Welcome to the latest update from Gilbert + Tobin's Corporate Advisory team. The update provides a summary of key recent legal developments, particularly relevant to in-house counsel.
In this issue, you will find:
Insolvency reforms - director ‘safe harbour’ and stay on ipso facto clauses – now before House of Representatives
Following consultation on exposure draft legislation between 28 March 2017 and 24 April 2017, the Treasury Laws Amendment (2017 Enterprise Incentives No.2) Bill 2017 (Cth) (Bill) was introduced into the House of Representatives and received its second reading speech on 1 June 2017.
The Bill proposes to:
- create a safe harbour for company directors from personal liability for insolvent trading if the company is undertaking a restructure outside formal insolvency provided that they can show that, after suspecting that a company is, or may become, insolvent, they have taken a course of action which, when objectively judged, is reasonably likely to lead to a better outcome for the company and its creditors. According to the Explanatory Memorandum, this will drive cultural change amongst company directors by encouraging them to keep control of their company, engage early with possible insolvency and take reasonable risks to facilitate the company’s recovery instead of simply placing the company prematurely into voluntary administration or liquidation; and
- make certain types of ‘ipso facto’ clauses (that allow one party to terminate or modify the operation of a contract upon the occurrence of some specific event, regardless of otherwise continued performance of the counterparty ) unenforceable while a company is restructuring under administration, a compromise or arrangement aimed at avoiding being wound up in insolvency or when a managing controller has been appointed over all or substantially all of the property of the company. According to the Explanatory Memorandum, this reform is aimed at enabling businesses to continue to trade in order to recover from an insolvency event instead of these clauses preventing their successful rehabilitation.
According to the Explanatory Memorandum, the proposed amendments will reduce instances of a company proceeding to a formal insolvency process prematurely and where companies do enter into particular formal insolvency procedures, they will have a better chance of being turned around or of preserving value for creditors and shareholders. In turn, this will promote the preservation of enterprise value for companies, their employees and creditors, reduce the stigma of failure associated with insolvency and encourage a culture of entrepreneurship and innovation.
The director safe harbour reforms are to take effect from the day after Royal Asset and the stay on ipso facto clauses will take effect from the later of 1 July 2018 or the day six months after Royal Assent (unless an earlier date is proclaimed by the Governor-General).
Two’s company: Proprietary companies to access crowd-sourced equity funding regime
Following the March introduction of the long awaited Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth), the Government has moved to extend the reach of its crowd-sourced equity funding reforms to proprietary companies.
For further details, see G+T Insight by Peter Reeves, Deborah Johns, Georgina Willcock and Jack Coles dated 11 May 2017.
Amendments to tighten the definition of a “PPS lease” to benefit short term hire and rental sector now in force
The Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) (Act) received Royal Assent on 19 May 2017.
The Act amends section 13 of the Personal Property Securities Act 2009 (Cth) to:
- extend the minimum duration of PPS leases from more than one year to more than 2 years; and
- provide that leases of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than 2 years.
According to the explanatory memorandum, as a result of the amendments, very few hire and rental industry related transactions will be caught by section 13 due to the increased minimum duration, and the amended section 13 will continue to appropriately capture longer term high value hire and rental industry leases.