On Tuesday 12th of September 2017, Federal Parliament passed Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017. This bill amends the Corporations Act 2001 (Cth), by creating a ‘safe harbour’ for company directors personal liability during insolvency.
Under the current liability regime a director risks personal liability if they are a director at the time a company incurs a debt or becomes insolvent by incurring the debt.
The key changes are as follows:
- A director can rely on the safe harbour protection if they implement one or more courses of action that are ‘reasonably likely’ to lead to a better outcome for a company in financial distress when compared to engaging an administrator or liquidator.
- For the safe harbour to apply the company must continue to meet employee entitlements (e.g. superannuation guarantee contribution) and tax reporting obligations. The directors must also meet existing statutory duties to provide assistance in the event of administration or liquidation.
- The bill also includes a ‘stay provision’, which affects the enforceability of ‘Ipso Facto’ clauses during administration or scheme of arrangement.
An “ipso facto” clause in a contract (with a supplier or third party) allows a party to terminate or modify a contract on an occurrence of a certain event such as insolvency.
Click here for a detailed article on the reforms from the Australian Institute of Company Directors.
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DISCLAIMER: The information on this website and the links provided are for general information only and should not be taken as constituting professional advice from Hall Browns Accountants. You should consider seeking the appropriate legal, financial, or taxation advice to check how the website information relates to your unique circumstances.