Productivity Commission Inquiry into Business-set up, Transfer and Closure

  • Date:17 Feb 2015
  • Type:Policy submission

On 17 February 2015, we lodged a submission with the Productivity Commission in response to its discussion paper Business Set-Up, Transfer and Closure. We confined our comments in the submission to aspects of Australia’s insolvency regime.

The AICD is of the view that the primary objective of Australia’s insolvency regime should be corporate recovery. The insolvency regime should encourage entrepreneurialism and operate to save businesses that can be saved. In turn, the regime would encourage innovation, economic growth and the preservation of employment.

Australia’s insolvency regime must also protect relevant corporate stakeholders including employees, suppliers, customers, creditors and shareholders. Unfortunately we are concerned that aspects of the current regime sometimes prevent the best stakeholder outcomes from being achieved.

In summary, the key comments of the AICD were as follows:

(a) The objective of the insolvency regime should be corporate recovery. The regime should encourage entrepreneurialism and operate to save businesses that can be saved;

(b) While we are of the view that the voluntary administration regime appears to be working well, in order to create a corporate recovery culture there are some key areas where improvements may be beneficial;

(c) The liability of directors for insolvent trading needs to be addressed as it not only encourages, but effectively mandates directors to move to external administration as soon as a company encounters financial difficulties in order to avoid personal liability and consequent reputational damage;

(d) The Honest & Reasonable Director Defence should be inserted into the Corporations Act to provide directors with an additional defence for insolvent trading;

(e) The Productivity Commission should consider whether some restrictions on the enforcement of ipso facto clauses during the voluntary administration process may assist to save businesses that can be saved; and

(f) The Productivity Commission should consider whether some restrictions on the rights of substantial secured creditors to immediately enforce their security during the voluntary administration process may assist to save businesses that can be saved.

To download the submission click here