ARITA recently lodged a submission in response to the Federal Government’s proposal paper “Improving Bankruptcy and Insolvency Laws“.  We provide a brief summary of ARITA’s position on some aspects of the proposed reforms.

Reduction in default bankruptcy period

In the submission ARITA argued that if the bankruptcy default provision is to be reduced from 3 years to 1 year, mechanisms should be retained or added to provide protection for abuse, and in particular ARITA recommended that the already extensive grounds for filing an objection to discharge as set out in s 149D of the Bankruptcy Act 1996 (Cth) do not need to be changed and should in fact include further grounds.

Safe harbour models

ARITA supports safe harbour Model A proposed, with the inclusion of a requirement that a director consider the interests of the company’s body of creditors as a whole, as well as members, be best served by pursuing a restructuring.  ARITA takes the view that directors should not be permitted to view the restructuring moratorium provisions as a relaxation or reduction of their responsibilities.

Safe Harbour Model B was critiqued by ARITA, which submitted that directors should not have protection from insolvent trading unless they engage a suitably qualified restructuring adviser, which is an unsurprising position to be taken by the industry association representing restructuring advisors.

ARITA echoed past warnings concerning so-called “pre-insolvency advisors” who may offer services in connection with the Safe Harbour Model, some of whom have been accused of advising directors to asset strip, destroy books and records or to take steps to hamper future investigations in the directors of companies facing insolvency.  ARITA has again called for more regulation and oversight for these so-called “advisors”.

Ipso facto clauses

ARITA supports the proposal rendering any term of a contract or agreement which terminates or amends that or any other contract or agreement by reason only that an ‘insolvency event’ has occurred, should be void.

Further, ARITA supports the voiding of ipso facto clauses where they prohibit the acceleration of payments; and the retrospective operation of the ipso facto voiding proposal in respect of clauses in existing contracts or agreements for new insolvency administrations beginning after the commencement of the insolvency law changes.

For more information on the insolvency law reforms please contact us.