Australian safe harbour and ipso facto reforms

Obviously prompted by my reporting of significant restructuring reforms in the EU, and my query as to the long delayed progress in attending to proposed reforms in Australia, the government has today released the obliquely named Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017.

These reforms are the result of high level input from lawyers, academics and insolvency practitioners, who now have the responsibility to accept the thrust of the government’s approach and alert it to any final drafting issues. 

The Bill is open for consultation until 24 April 2017. 

Safe harbour

The Bill would not change the law of insolvent trading under s 588G, but rather adds provisions that provide a carve out – “does not apply if” – that is, if certain circumstances exist. The “evidential burden” on a director claiming to be within the carve out criteria appears to be less than if a defence were required.

This carve out is in cl 588GA, the title of which sums up the approach, that the directors took a course of action “reasonably likely” to lead to a “better outcome” (as defined) for the company and its creditors,

Rather than reasonable steps the law calls for “appropriate steps” to have been taken by the directors, including by an “appropriately qualified entity”, and priority is given to their attention to payment of the entitlements of the company employees (hence the government) and to payment of taxes (also the government). While many will claim to be the qualified entities, such an adviser may range from an accountant or lawyer, through to a CRO, depending on the size and complexity of the business.

The government expects these changes to

“drive cultural change amongst company directors by encouraging them to keep control of their company, engage early with possible insolvency, and take reasonable risks to facilitate the company’s recovery instead of simply placing the company prematurely into voluntary administration or liquidation”.

Ipso facto clauses

These clauses which allow contracts to be terminated solely due to an insolvency event will be unenforceable if a company is undertaking a restructure through a Part 5.1 scheme of arrangement or a Part 5.3A voluntary administration and deed.  Sensibly, the contracts covered by this restriction will be listed in regulations to allow flexibility for their refinement. 

Leave of the court can be sought by counterparties to enforce rights regardless.


The government is calling for views on the draft laws by Monday 24 April 2017.


Coming, after the rush.


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3 Responses

  1. Not happy with the onus still being on directors which makes it another defense. This is really a cross between model a and b.

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