Safe-harbour reforms that deliver greater protection for directors of financially stressed companies have passed through both houses of federal parliament.
Safe-harbour reforms that deliver greater protection for directors of financially stressed companies have passed through both houses of federal parliament.
The passage of the legislation has been widely applauded, with supporters saying they have the potential to change the culture of Australian business.
The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 will create a regime that allows company directors to take reasonable steps to restructure their company.
The safe-harbour provisions protect company directors from personal civil liability during the restructure phase.
Australian Institute of Company Directors acting chairman Gene Tilbrook said Australia’s insolvency laws had been widely viewed as among the harshest in the world.
“They created incentives to pull the trigger on administration or liquidation too early, prematurely wiping out jobs and value,” he said.
“They also acted as a barrier to startups and scale-ups, the very businesses which stand to create thousands of jobs for the future.”
Mr Tilbrook emphasised the safe-harbour provisions were conditional on meeting employee entitlements, tax reporting obligations and existing statutory obligations.
“These reforms are designed to give directors breathing room to turn around companies with the potential for a strong future,” he said.
“It will also encourage more experienced directors to provide their expertise and insight on the boards of innovative startups.”
The Turnaround Management Association described the new laws as a major reform.
It said the laws struck an appropriate balance between protecting creditors and providing the greatest range of options for saving a company, preserving value and allowing it to grow and thrive again.
Clayton Utz partner Cameron Belyea said while there were some uncertainties about how the reforms would operate in practice, the motivation behind them was to be applauded.
“In particular, the Australian economy will benefit from a culture which no longer stigmatises business failure but encourages honest and diligent directors to explore whether a failing business is capable of restructure,” he said.
Mr Belyea said the new law was intended to protect those directors who acted honestly and diligently in attempting to restore their company to solvency.
For that reason, safe harbour will not be available where the company has failed to comply with its statutory obligations to pay employee entitlements, including superannuation, or meet taxation reporting obligations.
The laws require company directors to seek advice from an appropriately qualified person, which for a small business could be an accountant or lawyer.
It had been proposed yesterday that the appropriately qualified person would have to be a registered insolvency practitioner.
However, this was defeated in the Senate after last-minute lobbying by members of the TMA.
One amendment, which requires a review of the legislation be undertaken in two years, was passed.
The TMA supports this proposed amendment as it will provide an opportunity to further refine the laws for the benefit of better outcomes for all parties. This opportunity for continuous improvement is welcomed.
