Directors must have the option to return insolvent companies to profitability
Governance Institute of Australia is of the strong view that directors must have the option to be able to return a company to profitability, claiming this will deliver better outcomes for all stakeholders including creditors who are more likely to be paid as the business is returned to viability.
In a submission to Treasury, Governance Institute supports the Government’s decision to adopt Model B as the preferred option as this would enable the Act to be amended to include provision for a ‘safe harbour’ to allow companies and their directors to explore restructuring options, in good faith and acting reasonably and responsibly, without liability for insolvent trading.
Governance Institute also supports the inclusion of legislative guidance to enable directors and advisors to work out whether a course of action is reasonably likely to lead to a better outcome for the company and its creditors.
Governance Institute has recommended that reference to ‘debt’ in the draft amendments be replaced with the word ‘debts’. “This will ensure that the focus of the provisions will be on debts as a whole, rather than on a ‘debt by debt’ analysis,” commented Governance Institute chief executive Mr Steven Burrell.
“It’s simply not practicable to require directors to satisfy themselves that each and every debt incurred is essential to achieve a better outcome for the company and its creditors. This would only further distract the board and management into undertaking a forensic analysis of every potential debt when they should be focused on managing the restructuring effort,” Mr Burrell added.
“Adding a safe harbor provision and restricting the ipso facto clause enforcement is in everyone’s best interests as it will give directors greater leeway in considering and implementing restructurings,” Mr Burrell concluded.
For further information contact Viv Hardy on 0411 208 951 or Steven Burrell on (02) 9223 5744 or 0407 708 485.
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