The reforms introducing a safe harbour for directors of insolvent companies and, from 1 July 2018, a limited stay on the operation of ipso facto clauses have been passed by both Houses of the Australian Parliament and will likely be enacted by month end. Late on Monday evening, after some debate, the Senate passed the reforms with only minor amendments. The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 then returned to the House of Representatives who formally passed the amended Bill last night.
From enactment of the Bill, directors will no longer be personally liable for debts incurred while the company is insolvent so long as the debts are incurred as part of a course of action within a reasonable time period that is reasonably likely to lead to a better outcome for the company.
The Senate amended the Bill to provide for a review of the safe harbour provisions after two years of operation. The review will look at the impact of the availability of the safe harbour to directors of insolvent companies on the conduct of directors, and the interests of creditors and employees of the companies.
The Opposition also moved to amend the Bill to recast the safe harbour carve out as a defence. However, the amendment was opposed by the Government and did not receive the requisite votes.
The Bill was also amended to make clear that the limited stay on the enforcement of ipso facto clauses applies also to self-executing provisions and not just to the exercise of rights by counterparties. From 1 July 2018, during a company's period of voluntary administration, scheme of arrangement or compromise to avoid being wound up, or receivership, counterparties will be prevented from enforcing pre-existing contractual rights (including termination rights) against the company, and a stay will operate against any self-executing clauses that are triggered by reason only of the company's voluntary administration, scheme, receivership or financial position.
For more information see our earlier article on the proposed reforms.