The traditional approach to corporate and personal insolvency laws could change radically as a result of the Innovation Statement released by Prime Minister Malcolm Turnbull on 7 December.
Whilst the detail will be revealed in draft legislation, which we are unlikely to see for several months, the changes appear at first blush to pick up many of the recommendations in the Productivity Commission's report on Business Set-up, Transfer and Closure issued in September this year.
It may be 18 months before any changes are finally legislated, but their impact is likely to extend far beyond the technology or start-up sector. While the proposed reforms are likely targeted at removing some risk for directors of start-up companies and increasing the appetite for entrepreneurial behaviour, the changes will have a wider impact across all industry sectors.
Some of the key points from the Statement include:
- providing a safe harbour from insolvent trading where a company appoints a suitably qualified restructuring advisor
- preventing the enforcement of clauses that terminate a contract as a result of an event of insolvency during an administration period (ipso facto clauses), and
- reducing the exclusion period on bankrupts accessing finance, employment and overseas travel from three years to one year, subject to the right of the trustee and courts to extend this period to prevent abuse.
We will provide you with further updates and commentary, targeted to specific industry sectors, about how the proposed reforms may impact existing commercial and contracting arrangements as details become available.
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