Yesterday in Canberra, a significant step forward for Australian insolvency law reform was taken: Parliament passed the much anticipated "safe harbor" for directors in relation to insolvent trading liability and moratorium on reliance by solvent counterparties on “ipso facto” clauses in voluntary administration and creditors schemes of arrangement.
On the key points:
- The "ipso facto" moratorium will come into effect on the later of (a) 1 July 2018, or (b) the day after 6 months after Royal Assent is given for the new legislation. However, the Governor-General may make a proclamation that it is to commence earlier (this is not presently expected).
- Importantly, the "ipso facto" moratorium will only apply to rights arising under contracts, agreements or arrangements which are entered into after the commencement of the amendment to the Corporations Act. So, existing agreements will not be impacted by the moratorium. This will require careful scrutiny by insolvency practitioners and solvent counterparties alike, once the amendments come into effect during 2018.
- Turning to the insolvent trading "safe harbour," this amendment will come into effect the day after Royal Asset is given for the new legislation (expected to occur in the very near future). A recently published and helpful practical discussion for directors and executives on the "safe harbor" has been published by the Turnaround Management Association, available here.
Members of our team have been very pleased to have been closely involved in aspects of these reforms, including through work with the Australian Institute of Company Directors and the Law Council of Australia – Business Law Section.
Further detail on the reforms
You can read further detail on the reforms in our earlier client note published in April 2017, available here.