The new Insolvency Law Reform Act 2016 (Cth) has now settled into place and legal and accounting professionals are now navigating through the new regime. The legislation which has been in the pipeline since early 2016 is now in full force as of 1 September 2017.
This two-stage reform focuses on the registration and discipline of practitioners; as well as updating the general rules relating to bankruptcies and external administrations.
The reform impacts all stakeholders involved in an insolvency matter, including liquidators, directors, creditors, governing bodies and the insolvent entity. Furthermore, the new Act requires changes to the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth), and the Bankruptcy Act 1966 (Cth).
What it means for directors?
One of the key outcomes of the reform is the introduction of section 588GA into the Corporations Act 2001 (Cth). This ‘safe harbour’ provision, which acts as an exception to the rules set out in section 588G, protects directors against liability in circumstances where the director/s continue to reasonably trade an insolvent company in hopes that it will likely lead to a better outcome for the company (meaning anything but the appointment of an administrator or liquidator).
Whether a director can invoke this new protection is dependent on a number of varying factors, including financial knowledge, corporate restructuring plans, other steps taken, and whether advice from qualified professionals has been obtained.
Most importantly, the safe harbour provision will not be available in circumstances where the director/s have failed to make payment of employee entitlements and have not met their reporting obligations to the ATO.
If you are a director of a company that is, or potentially is, insolvent and want to know whether this provision applies to you, our firm specialises in insolvency law and can assist you in ensuring the correct measures are taken to best protect your interests.
What it means for creditors?
The reforms elevate the role of creditors in an external administration by providing them with additional powers. Creditors of a company will be able to:
- request an external administrator to give information, provide a report or produce a document to the creditors from an external administrator;
- direct a liquidator to convene a meeting (under the old legislative regime it was at the liquidator’s discretion to convene a meeting upon written request by a creditor);
- by resolution or through a committee of inspection give directions and instructions to the external administrator;
- by resolution, appoint a registered liquidator to carry out a review of the remuneration of, or any cost or expense incurred by, the external administrator, with the costs of the review to form part of the expenses of the external administration; and by resolution at a meeting remove an external administrator (other than a provisional liquidator) and appoint another.
If you are a creditor of a company in liquidation and would like to know more about your rights please contact partner, Stacy Miller on (07) 5592 6633 or stacy@croninlitigation.com.au.
Our team is dedicated to providing timely and appropriate advice.
