Insolvency Law Reforms – Draft Legislation

The Federal Government has now released exposure draft legislation relating to its third tranche of insolvency law reforms; https://treasury.gov.au/consultation/c2018-t313204

The exposure draft legislation includes reforms concerning:

Transfers of company assets that prevent, hinder or significantly delay creditors’ access to the company’s assets in liquidation

New criminal offences:a) Company officers that fail to prevent the company from making creditor-defeating dispositions;      and

b) Other persons that facilitate a company making a creditor-defeating disposition;

New civil penalty provisions:

a) An officer or other person responsible may be subject to civil penalty provisions;

New causes of action/ recovery provisions:

a) Liquidator’s/ ASIC (and potentially creditors via an assignment) have a new cause of action to recover assets / compensation from third parties/ related parties;

i. A transaction is voidable if:

a. the disposition has the effect of preventing the property from becoming available; or hindering or significantly delaying the process of making the property available for the benefit of the company’s creditors in a winding up; and

b. Either:

i. It was entered into, or an act was done for the purposes of giving effect to it, when the company was insolvent; or

ii. the company became insolvent because of the transaction or an act done for the purpose of giving effect to the transaction; or

iii. less than 12 months after the transaction or an act done for the purposes of giving effect to the transaction, the start of an external administration occurs as a direct or indirect result of the transaction or act; 

b) Note: this seeks to improve upon the current difficulties faced under s 588FE(5) of the Corporations Act 2001 (Cth) which requires proof that the company intended to defeat, delay or interfere with the rights of creditors (viz. effect);

c) ASIC has a new power akin to AFSA’s 139ZQ(1) notices to administratively order the recipient or relevant persons to return the assets disposed of or pay compensation;

i. Note: this seeks to improve upon the current difficulties faced by liquidators and creditors alike relating to the filing and commencement of civil Court proceedings (costs, uncertainty, risk);

Provisions dealing with the resignation (or purported resignation) of directorsWhen this will take effect:

a) If notified to ASIC within 28 days, the day the person stopped being a director of the company;

b) In any other case, the day written notice is lodged with ASIC stating that the person has stopped being a director of the company;

i. Note: this seeks to improve upon the current situation whereby directors can effectively back-date resignations. The new provisions aim to ensure that directors are held accountable for misconduct;

ii. Note: other amendments go towards preventing a director from resigning when that would leave the company with no directors;

Creditors Meetings
Related party involvement in creditors meetings:

a) Restricting voting rights of related creditors of the phoenix operator at meetings regarding the removal or replacement of external administrators.

Miscellaneous

Otherwise there are potential extensions to director penalty notices (GST); and the extension of ATO’s existing powers to retain refunds where there are tax lodgments outstanding. The Government has invited interested parties to comment on the consultation. Those whom are interested have until 27 September 2018 to make submissions.

Your thoughts

What has been left out?

What do our insolvency practitioners suggest should be included in the reforms?

Now may be the last opportunity you have to make submissions! Speak to us today on (02) 9262 4471 to field any question and hear our views as to what should be included/expanded upon.