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Thursday, 22 June 2017
Page: 34


Mr McCORMACK (RiverinaMinister for Small Business) (12:37): The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 amends the Corporations Act 2001 to improve Australia's corporate insolvency system. I would like to thank those members who have contributed to this debate. This bill, as I said, reforms Australia's insolvency laws by introducing a safe harbour for company directors undertaking corporate restructures outside of formal insolvency proceedings and restricting ipso facto clauses which make it harder for businesses to successfully recover from financial difficulties.

It is a bill that promotes a culture of entrepreneurship and innovation to drive business growth and global success and help to save local jobs. For too long our insolvent trading laws have put too much focus on stigmatising and penalising failure and, combined with uncertainty over the precise moment a company becomes insolvent, have long been driving directors to seek voluntary administration, even in circumstances where the company may be viable in the longer term. Concerns over inadvertent breaches of insolvent trading laws have frequently been cited as a deterrent on early stage investors and professional directors becoming involved in start-ups.

This is why the government announced in December 2015, as part of its National Innovation and Science Agenda, that it would introduce a safe harbour for directors from the insolvent trading provisions of the Corporations Act 2001 and make ipso facto clauses unenforceable in certain formal insolvency procedures. This bill delivers on those commitments. Part 1 of this bill creates a safe harbour for company directors from personal liability for insolvent trading if the company is undertaking a restructure outside formal insolvency. This measure will drive a 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 into voluntary administration or, indeed, into liquidation.

The amendments in part 2 of this bill will make certain contractual rights unenforceable while a company is restructuring under certain formal insolvency processes. Currently, ipso facto clauses allow one party to terminate or modify the operation of a contract upon the occurrence of some specific event such as the appointment of an administrator, regardless of the otherwise continued performance of the company. The operation of these clauses can reduce the scope for a successful restructure or prevent the sale of the business as a going concern. This measure will enable the businesses to continue to trade in order to recover from an insolvency event, instead of these clauses preventing their successful rehabilitation.

Together, these reforms will reduce a company's need to go into a formal insolvency process, 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 for shareholders. This in turn will promote the preservation of enterprise value for companies, their employees and their creditors, reduce the stigma of failure associated with insolvency and encourage a culture of entrepreneurship and innovation. The measures contained in this bill have been extensively consulted upon and have the strong support of a number of peak industry bodies, including the Australian Institute of Company Directors, the Australian Private Equity and Venture Capital Association, the Law Council of Australia and the Australian Restructuring Insolvency and Turnaround Association. A discussion paper containing various proposals for improving bankruptcy and insolvency laws was released for consultation on 29 April 2016. The exposure draft legislation was released for consultation on 28 March. With that, I commend this bill to the House.

The DEPUTY SPEAKER ( Mr Vasta ): The original question was that this bill be now read a second time. To this, the honourable member for McMahon has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. The immediate question is that the amendment be agreed to.

Question negatived.

Original question agreed to.

Bill read a second time.