Changes to Company Director’s Responsibilities and Impacts on Contracts
In light of the recent changes by the Australian Government, who introduced the Treasury Laws Amendment (2017 Enterprise Incentives No.2 ) Act 2017 (Cth) (Enterprise Act), the Enterprise Act has seen some new and exciting additions to the Corporations Act 2001 (Cth) (Corporations Act) which may affect you as a company director, or as a creditor. Significant changes include:
The safe harbour rules for directors of companies; and
Changes to the ipso facto rules that would affect insolvency claims.
The first addition to the Corporations Act is section 588GA, that being new safe harbour provisions (which is contained in Schedule 1 Part 1 of the Enterprise Act). This came into effect on 19 September 2017.
How does this affect company directors? This new addition can be seen as an incentive for directors to take a course of action reasonably likely to lead to a better outcome for the company. It allows company directors to be exempt from civil liability if the company incurs debts directly or indirectly in the course of insolvent trading. However, there are some exemptions that will not protect directors. That is, in the case where the director has not paid any employee entitlements by the time they are due, or the director has failed to give returns, notices, statements, applications or other documents as required by the taxation laws. This new incentive allows directors to take steps to try turning the insolvency around without fear they will be liable for the debts. The new safe harbour change is a disincentive to place the company into early administration.
The second addition to the Corporations Act is sections 415D and 451G, that being “stay on enforcing rights” (which is contained in Schedule 1 part 2). This comes into effect 30 June 2018. Changes to ipso facto clauses were made with the aim to stay the ability for parties to a contract to suspend, amend or terminate the contract in the event that the company becomes insolvent. This change was aimed at helping businesses, who faced an insolvency event, to potentially recover from that event by continuing to carry on a business with security that certain contractual arrangements will remain in place and will not be terminated or amended.
It is important to understand, that the changes to this new addition are only affected by contracts that are executed after 30 June, 2018 or contracts that are executed before 1 July, 2018 and amended after this date.
Here at Jenkins Legal Services, we specialise in Corporate and Business advice. Our team members, lead by Legal Director, Micah Jenkins, are more than happy to answer and provide solutions to any of your issues.