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No wholesale revision of external administration laws

No wholesale revision of external administration laws

December 10, 2014 1:52 PM | Posted by Brendon Watkins | Print this page

The FSI Report has recommended that Government should consult with relevant stakeholders to consider the introduction of 'safe harbour' provisions for directors engaged in restructuring efforts, and the suspension of ipso facto clauses during a restructuring.

Minter Ellison supports reform in both of these areas.

Australia's insolvent trading laws are among the strictest of any country. A director may become personally liable for new debts that are incurred by the company, if the director has reason to 'suspect' insolvency.

The prohibition is designed to avoid new creditors becoming exposed to the impact of an insolvency, and to protect existing creditors against dilution. In practice, however, a preoccupation with not incurring new debt can disadvantage existing creditors (including employees), by discouraging directors from prosecuting genuine restructuring proposals.

Minter Ellison supports the introduction of a safe harbour provision, which would relieve directors of the risk of personal liability, provided appropriate safeguards are in place. Such safeguards should include the existence of an appropriate restructure plan with a reasonable probability of success, regular monitoring and review of the plan, and the involvement of suitably qualified professional advisors.

We also support a strengthening of the moratorium during voluntary administration by suspending the impact of ipso facto clauses, which allow a contract to be terminated by a counterparty in the event of insolvency.

More information about this issue will be released in a detailed report over the coming weeks. Please to register your interest in the full report.

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