The first part of the proposed reforms, the Insolvency Law Reform Bill 2015, received Royal Assent in February 2016. They are touted as the most significant reforms to Australia’s Bankruptcy and Corporate Insolvency laws in 20 years. Unfortunately, that promise says more about the last 20 years than it does about the reforms themselves, which are largely filled with the kind of bureaucratic side steps that lead to much extra reading but no real change.
The laws amended some administrative functions in the insolvency industry, including the pay and appointment regime. They increase the powers of ASIC to regulate corporate insolvency and focus on the registration of insolvency professionals, insurance, discipline, referrals involving the Australian Restructuring, Insolvency & Turnaround Association (ARITA) and practitioners, and the prohibition of improper benefits. In short: probably necessary, but unlikely to set off fireworks in a new generation of entrepreneurs.
What we do hold out more hope for is the proposals outlined by the Australian Government’s National Innovation & Science Agenda which, according to the Consultation Paper released in April of this year, seeks to drive prosperity by putting innovation and science at the centre of the Government’s economic narrative.
There are three key measures outlined:
- Reducing the current default bankruptcy period from three years to one year;
- Introducing a ‘safe harbour’ for directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company; and
- Making ‘ipso facto’ clauses, which allow contracts to be terminated solely due to an insolvency event, unenforceable if a company is undertaking a restructure.
The closing date for submissions was 27 May 2016, and early 2017 has been frequently cited as the proposed date for implementation. Accordingly, the consultation and consideration process should be concluded shortly and hopefully new laws will follow closely behind.
The key will be to strike the balance between the possibility of suddenly incentivising bankruptcy (already raised by some nay-saying commentators) and loosening the reins just enough to unleash economically beneficial entrepreneurial activity.