The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) (Act) introduced new laws which operate to stay the enforcement of ipso facto clauses that are triggered upon a company suffering an insolvency event. These new laws come to effect for contracts entered into on or after 1 July 2018.
The Australian Government Treasury (Treasury) has released the long awaited exposure drafts and explanatory statements in respect of the types of arrangements that are to be excluded from the moratorium (or ‘stay’) on reliance by solvent counterparties on ‘ipso facto’ clauses (ipso facto reform). Public consultation in respect of the proposed exclusions is open until 11 May 2018.
In December 2015, the Federal Government proposed changes to its insolvency laws as part of its National Innovation and Science Agenda (NISA). Changes included a proposal to reduce the minimum bankruptcy period from three years to one year, with the aim of encouraging innovation and risk taking by reducing the consequences associated with bankruptcy.
Other reforms proposed as part of NISA include a proposed safe harbour carve out to protect directors from insolvent trading liability and a stay on the enforcement of ipso facto clauses while a company is under voluntary administration. These three reforms are separate to those contained in the Insolvency Law Reform Act 2016 (Cth).
The world of insolvency is currently undergoing serious review, with potential reforms flying around thick and fast. But talk of safe harbours and unenforceable ipso facto clauses (see our update here) have overshadowed a significant development that commenced on 1 March 2017: the ability for external administrators1 to now assign their rights to sue under the Corporations Act 2001 (Cth) (Corporations Act).
The Insolvency Law Reform Act 2016 (Cth) (Insolvency Act) recently amended the Corporations Act by adding a new schedule: Schedule 2 – Insolvency Practice Schedule (Corporations) (Schedule). The right to sue for claims such as insolvent trading or voidable transactions, previously personal to external administrators, can now be assigned pursuant to section 100-5 of the Schedule.