Turnbull's Innovation Statement
This week the Senate Economics References Committee released its long awaited Innovation Report.
The Report identified several barriers to innovation and made recommendations with a view to creating a long term strategic framework to support innovation in Australia.
The Government has responded swiftly, issuing an Innovation Statement outlining 28 significant initiatives.
One of these initiatives includes Insolvency Reform.
The Senate Committee identified the existing director liability provisions under the Corporations Act as one of the barriers currently preventing innovation. Risk aversion among company directors in Australia is significantly higher than other OECD countries, created by a corporate environment in which insolvent trading is easily triggered and difficult to overcome.
The personal liability provisions under the existing insolvency framework means directors are unwilling to take the necessary risks in order to truly innovate.
The Insolvency Reform intends to make three significant changes:
Reduce the current default bankruptcy period from three years to one year;
Introduce a ‘safe harbour’ for directors from personal liability for insolvent trading if they appoint a restructuring adviser; and
Make ‘ipso facto’ clauses, unenforceable if a company is undertaking a restructure. This will allow companies to continue to trade and derive the benefit of the contract while they innovate.
The proposal paper will be released early in 2016 and will attempt to strike a balance between protecting creditors and encouraging entrepreneurship.
Here at You Legal we will be following the proposals closely. We are hopeful that the new laws, which would apply to all companies could unleash innovation by established businesses whose directors may currently feel constrained by Australia's existing insolvent trading laws.
What Should I Do Next?
Contact us if you would like further legal advice on the Innovation Report. Our lawyers at You Legal will be happy to assist you in whatever way we can.
* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.