Directors get a safe harbour for insolvent trading

From 18 September 2017 company directors will be able to seek shelter from liability for insolvent trading.

Previously, a director who caused a company to incur new debts (e.g., obtain goods and services on credit) at a time when the company was unable to pay its existing debts/liabilities, could – if the company was subsequently placed in liquidation –  be sued by the liquidator or by the creditor provider.

Now, the laws will “protect a director in relation to debts that a company incurs directly or indirectly  in connection with developing and taking a course of action that is reasonably likely to lead to a better outcome for the company than proceeding immediately to voluntary administration or winding up.” [Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017, Explanatory Memorandum, paragraph 1.32]

For the full history of this legislation – which encompasses “Safe Harbour for Insolvent Trading” laws and “ipso facto” clauses – and to see a discussion of the key issues (35 pages in all), click on this link: Parliamentary Library’s Bills Digest No. 33 of 11 September 2017.

TO BE CONTINUED …