Submission to Treasury on Discussion Paper Insolvent Trading Safe harbour for reorgan

We are concerned that current laws on insolvent trading sometimes prevent the best stakeholder outcomes from being achieved. They make trading out of insolvency not only extremely risky but they prohibit it for the directors of a company in solvency stress. Each director faces being held personally liable for any further debts incurred, unless the company is placed into external administration. They also encourage creditors (secured and unsecured) and other parties, to salvage whatever value they can by acting in their own self interest, often to the detriment of other stakeholders. The critical element to address our concerns regarding the current laws on insolvent trading is a broad 'business judgment rule' defence based on section 180 of Corporations Act as we argued in our submission to the 2007 Treasury Review of Sanctions in Corporate Law. Without an extended business judgement rule, other approaches (for example, modified business judgement rule and moratorium concepts proposed in the Paper) are unlikely to be fully effective.