Insolvency Law Reform In 2017 – Are You Ready And Informed?

insolvency law reform accountants

By Liyan Tay 

This year will mark a very exciting year as the implementation of the Insolvency Law Reform Act 2016 (“the Act”) is due to take effect in two stages on 1 March 2017 and 1 September 2017.  This Act will consolidate the rules which govern corporate and personal insolvencies which are currently split between the Bankruptcy Act 1966, the Corporations Act 2001 and the Australian Securities & Investments Commission Act 2001.

These law reforms are directed at improving the integrity and efficiency of Australia’s insolvency laws as well as to enhance business rescue and support entrepreneurship.

Outlined here are some of the major changes that will impact directors, bankrupts, suppliers and creditors who may be affected by insolvency of a supplier or personally.

What changes can suppliers / credit providers expect?

The new changes provide creditors with the ability to obtain information and influence the approach taken in an administration.

  • Creditors will be empowered to remove an insolvency practitioner through an ordinary resolution, with insolvency practitioners retaining the right to apply to the Court to prevent removal.
  • Creditors may appoint an independent specialist to review the performance of the current insolvency practitioner.
  • By a resolution at a meeting, creditors may make reasonable requests for information and records about the external administrations, call meetings and give directions to the insolvency practitioner.
  • A company facing financial issues will have the ability to appoint an advisor to arrange new credit facilities to address any short term cash flow problems, resulting in the nullification of the ipso facto An ipso facto clause in a contract allows one party to terminate the contract due to an ‘insolvency event’ even if the company is continuing to perform under the contract. The new laws will render the ipso facto clauses unenforceable if a company is undertaking a restructure.
  • Currently, rights of action such as unfair preference claims and other voidable transactions can only be brought by a liquidator. The reform will allow liquidators to assign the right to a third party, with certain limitations.
  • Removal of mandatory reporting requirements including annual and final reporting to creditors, and initial, annual and final meetings of creditors.

How are bankrupts / directors affected?

The new Act has been implemented with a view to encourage entrepreneurs to take risks, leave behind fear of failure and be more innovative and ambitious instead of placing too much focus on penalising and stigmatising business failures.

  • Personal bankruptcy period will be reduced from 3 years to 1 year which is intended to incentivise the taking of entrepreneurial risks by facilitating earlier re-entry into commerce of skilled businesspeople.
  • Currently, directors who continue to trade when under financial distress may be liable for an insolvent trading claim, despite doing so in the hopes of reviving the business. The new law introduces a safe harbour for directors who would be protected from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company. This change was placed a view to provide directors with a genuine opportunity to engage with key stakeholders and make decisions relating to the restructure of their company free from fear of liability.


Overall the new Act aims to improve insolvency laws in order to encourage innovation and ambition amongst investors and entrepreneurs.  It will be interesting to monitor the outcomes of the new Act, whether the objectives of the reform are met, only time will tell…

Want to know more?

If you would like to know more about the issues raised in this article, please contact Liyan Tay our Insolvency & Reconstruction Senior Manager for assistance.

Watch our webinar video on Insolvency Law Reform and why it is important to creditors

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

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