The Corporations Point-in-Time Service has been updated to include the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (112 of 2017).
The amendments in this Act will create a safe harbour for company directors from personal
liability for insolvent trading if the company is undertaking a restructure outside
formal insolvency. 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.
An ‘ipso facto’ clause is a provision that allows 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. The operation of these clauses can reduce the scope for a successful restructure or prevent the sale of the business as a going concern.
The amendments in Schedule 1, Part 2 of this Act will make certain types of these contractual rights 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.
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.
Together, these 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.
This in turn 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 amendments made by Act 112 of 2017 have been updated in the Point-in-Time Corporations Service current to 25 September 2017. (NB: Subscription required).
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