The Insolvency Law Reform Act 2016 has finally arrived and according to the Government propaganda “it represents the most significant suite of reforms to Australia’s bankruptcy and corporate insolvency laws in twenty years and is an integral component of the Federal Government’s agenda of improving economic incentives for innovation and entrepreneurialism.”
Furthermore ..”The new Act, which amends the Corporations Act, the ASIC Act and the Bankruptcy Act, poses significant implications for both personal and corporate insolvency practitioners by seeking to impose common rules for the conduct of administrations which are intended to improve efficiency, competition and consumer confidence in the insolvency profession.”
However there are a number of strident critics of the new Act, one of which being Michael Murray a former Deputy Registrar in Bankruptcy and more recently, former legal counsel at ARITA. Michael in one of his articles published in 2016, commented that it has been very the slow process in bringing in the changes in that, way back on 18 December 2007, the Australian Insolvency Management Practice News called for the alignment between personal and corporate insolvency laws, the adoption of more effective recovery processes, the updating and streamlining the insolvency laws and the need for a single insolvency regulator. He then commented that “insolvency needed a race horse and we got a camel and a slow moving and somewhat unhappy one at that.”
In addition to the slowness of the changes being introduced, Michael perhaps may have also been referring to the definition of a camel ie. “a camel is a racehorse designed by a government committee”
Intriguingly, the proposed changes relating to “increased productivity through innovation and entrepreneurialism” appear to have missed the cut, viz:
- Reducing the personal bankruptcy period from 3 years to 1 year, which was intended to incentivise the taking of entrepreneurial risks by facilitating earlier re-entry into commerce of skilled business people;
- Introduction of a “safe harbour” to shelter directors from personal liability for insolvent trading in cases where a director has engaged a professional restructuring advisor to assist in turning the business back towards financial viability.
- Nullification of “ipso facto” clauses in contracts (whereby a party can terminate the contract upon an insolvency event affecting the other party) in cases where the company is implementing a restructure to address its financial difficulties;
Furthermore, no attempt has been made to address the paradoxical situation concerning a bankrupt’s income which whilst subject to the income contribution regime, does not vest in the trustee. If portion of the after-tax income which a bankrupt is entitled to retain, is used to acquire an asset which is not protected by section 116(2) of the Bankruptcy Act, the trustee can seize the asset as “after-acquired property” which flies in the face of the Fresh Start concept enshrined in the bankruptcy legislation.
Well, maybe the legislators will get around to these in another 5 years time?