up, transfer and closure, Inquiry report, 75, PC, Canberra, 30
September 2015, p. 385
Other
requirements
The proposed safe harbour will not be available where
certain legal requirements are not complied with. These relate to the payment
of employee entitlements, compliance with tax obligations, the provision of
information and documents to administrators, controllers of company property or
liquidators. These are discussed below.
Paying employee
entitlements and complying with tax obligations
Proposed subsection 588GA(4) of the Corporations
Act provides that the safe harbour will not be available to directors or in
respect of a debt where:
- employee
entitlements have not been paid by the time they fall due[121]
- tax
returns or other documents required by taxation laws have not been given[122]
and
- either
of the above relevant failures:
- amounts
to ‘less than substantial compliance’ with the relevant laws[123]
or
- is
one of two or more failures during the previous 12 months.
The note to proposed subsection 588GA(4) states ‘Employee
entitlements are defined in subsection 596AA(2)’. However, the definition of
‘employee entitlements’ only applies to entitlements of an employee protected under
Part 5.8A of the Corporations Act and arguably would not automatically
apply to proposed section 588GA.
To prevent any uncertainty as to the definition of
‘employee entitlements’ and hence the requirement that employee entitlements
have been paid on time before the safe harbour is available, one submission to
the Committee inquiry recommended that ‘there should be a substantive provision
incorporating the Corporations Acts 596AA(2) definition of ‘entitlements
of an employee’ included in the Bill.[124]
In relation to the use of the phrase ‘less than substantial
compliance’, it would appear that the provisions are intended to ensure that full
compliance is not required, and will operate to ensure that directors are able
to access the safe harbour despite a compliance failure which is ‘technical or
trivial in nature’.[125]
This point was made by the Australian Institute of Company Directors (AICD):
... a technology failure may cause a payment to be delayed by
24 hours. In this circumstance, it would be unjust to deny the director the
protection of s 588GA(1). The qualification is therefore a necessary common
sense addition to render the Bill effective in practice, and not susceptible to
failure on the basis of legal technicalities.[126]
The Explanatory Memorandum confirms:
a director will not be eligible for the safe harbour
protection if the company is either serially failing to meet its
obligations, or there has been a serious failure by the company to
substantially meet its obligations to pay employee entitlements or meet tax
reporting obligations.[127]
Failure to
provide information and books
Proposed subsection 588GA(5) of the Corporations
Act provides that the safe harbour is not available to directors in respect
of a debt where, after the debt is incurred, there is a failure to provide information
or documents to controllers of company property or liquidators, where the
failure amounts to less than substantial compliance with the relevant
requirements.
Consequences
of failure to provide information and books
Proposed section 588GB of the Corporations Act
provides that directors are not entitled to rely on books and records in
supporting their entitlement to use the safe harbour in a proceeding for a
failure to prevent incurring a debt by insolvent trading if they:
- concealed,
destroyed or removed books of the company or
- failed
to provide administrators, controllers of company property or liquidators with
access to books or other material following an appropriate request, unless:
- they
did not have the materials and there were no reasonable steps that they could
have taken to obtain them or
- they
were not notified of the consequences of failure to provide them.[128]
Proposed subsection 588GB(4) of the Corporations
Act creates a further exception to the general rule by allowing a director to
apply for a court order overriding this restriction where there are exceptional
circumstances or it is otherwise in the interests of justice to allow them to
rely on books and records in supporting their entitlement to the safe harbour.
Court discretion
regarding other requirements
Proposed subsection 588GA(6) of the Corporations
Act provides the court with the discretion to order that a failure to satisfy
the above legal prerequisites does not preclude safe harbour being available to
a director, provided:
- the
failure was due to exceptional circumstances or
- it
is otherwise in the interests of justice to make the order.
Safe
harbour for holding companies
Currently section 588V of the Corporations Act
provides that a holding company may be liable for debts of its subsidiary
incurred when:
- the
company was a holding company of the subsidiary at the time the debts were
incurred by the subsidiary
- the
subsidiary was insolvent when it incurred the debts
- at
the time there were reasonable grounds for suspecting insolvency and
- the
holding company (or at least one of its directors):
- was
aware of the grounds for suspecting insolvency or
- ‘having
regard to the nature and extent of the corporation’s control over the [subsidiary’s]
affairs and to any other relevant circumstances’, it was reasonable to expect
the holding company or one of its directors to be aware of the grounds for
suspecting insolvency.
In these cases a liquidator may recover from the holding
company an amount equal to the loss or damage.[129]
Proposed section 588WA provides a ‘safe harbour’
for holding companies. In short, a holding company will not be liable under existing
section 588W to compensate creditors of its subsidiary for losses that arise as
a result of debts incurred by the subsidiary when:
- the
directors of the subsidiary have the benefit of safe harbour under proposed
section 588GA and
- the
holding company has taken reasonable steps to ensure that the directors of the
subsidiary have the benefit of safe harbour.
As with the safe harbour for directors contained in proposed
section 588GA, a holding company seeking to rely on the safe harbour will
have the evidential onus of demonstrating it was available.[130]
Key issues
and provisions: ipso facto clauses
As noted earlier in this digest, an ‘ipso facto’
clause is a provision in a contract that allows the contract to be terminated on
the occurrence of a specific event (for example, the appointment of an
administrator or receiver) regardless of continued performance of the contract
by the party subject to the specific event. From
a practical perspective, ipso facto clauses can operate to reduce the scope
for a successful restructure, a point noted by the Housing Industry Association
(HIA):
... it can be very difficult, and somewhat impractical, for a
company to be salvaged if all of its key suppliers, contractors and customers
are free to terminate their contracts with the company solely on the basis of
the appointment of an administrator.[131]
The amendments in the Bill operate to prevent the
enforcement of ipso facto clauses in certain contracts where a company
is seeking to restructure with the intention of avoiding an insolvent
liquidation. The purpose of the stay is to assist viable but financially
distressed companies to continue to operate while they restructure their
business.[132]
Types of
external administration affected by the proposed stay on ipso facto clauses
The amendments in the Bill operate to stay the enforcement
of ipso facto clauses only where:
- schemes
of arrangement (schemes) are proposed to avoid the company being wound up in
insolvency under Part 5.1 of the Corporations Act[133]
- managing
controllers over the whole or substantially the whole of a company's property
are appointed under Part 5.2 of the Corporations Act [134]
and
- when
voluntary administration is entered into under Part 5.3A of the Corporations
Act with a view to executing a DOCA.[135]
However, the stay will only apply when the relevant
triggering events are present.
Types of
agreements captured
The stay on enforcement will not apply to ipso facto
clauses in agreements:
- entered
into before the commencement of the Treasury Laws Amendment (2017 Enterprise
Incentives No. 2) Act (when enacted) or
- entered
into before the commencement, but varied or amended after the commencement of
the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act.[136]
The stay on enforcement will not apply to ipso facto
clauses in contracts, agreements or arrangements made after the commencement of
the formal restructure[137]
or contained in a type of contract specified in the Regulations or declared by
the Minister.[138]
The stay on enforcement will not apply to kinds of contracts, agreements or
arrangements or to kinds of rights which have been declared by the Minister by
legislative instrument.[139]
Issue:
distortion of market due to non-retrospective application
A number of submissions to the Committee inquiry into the
Bill expressed concern that application of the stay on ipso facto clauses
did not apply retrospectively. Those submissions noted that the new protections
do not apply to existing contracts which can be amended and added to in the
future ‘without ever coming under the protection against ipso facto
clauses’.[140]
This has two consequences. First, it potentially limits
the effectiveness of the measure. Second, the relevant amendments in the Bill
would effectively create two classes of contracts:
- those
entered into before the commencement of the Bill in 2018 (even where there have
been multiple changes over time) to which the protections would not apply and
- those
entered into from 2018, to which the protections would apply.
The Law Council of Australia argued:
This will create a competitive imbalance in the economy and
will make it harder, not easier, to restructure as different contracting
parties (who might even have virtually identical contracts) will have radically
different rights in restructuring simply because one contract is pre-2018 and
the other is post-2018.[141]
The law firm Ashurst also noted that the creation of two
classes of contracts would ‘distort commercial dealings, as suppliers will seek
to amend existing contracts rather than enter into new contracts’[142]
and law firm Herbert Smith Freehills argued that the creation of two classes of
contracts raises ‘potential fairness issues’ as it could ‘lead to materially
different outcomes’ amongst stakeholders in formal insolvencies.[143]
To deal with the above issues, submissions to the
Committee inquiry recommended amending the Bill to ensure:
- the ipso facto regime applies in relation to contracts entered into before,
as well as after, the commencement of the Bill[144]
- a
transitional period (between of 12 months or two years) should apply, during
which time contracts can be reviewed and amended by the parties to accommodate
the ipso facto changes, after which, ipso facto regime would apply
to all contracts, regardless of when they were entered into[145]
or
- the ipso facto regime should apply in relation to contracts entered into,
renewed or modified (varied) after the enactment of the Bill.[146]
Applicable
triggering events
The Bill provides that certain rights cannot be enforced
against a company which is undertaking a formal restructure if the rights arise
by express provision (however described) of a contract, agreement or
arrangement. This is a reference to the right to terminate which is a feature
of ipso facto clauses.
Specifically, ipso facto clauses cannot be enforced
against a company only because:
- the
company, being a disclosing entity, publicly announces that it will apply to
the court for an order to convene a meeting to consider a scheme of arrangement
(but only where the company's application states that it is being made to avoid
being wound up in insolvency)[147]
- the
company (whether or not it is a disclosing entity) applies to the court for an
order convening a scheme meeting (but only where the company's application
states that it is being made to avoid being wound up in insolvency)[148]
- the
company is the subject of a compromise or arrangement approved by the court
(but only where the company's application to commence the scheme states that it
is being made to avoid being wound up in insolvency)[149]
- a
managing controller of the whole or substantially the whole of the company's
property exists or has been appointed[150]
- the
company has come under or been under voluntary administration[151]
- the
company’s financial position whilst applying for or under a scheme,
controllership or voluntary administration or for a reason prescribed by Regulations.[152]
Whilst the above will prevent ipso facto clauses
from being enforced for the duration of the stay, a counterparty’s right to
terminate or amend the agreement for any other reason (such as a breach
involving non-payment or non-performance) is unchanged.[153]
In addition, for the duration of the stay, any right under a contract,
agreement or arrangement for a new advance of money or credit cannot be
enforced by the company which is undergoing the restructure.[154]
Issue: stay
against enforcement of ipso facto clauses to appointment of liquidators
The stay does not generally extend to the appointment of
liquidators—although there are exceptions to this rule which are discussed
below. A number of submissions to the Committee inquiry into the Bill expressed
the view that the proposed stay on the enforcement of ipso facto clauses
should be extended to the appointment of liquidators.[155]
For example, KordaMentha stated:
We would however like to see the operation of the stay
extended to Liquidation appointments (including Provisional Liquidation
appointments) to maximise the chances of the sale of businesses as a going
concern, which in turn maximises the returns available to creditors.[156]
Other stakeholders opposed this idea.[157]
For example, law firm Herbert Smith Freehills noted ‘the stay on the exercise
of ipso facto rights should not apply in any liquidations’ because ‘liquidation
is not a recognised mechanism for implementing a restructure’.[158]
Likewise law firm Ashurst stated it did not:
... favour restrictions on ipso facto clauses where a company is
in liquidation ... there seems to be no good reason for the ipso facto stay to
continue where corporate reconstruction has been tried but has not succeeded.
In that situation, the stay should end on the date the liquidator is appointed.[159]
The exception to the general rule is set out in proposed
subsections 415D(2) and 451E(2) of the Corporations Act
which provide that the stay of enforcement of ipso facto clauses ends
when the company’s affairs ‘have been fully wound up’.
The Law Council of Australia noted that this may encourage
more companies to use voluntary administration (and presumably schemes) on the
basis that if they transition into a liquidation, the protection against ipso
facto clauses will continue until the affairs of the company are ‘fully
wound up’.[160]
The Law Council explained:
This offers protection in liquidation, despite there being no
protection offered in a stand-alone liquidation. We support this on the basis
that a liquidation arising from a voluntary administration may still be for the
purpose of providing a better return to creditors than a stand-alone
liquidation.[161]
This view was not universal, however, with law firm
Ashurst arguing that ‘there seems to be no good reason for the ipso facto
stay to continue where corporate reconstruction has been tried but has not
succeeded’ and that ‘the stay should end on the date the liquidator is
appointed’.[162]
Issue: administration
stay extends to liquidation but not deeds of company arrangement
DOCAs can only be used following an administration where
the company is insolvent or likely to become insolvent, whereas schemes can be
implemented regardless of the company's solvency status.
However, as schemes and DOCAs can both be used where the
company is insolvent or likely to become insolvent, a scheme approved under
Part 5.1 of the Corporations Act (section 411) in relation to a
financially troubled company can be viewed as broadly equivalent to a DOCA.[163]
This is because the end result of a successful scheme or DOCA is the
restructuring of debts with creditors and the continued operation of the
business rather than liquidation.
Herbert Smith Freehills argued that as currently drafted
the Bill creates ‘an unusual situation’ where a company can benefit from the
stay on the exercise of ipso facto rights during administration, but not
(without court approval) if it then enters into a DOCA.[164]
This is because as currently drafted proposed paragraph
415D(2)(b) provides that the stay against the enforcement of ipso facto
clauses in relation to a company covered by a scheme ends when:
- the
entity fails to apply to the Court for approval of the Scheme within the
specified period of time or the application is withdrawn or dismissed by the
Court[165]
- the
scheme ends[166]
(this means where a scheme does not result in liquidation, the outcome is a
similar result to exiting or completing a DOCA) or
- if
the entity is to be wound up, after the liquidation is completed.[167]
In contrast, proposed subsection 451E(3) and paragraph
451E(2)(b) provide that the stay against the enforcement of ipso facto
clauses in relation to a company in voluntary administration can be—by a court
order—extended. Therefore the stay against the enforcement of ipso facto
clauses could potentially (but not automatically) apply to a
company exiting voluntary administration and entering a DOCA.[168]
Law firm Herbert Smith Freehills noted the above and
argued this ‘may lead to liquidation being the preferred outcome of administration
in some circumstances’ rather than the successful rehabilitation of the company.[169]
Noting that DOCAs are a key mechanism for restructuring
via administration, it can be argued that DOCAs should be encouraged as a
preferred outcome of administration (compared to liquidation) if genuine
corporate restructuring is to be supported and promoted.[170]
A such, law firms Ashurst and Herbert Smith Freehills both argued that ipso
facto restrictions should apply to DOCAs without the need to seek an
extension order from the court, with Herbert Smith Freehills recommending that
‘the stay that applies in administration should be continued for as long as a
DOCA remains on foot following that administration’.[171]
This would ensure that companies entering into schemes and
those that enter voluntary administration and then a DOCA are treated
comparably.
Duration of
the stay against enforcing ipso facto clauses
The duration of the stay against enforcing ipso facto
clauses depends on the type of external administration entered into (that is, a
scheme, voluntary administration or the appointment of a controller).
Schemes and
duration of the stay
In the case of a scheme under Part 5.1 of the Corporations
Act, the stay against the enforcement of ipso facto clauses:
- begins
(in the case of a disclosing entity) when the public announcement is made or
(for any type of company) when the scheme application is made and
- ends:
- if
the company (being a disclosing entity) fails to make the announced application:
at the end of the longer of three months after the announcement or any extended
period ordered by the court
- when
the application is withdrawn or is dismissed by the court or
- if
the compromise or arrangement finishes because of a resolution or order that
the body be wound up—then when the company's affairs have been fully wound up.[172]
Controllers
and duration of the stay
In the case of managing controllers under Part 5.2 of the Corporations
Act, the stay against the enforcement of ipso facto clauses begins
when the managing controller is appointed and ends when:
- the
managing controller's control of the company’s property ends (in the event of
one or more changes of managing controller, the end of the stay is when the
control of the last managing controller ends) or
- the
last of any court orders extending the stay ceases to be in force.[173]
DOCAs and
duration of the stay
In the case of administration of a company with a view to
executing a DOCA under Part 5.3A of the Corporations Act, the stay
against the enforcement of ipso facto clauses begins when the company
comes under administration and ends on the latest of:
- when
the administration ends
- on
the day that the last made of any Court orders to extend the stay ceases to be
in force or
- if
the administration ends because of a resolution or order for the company to be
wound up—when the company’s affairs have been fully wound up.[174]
Extension
of stay against enforcement of ipso facto clauses after the nominal end period
An ipso facto clause remains unenforceable after
the end of the stay period where the reason for enforcing the clause is:
- the
company's financial position before the end of the stay period
- the
company's commencement of the relevant form of external administration
(scheme, controllership, voluntary administration) before the end of the stay
period or
- a
reason prescribed in the Regulations that relates to circumstances that
existed during the stay period.[175]
This is aimed at preventing the ‘perverse outcome’ of an ipso
facto clause that is stayed during an external administration ‘being used
against a company’ once the external administration ended because it was under
administration.[176]
Court power
to override operation of the stay against enforcement of ipso facto clauses
Upon application by the holder of the relevant ipso
facto rights (for example, the counter-party to the company being
restructured) a court may order that the stay is lifted provided it is
appropriate in the interests of justice.[177]
In addition, applications made to lift the stay in
relation to a company that has applied for or is covered by a scheme, the court
must also be satisfied that the scheme was not for the purpose of the company
avoiding liquidation.[178]
Anti-avoidance
powers of the court
The Bill provides that the court may order one or more rights
under a contract, agreement or arrangement are only enforceable:
- with
leave of the court and
- in
accordance with such conditions as the court imposes.[179]
The Bill states, by way of example, that the order could
be sought for a right to terminate for convenience.
Before making such an order the court must be satisfied
that the rights are being exercised, likely to be exercised or there is a
threat to exercise the rights because of the triggering events which are
outlined above.[180]
The application for such an order may be made by:
- for
schemes of arrangement under Part 5.1 of the Corporations Act—by the entity
or the person appointed to administer the scheme[181]
- for
controllers under Part 5.2 of the Corporations Act—the controller[182]
and
- for
administrators under Part 5.3A of the Corporations Act with a view to
executing a DOCA—by the administrator.[183]
The court must specify a period for which the order is to apply,
having regard to:
- the
provisions governing the length of the ipso facto stay and
- the
interests of justice.[184]
The court will also be able to make interim orders, but
when doing so must not require the applicant to give an undertaking as to
damages as a condition of granting the interim order.[185]
The staying of rights under these provisions, will enable
companies to more effectively restructure. Importantly, however, as with the
stay against ipso facto clauses, a stay against these other rights will not
prevent them from being enforced where the corporation fails to meet its
payment or other obligations under the contract.[186]
Exceptions
to the stay against enforcement of ipso facto clauses
The stay against the enforcement of ipso facto
clauses will not apply where:
- the
relevant external administrator consents to enforcement of the ipso facto
clause[187]
or
- where
the stay would interfere with certain rights of secured creditors that allow
them to enforce their interests (such as enforcement by the holder of a
substantial security interest, enforcement that began before the beginning of a
voluntary administration, enforcement of a security over perishable property,
giving certain notices and so forth).[188]
Interaction
with other legislation
Proposed sections 415G, 434M and 451H provide
that the Payment
Systems and Netting Act 1998 (Cth) and the International
Interests in Mobile Equipment (Cape Town Convention) Act 2013 (Cth) will
prevail over the ipso facto restrictions to the extent of any
inconsistency.
Appendix: previous consideration of corporate insolvency
and ipso facto clauses
2000—Productivity Commission
In December 2000, the Productivity Commission released a staff
research paper which, amongst other things, examined institutional arrangements
and policy mechanisms for dealing with insolvent businesses.[189]
The paper makes the following comments about the consequences of placing
creditors’ interests first and foremost:
... the fact that creditors are in control of the insolvency
process means they will tend to exercise the option that maximises their return
— even if there may be broader adverse economic and social consequences. And by
favouring creditors, the insolvency code places the interests of other
stakeholders—such as employees of affected businesses—in a vulnerable position.
It also tends to overlook the potentially specialised human capital of the
debtor/owner.[190]
2004—Joint Committee report
In June 2004, the Parliamentary Joint Committee on
Corporations and Financial Services (Joint Committee) completed its inquiry
entitled Corporate
insolvency laws: a stocktake.[191]
The Joint Committee noted that, in relation to voluntary administration:
After a decade of operation it appears to be functioning
effectively and providing adequate opportunities for businesses in financial
difficulty to reorganise. It generally strikes a reasonable balance between
liquidation and reorganisation. In the event that reorganisation or rescue
is impossible, the VA procedure permits a prompt transition to a predictable,
fair and orderly liquidation procedure in which losses are distributed
appropriately and minimised to the extent possible. The flexibility that is inherent
in the procedure in most cases achieves a balance between the interests of
debtors and creditors. It has become an increasingly popular form of external
administration. Voluntary administrations now form a significant, if not a
major, part of the practice of most insolvency practitioners.[192]
(emphasis added).
2004—CAMAC report
In October 2004, the Corporations and Markets Advisory
Committee (CAMAC) released a paper entitled Rehabilitating
large and complex enterprises in financial difficulties.[193]
CAMAC was informed by two earlier reports which pre-date the Act[194]
and by the responses to its 2003 discussion paper.[195]
The final CAMAC report stated, in relation to voluntary administration:
Any perception that VA is merely the first step towards
liquidation could discourage directors from entering into VA until it is too
late for the company to recover. However, there is no clear evidence of any
such perception. In any event, perceptions may develop or change over time,
depending on the success or otherwise of VAs in practice.[196]
In relation to ipso facto clauses, CAMAC noted that
‘there are arguments for prohibiting the enforcement of ipso facto
clauses during any form of external administration’ including:
... directors may be reluctant to put their companies into VA
out of concern that this may result in creditors enforcing ipso facto clauses
that in effect terminate the company’s business. This delay may undermine a
company’s chance of financial recovery.[197]
Ultimately, however, CAMAC recommended ‘there should be no
change to the current position under which ipso facto clauses can be enforced’.[198]
2010—Senate Economics Committee
In September 2010, the Senate Economics Committee released
the report of its enquiry into Liquidators and Administrators.[199]
Whilst this inquiry was concerned with the conduct of the insolvency profession
in Australia, its report The
regulation, registration and remuneration of insolvency practitioners in
Australia: the case for a new framework [200]
made the following observations about Australia’s corporate insolvency
framework generally:
Both the Australian voluntary administration (VA) procedure
and the Chapter 11 Bankruptcy process in the United States have as their goal
the realisation of greater value through the restructuring of a distressed
company rather than its immediate liquidation. Unlike Part 5.3A of the Corporations
Act, however, the chapter 11 process allows business owners the opportunity
and the time to reorganise and restructure in order to pursue their long–term
objectives (and not those of their creditors).
The argument against the current system in Australia is that
strict laws on insolvent trading promote the early involvement of advisors.
These advisors identify the company's liability and recommend that as it is
insolvent, an administrator needs to be appointed. The business is handed
over and, without exploring the options to restructure, liquidation proceeds.[201]
(emphasis added)
2010—Treasury consultation
Treasury released a discussion paper entitled Insolvent
trading: a safe harbour for reorganisation attempts outside of external
administration, in January 2010.[202]
Launching the discussion paper, Chris Bowen stated:
Concerns have been raised that the laws directed at preventing
businesses from trading while insolvent may negatively impact on genuine
work-out attempts; in particular, where restrictions on the availability of
credit impede the ability of businesses to temporarily maintain solvency while
work-outs are attempted.
This discussion paper provides an overview of the current
insolvent trading laws including the existing defences and relief provisions;
the options available to companies facing insolvency; and the advantages and
disadvantages of informal work-out attempts. The paper canvasses three possible
options for reform: maintain the status quo; adopt a modified business
judgement rule in respect of a director’s duty to avoid insolvent trading; or
adopt a mechanism for invoking a moratorium from the insolvent trading
prohibition while work-outs are attempted.[203]
The discussion paper recommended a stronger safe-harbour for
directors in relation to trading while insolvent. The effect of the proposed
safe harbours was expected to be that directors would not be so quick to enter
into voluntary administration and thereby would allow some extra time in which
a company could attempt to trade out of its difficulties.[204]
The discussion paper puts forward three options:
Option 1: do nothing, that is, make no change to the current
law. Directors need to ensure that their company is solvent whilst attempting
to reorganise outside of external administration.
Option 2: modify the business judgement rule. This
would mean that a director’s duty not to trade whilst insolvent would be
considered to be satisfied if, in addition to the requirements in the business
judgement rule in section 180 of the Act:
- the financial accounts and records of the company presented a
true and fair picture of the company’s financial circumstances
- the director was informed by restructuring advice from an
appropriately experienced and qualified professional with access to those
accounts and records, as to the feasibility of and means for ensuring that the
company remained solvent or that it was returned to a state of solvency within
a reasonable period of time
- it was the director’s business judgement that the interests of
the company’s body of creditors as a whole, as well as of members, were best
served by pursuing restructuring and
- the restructuring was diligently pursued by the director.[205]
Option 3: invoke a moratorium from the duty not to
trade whilst insolvent for the purpose of attempting a reorganisation of the
company outside of external administration. The moratorium would apply for a
limited period and would be subject to termination by creditors.[206]
The discussion paper and responses did not bring about a
legislative outcome.
2014—Senate Economics Committee
In June 2014 the Senate Economics References Committee
(the Committee) report on the performance of the Australian Securities and
Investments Commission (ASIC) called for a review of Australia's corporate
insolvency laws to ensure they facilitate corporate turnarounds.[207]
The Committee recommended the Government commission a review of Australia's
corporate insolvency laws to consider amendments intended to encourage and
facilitate corporate turnarounds.[208]
2014—Financial System Inquiry
The Financial System Inquiry (FSI) touched tangentially on
‘corporate administration and bankruptcy’ stating that ‘a few elements of the
United States Bankruptcy Code’s Chapter 11 insolvency framework’ might merit
consideration.[209]
The FSI Report also noted that stakeholders suggested that
ipso facto clauses be suspended from operating during restructuring
efforts. However, the FSI report considered that ‘more work needs to be done to
assess the potential value of these proposals’ and it recommended that
Government conduct stakeholder consultation on these matters.[210]
2015—Productivity Commission Inquiry
Most recently in 2015, the Productivity Commission
released its report entitled Business
Set-up, Transfer and Closure. As part of that report, issues regarding
business restructuring and corporate insolvency were examined. The Productivity
Commission found:
- the
current culture, incentives and legal framework around voluntary administration
inhibit its effectiveness as a genuine restructuring mechanism and
- while
some specific reforms are warranted ‘wholesale change to the Australian
insolvency system is not justified’.[211]
The Productivity Commission made a number of
recommendations, which in relation to the Bill included that:
- the
Act should be amended to allow for a safe harbour defence to insolvent trading
in certain circumstances
- the
Act should be amended such that ipso facto clauses that have the purpose
of allowing termination of contracts solely due to an insolvency event are
unenforceable in certain circumstances, whilst ensuring that the party
experiencing the insolvency is in no way absolved of any other contractual
obligations and
- the
Act should be amended to create a moratorium on creditor enforcement actions
during the formation of schemes of arrangement.[212]
The Bill largely reflects these recommendations.
2016—Treasury proposals paper and consultation
In April 2016, the Government released a proposals paper on
measures to improve Australia’s insolvency laws by introducing a safe harbour
for directors, and changing the operation of ‘ipso facto’ clauses.[213]
Seventy-two submissions were received as part of that consultation process.[214]
2017—Treasury exposure draft consultation
Based on feedback from the 2016 proposals paper
consultation process, an exposure draft was released for feedback and
consultation by Treasury in March 2017.[215]
Forty-five submissions were received as part of that consultation process.[216]
[1]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 3.
[2]. R
Austin and IM Ramsay, Ford,
Austin and Ramsay's principles of corporations law, 16th edn, LexisNexis
Butterworths, Australia, 2015, p. 1700.
[3]. Corporations Act,
section 420.
[4]. Productivity
Commission (PC), Business set-up, transfer
and closure, Inquiry report, 75, PC, Canberra, 30 September 2015, pp.
353, 360–361.
[5]. Corporations
Act, section 420. P Lipton, A Herzberg and M Welsh, Understanding
company law, 15th edn, Thomson Reuters, Pyrmont, 2010, p. 620; PC, Business
set-up, transfer and closure, op. cit., pp. 360–361.
[6]. Corporations
Act, Part 5.3A.
[7]. Australian
Securities and Investments Commission (ASIC), ‘Creditors:
voluntary administration’, ASIC website, 23 March 2016.
[8]. PC,
Business set-up, transfer and closure, op. cit., p. 24.
[9]. Ibid.,
pp. 352, 354, 345, 24, 23.
[10]. Ibid.,
p. 367.
[11]. P
Lipton, A Herzberg and M Welsh, Understanding company law, 15th edn,
Thomson Reuters, Sydney, 2010, p. 620; Corporations Act 2001, section
444B.
[12]. ASIC,
‘Creditors:
deed of company arrangement’, ASIC website, 23 March 2016.
[13]. PC,
Business set-up, transfer and closure, op. cit., p. 358.
[14]. Corporations
Act, subsection 444A(4).
[15]. Corporations
Act, Part 5.1.
[16]. Lipton,
Herzberg and Welsh, Understanding company law, op. cit., p. 645; PC, Business
set-up, transfer and closure, op. cit., pp. 356–357.
[17]. PC,
Business set-up, transfer and closure, op. cit., p. 356.
[18]. Ibid.,
pp. 356–357.
[19]. Ibid.,
p. 357.
[20]. Lipton,
Herzberg and Welsh, Understanding company law, op. cit., pp. 635–636.
[21]. PC,
Business
set-up, transfer and closure, op. cit., p. 357.
[22]. Lipton,
Herzberg and Welsh, Understanding company law, op. cit., p. 620.
[23]. PC,
Business
set-up, transfer and closure, op. cit., p. 359.
[24]. Lipton,
Herzberg and Welsh, Understanding company law, op. cit., pp. 620–626.
[25]. Ibid.,
p. 626.
[26]. Corporations
Act, section 588M; P Lipton, A Herzberg and M Welsh, Understanding
company law, op. cit., pp. 626–627.
[27]. Corporations
Act, subsections 588H(5) and (6). In determining whether that was the case,
a court must have regard to any actions the director took with a view to
appointing an administrator, when that action was taken and the results of the
action, thus further incentivising directors to engage external administration
at the early stages of a company’s financial issues.
[28]. PC,
Business
set-up, transfer and closure, op. cit., p. 23.
[29]. ‘ipso
facto’ is Latin for ‘by the fact itself’.
[30]. R
Purslowe, ‘Decisions
in the twilight zone of insolvency: should directors be afforded a new safe
harbour?’, University of Notre Dame Australia Law Journal, 13 (113),
2011, pp. 113–152 at pp. 129–130.
[31]. PC,
Business
set-up, transfer and closure, op. cit., pp. 25 and 373.
[32]. Ibid.,
p. 25.
[33]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 25.
[34]. Ibid.,
p. 26.
[35]. PC,
Business set-up, transfer and closure, op. cit., pp. 36–38.
[36]. Ibid.
[37]. Ibid.,
p. 36.
[38]. Ibid.,
recommendation 14.2, p. 37.
[39]. Ibid.,
recommendation 14.5, p. 38.
[40]. Ibid.,
recommendation 14.6, p. 38.
[41]. National
Innovation and Science Agenda (NISA), Improving
bankruptcy and insolvency laws: proposals paper, Treasury, Canberra,
April 2016.
[42]. Ibid.
[43]. The
Treasury, ‘National
Innovation and Science Agenda: improving corporate insolvency law: exposure
draft’, Treasury website, 28 March 2017.
[44]. Ibid.
[45]. K
O’Dwyer (Minister for Revenue and Financial Services), Government
releases insolvency law reforms for consultation, media release,
28 March 2017.
[46]. M
McCormack (Minister for Small Business), ‘Second
reading speech: Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017’, House of Representatives, Debates, 1 June 2017, p.
6011.
[47]. Senate
Economics Legislation Committee, Treasury
Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 [Provisions],
The Senate, Canberra, August 2017, p. 21.
[48]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 6, 2017, The Senate, 14 June 2017, p. 63.
[49]. Senate
Economics Legislation Committee, Treasury
Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 [Provisions],
op. cit., p. 9.
[50]. See,
for example: TMA Australia, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
6 July 2017; Ashurst, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
11 July 2017; Australian Small Business and Family Enterprise Ombudsman
(ASBFEO), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Chartered Accountants Australian and New Zealand (CAANZ), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Ernst & Young (EY), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Law Council of Australia (LCA), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Housing Industry Association (HIA), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; KordaMentha, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Australian Bankers Association (ABA), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Henry Davis York (HDY), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Clayton Utz, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Australian Institute of Company Directors (AICD), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Herbert Smith Freehills (HSF), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Australian Restructuring Insolvency and Turnaround Association
(ARITA), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017; Australian Institute of Credit Management (AICM), Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017.
[51]. EY,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 3.
[52]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[53]. CAANZ,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1.
[54]. ARITA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 1–2.
[55]. Senate
Economics Legislation Committee, Treasury
Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 [Provisions],
op. cit., p. 17.
[56]. HIA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 4.
[57]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 4.
[58]. The
Statement of Compatibility with Human Rights can be found at pages 43–45 of the
Explanatory
Memorandum to the Bill.
[59]. Parliamentary
Joint Committee on Human Rights, Report,
5, 2017, Canberra, 14 June 2017, p. 49.
[60]. Corporations
Act, subsection 588G(2).
[61]. Ibid.,
subsection 1317E(1), table item 6.
[62]. Ibid.,
subsection 1317G(1).
[63]. Ibid.,
subsection 588G(3) and subsection 1311(1). ASIC, ‘Directors:
consequences of insolvent trading’, ASIC website, 15 October 2014.
[64]. Corporations
Act, Schedule 3, table item 138. Under section 4AA of the Crimes Act 1914,
a penalty unit is equivalent to $210. This means the maximum penalty is
$420,000.
[65]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 5.
[66]. Ibid.,
p. 6.
[67]. Corporations
Act, sections 1317S, 1318.
[68]. Ibid.,
section 588M.
[69]. Ibid.,
subsections 588M(2) and (3) and sections 588R, 588S and 588T.
[70]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 7.
[71]. Corporations
Act, proposed paragraph 588GA(1)(a).
[72]. Ibid.,
proposed paragraph 588GA(1)(b).
[73]. Ibid.,
proposed subparagraph 588GA(1)(b)(i).
[74]. Ibid.,
proposed subparagraph 588GA(1)(b)(ii).
[75]. Ibid.,
proposed subparagraph 588GA(1)(b)(iii).
[76]. Ibid.,
proposed subparagraph 588GA(1)(b)(iv).
[77]. ASIC, Insolvency: a guide for directors, Information
sheet, 42, ASIC, August 2015, p. 3.
[78]. New
World Alliance Pty Ltd, Re; Sycotex Pty Ltd v Baseler [No 2] (1994) 51 FCR 425,
[1994]
FCA 1117 as per Gummow J as [29]: ‘... the statute appears to focus attention
upon what it is reasonable to expect in a given set of circumstances, such a
consideration necessarily being made by someone operating in a practical
business environment. Attention is focussed at whether a person would expect
that at some point the company would be unable to meet a liability. Such a
question is necessarily a factual one to be decided in light of all the
circumstances of the case’.
[79]. Metropolitan
Fire Systems Pty Ltd v Miller [1997]
FCA 399, (1997) 23 ACSR 699.
[80]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 7.
[81]. Corporations
Act, proposed paragraph 588GA(1)(a).
[82]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 12.
[83]. Ibid.,
p. 13.
[84]. ASIC,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[85]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 7.
[86]. Ibid.,
p. 12.
[87]. Corporations
Act, proposed subsections 588GA(1).
[88]. AICD,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 4–5.
[89]. EY,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1.
[90]. Ibid.
[91]. ASIC,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.; EY, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1; HSF, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 4.; SV Partners, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 2, 5; AICM, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
12 July 2017, pp. 2, 8.
[92]. Jones
Day, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1; TMA Australia, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1; ARITA, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1; CAANZ, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1; LCA, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 2–3; Clayton Utz, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; ABA, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; ASBFEO, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1.
[93]. Clayton
Utz, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[94]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 2–3.
[95]. AICD,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 6; Jones Day, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[96]. Corporations
Act, proposed subsections 588GA(2).
[97]. PC,
Business
set-up, transfer and closure, op. cit., p. 381.
[98]. Ibid.,
p. 383.
[99]. Ibid.,
p. 383.
[100]. Schedule
2 to the Corporations Act, requires amongst other things that
liquidators are registered, provides for the educational standards of
liquidators and outlines the procedures for disciplining of liquidators.
[101]. PC,
Business
set-up, transfer and closure, op. cit., p. 384.
[102]. HDY,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; AICM, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; KordaMentha, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1; ARITA, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 6.
[103]. ARITA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 6; KordaMentha, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 1; HDY, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[104]. TMA
Australia, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 2, 4; Clayton Utz, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 3; AICD, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 7.
[105]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 3. See also: ASIC, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; CAANZ, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[106]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 3. See also: ASIC, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; CAANZ, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[107]. TMA
Australia, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 2, 4.
[108]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 17.
[109]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 3.
[110]. TMA
Australia, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 4.
[111]. ASIC
v Somerville (2009) 259 ALR 574, [2009] NSWSC
934.
[112]. Corporations
Act, proposed paragraph 588GA(1).
[113]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 5.
[114]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 5–6.
[115]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, paragraph 1.48.
[116]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 5–6.
[117]. PC,
Business
set-up, transfer and closure, op. cit., p. 384.
[118]. SV
Partners, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 4.
[119]. PC,
Business set-up, transfer and closure, op. cit., p. 385.
[120]. Ibid.,
recommendation 14.2, p. 387.
[121]. Corporations
Act, proposed subparagraph 588GA(4)(a)(i).
[122]. Ibid.,
proposed subparagraph 588GA(4)(a)(ii).
[123]. Ibid.,
proposed subparagraph 588GA(4)(b)(i).
[124]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 6.
[125]. AICD,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., 12 July 2017, p. 8.
[126]. Ibid.
[127]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 20.
[128]. Corporations
Act, proposed paragraph 588GB(3)(b).
[129]. Corporations
Act, section 588V and 588W.
[130]. Ibid.,
proposed subsection 588WA(2).
[131]. HIA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 7.
[132]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 26.
[133]. Corporations
Act, proposed section 415D inserted by item 7 in Part 2 of the
Bill.
[134]. Ibid.,
proposed section 434J inserted by item 8 in Part 2 of the Bill.
[135]. Ibid.,
proposed section 451E inserted by item 14 in Part 2 of the Bill.
[136]. Item
17 of Part 2 of the Bill is an application provision which operates so that
the provisions in Part 2 of the Bill do not operate retrospectively.
[137]. Corporations
Act, proposed paragraphs 415D(6)(a), 434J(5)(a), 451E(5)(a).
[138]. Ibid.,
proposed paragraphs 415D(6)(b), 434J(5)(b), 451E(5)(b).
[139]. Ibid.,
proposed paragraphs 415D(6)(c) and (d); 434J(5)(c) and (d);
451E(5)(c) and (d).
[140]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 4.
[141]. Ibid.
[142]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 10.
[143]. HSF,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 6.
[144]. HSF,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 6; Ashurst, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 10; G Green, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; KordaMentha, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[145]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 4–5.
[146]. Green,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[147]. Corporations
Act, proposed paragraph 415D(1)(a) and proposed subsection
415D(5).
[148]. Ibid.,
proposed paragraph 415D(1)(b) and proposed subsection 415D(5).
[149]. Ibid.,
proposed paragraph 415D(1)(c) and proposed subsection 415D(5).
[150]. Ibid.,
proposed paragraph 434J(1)(a).
[151]. Ibid.,
proposed paragraph 451E(1)(a).
[152]. Ibid.,
proposed paragraphs 415D(1)(d), 434J(1)(b) and 451E(1)(b).
[153]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 26.
[154]. Corporations
Act, proposed subsections 415D(9), 434J(8) and 451E(8).
[155]. KordaMentha,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2; HDY, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 2–3.
[156]. KordaMentha,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 2.
[157]. HSF,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 6.
[158]. Ibid.,
p. 6.
[159]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 10–11.
[160]. LCA,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 5.
[161]. Ibid.
[162]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 10–11.
[163]. Ibid.,
p. 10.
[164]. HSF,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 5.
[165]. Corporations
Act, proposed paragraphs 415D(2)(b)(i) and (ii).
[166]. Ibid.,
proposed paragraph 415D(2)(b)(iii).
[167]. Ibid.,
proposed paragraph 415D(2)(b)(iv).
[168]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 10.
[169]. HSF,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 5.
[170]. Ibid.
[171]. Ashurst,
Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., p. 10; HSF, Submission
to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017,
op. cit., pp. 5–6.
[172]. Corporations
Act, proposed subsections 415D(2) and (3).
[173]. Ibid.,
proposed subsections 434J(2) and (3).
[174]. Ibid.,
proposed subsections 451E(2) and (3).
[175]. Ibid.,
proposed subsections 415D(4), 434J(4) and 451E(4).
[176]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, pp. 31–32.
[177]. Corporations
Act, proposed sections 415E, 434K and 451F.
[178]. Ibid.,
proposed subsection 415E(1).
[179]. Ibid.,
Proposed subsections 415F(1), 434L(1), 451G(1).
[180]. Ibid.,
proposed paragraphs 415F(2)(b), 434L(2)(b) and 451G(2)(b).
[181]. Ibid.,
proposed section 415F(2)(c).
[182]. Ibid.,
proposed paragraph 434L(2)(c).
[183]. Ibid.,
proposed paragraph 451G(2)(c).
[184]. Ibid.,
proposed subsections 415F(3), 434L(3), 451G(3).
[185]. Ibid.,
proposed subsections 415F(5) and (6); 434L(5) and (6);
451G(5) and (6).
[186]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, p. 38.
[187]. Corporations
Act, proposed subsections 415D(8), 434J(7) and 451E(7).
[188]. Items
9 to 13 (amending subsections 441A(3), 441B(2), 441C(2) and section
441E of the Corporations Act 2001); Explanatory
Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill
2017, pp. 33–34.
[189]. I
Bickerdyke, R Lattimore and A Madge, Business
failure and change: an Australian perspective, Staff research paper,
PC, Canberra, December 2000.
[190]. Ibid.,
pp. 88–89.
[191]. Information
about the submissions to the Joint Committee on Corporations and Financial
Services, the report and the Government response to it are available on the inquiry
homepage.
[192]. Joint
Committee on Corporations and Financial Services, Corporate
insolvency laws: a stocktake, June 2004, p. xxi.
[193]. Corporations
and Markets Advisory Committee (CAMAC), Rehabilitating
large and complex enterprises in financial difficulties: report, CAMAC,
Sydney, October 2004.
[194]. Legal
Committee of the Companies and Securities Advisory Committee, Corporate
voluntary administration: report, CAMAC, Sydney, June 1998;
Companies and Securities Advisory Committee, Corporate
groups: final report, CAMAC, Sydney, May 2000.
[195]. CAMAC,
Rehabilitating
large and complex enterprises in financial difficulties: discussion paper,
CAMAC, Sydney, September 2003, p. 20.
[196]. CAMAC,
Rehabilitating
large and complex enterprises in financial difficulties: report, op.
cit., p. 20.
[197]. Ibid.,
p. 71.
[198]. Ibid.,
p. 71.
[199]. The
terms of reference, submissions to the Economics Committee and the final report
are available on the inquiry
homepage.
[200]. Senate
Economics Standing Committee, The
regulation, registration and remuneration of insolvency practitioners in
Australia: the case for a new framework, The Senate, Canberra, September
2010.
[201]. Ibid.,
p. 138.
[202]. The
Treasury, Insolvent trading: a
safe harbour for reorganisation attempts outside of external administration,
Discussion paper, Treasury, Canberra, January 2010.
[203]. Ibid.,
p. v.
[204]. Ibid.,
pp. 14–15.
[205]. Ibid.,
p. 17.
[206]. Ibid.,
p. 20.
[207]. Details
about the terms of reference and submissions to the Senate Economics Committee
as well as the final report are available on the inquiry
homepage.
[208]. Senate
Economics References Committee, Performance
of the Australian Securities and Investments Commission, The Senate,
Canberra, June 2014, recommendation 61, p. xxxiv.
[209]. Financial
System Inquiry, Financial
System Inquiry: final report, (Murray Report), Treasury, Canberra, November
2014.
[210]. Ibid.,
p. 266.
[211]. PC,
Business
set-up, transfer and closure, op. cit., p. 36.
[212]. Ibid.,
pp. 37–38.
[213]. NISA,
Improving
bankruptcy and insolvency laws: proposals paper, op. cit.
[214]. Ibid.
[215]. The
Treasury, ‘National
Innovation and Science Agenda: improving corporate insolvency law: exposure
draft’, op. cit.
[216]. Ibid.
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