The Federal Government's National Innovation and Science Agenda was announced on 7 December 2015.
The Agenda’s proposed reform to Australia’s insolvency laws can be found here and have the expressed objective "to encourage Australians to take a risk, leave behind the fear of failure and to be more innovative and ambitious".
The key areas of change are:
- to reduce the period of bankruptcy from three years to one year;
- to introduce a "safe harbour" to protect directors from personal liability for insolvent trading if they appoint a restructuring advisor to develop a turn around plan; and
- to restrict the enforceability of "ipso facto" clauses that allow a party to terminate a contract upon the occurrence of an insolvency event.
While the Government has not yet released the final version of the Productivity Commission's Report on Business Set-Up, Transfer and Closure, these three areas of insolvency reform reflect recommendations the Productivity Commission made in its draft report.
The introduction of a "safe harbour" for directors - and the precise mechanics of its operation - are likely to be the more contentious of the proposed changes. The proposed "safe harbour" procedure will be entirely new territory in the Australian corporate insolvency system, and will not benefit from substantial precedent in other jurisdictions. Notwithstanding what appears to be widespread support to provide some protection for directors in appropriate circumstances, the proposals to date as to how this should be achieved differ markedly, and it is possible that the legislative amendments to effect a “safe harbour” may be substantial.
In contrast, while restrictions on enforcement of "ipso facto" clauses in Australian corporate insolvencies will be a completely new feature on the landscape, there is extensive experience in the United States (amongst other jurisdictions) of similar procedures.
A proposal paper is expected in 2016, with a view to legislation passing in mid 2017