A major review of the insolvency safe harbour for directors has positive findings, writes Louise Petschler GAICD. The AICD is also encouraging boards to lift their focus on whistleblowing.
Insolvency safe harbour
Last month, the AICD welcomed the final report of the Review of the Insolvent Trading Safe Harbour.
The review found that the safe harbour provisions have been a positive corporate law reform that has improved governance and economic outcomes and delivered real turnaround options to directors of listed large and some medium-sized companies.
Led by an independent panel of experts — Genevieve Sexton (chair), Leanne Chesser and Stephen Parbery — the review took place from August to November 2021 and involved consultation and roundtable discussions with a range of stakeholders, including the AICD.
The findings are consistent with the AICD joint submission with the Business Council of Australia to the review. We argued that the safe harbour has been a successful insolvency policy reform that has driven changes in director behaviour to focus on restructuring businesses to the benefit of shareholders, employees and creditors. We believe that reforms recommended by the panel will provide greater certainty for directors who may be able to save otherwise financially viable companies in uncertain times.
The review also recommended a holistic review of the insolvency regime. It has been more than 30 years since the last detailed review of Australia’s insolvency laws (the Harmer Report in 1988).
AICD strongly supports this proposal. Our submission (along with others) canvassed ideas including increasing the threshold for director duty to “wrongful trading” as is the case in the UK. The government has accepted many of the panel’s recommendations, but has not yet committed to a holistic review.
The AICD will be engaging with stakeholders on the reforms and opportunities to increase director understanding of the safe harbour provisions. Directors’ duties remain paramount and the safe harbour provisions are not a “free pass” for directors, who must continue to assess the ongoing financial liability of their organisation and, critically, the impact of incurring further debts, when relying on the safe harbour provisions.
Whistleblowing: active steps for boards
The start of this year marked the second anniversary of stronger whistleblower provisions under the Corporations Act 2001. The AICD was an advocate for these reforms.
Whistleblowing protections are an important contributor to good governance. They underpin a “speak-up” culture and support board oversight of culture and compliance.
However, a major review by the Australian Securities and Investments Commission (ASIC) of 102 large company whistleblower policies has found serious gaps, with two common deficiencies being incomplete or inaccurate information and obsolete, out-of-date policies. These findings were covered in Company Director’s March 2022 edition — “Blowing the Whistle”. “These issues suggest that many companies do not fully understand the enhanced whistleblower protection regime or, worse still, have chosen to ignore them,” wrote ASIC Commissioner Sean Hughes GAICD. ASIC set out its concerns in an open letter to CEOs in October last year.
We recently discussed ASIC’s findings with our advisory law committee, which reinforced the need for boards to drive a strong governance focus on whistleblowing policies and practice. Inadequate policies and practices will discourage potential whistleblowers from raising issues. They also expose companies and their officers to potential significant penalties and reputation risks.
The AICD encourages members to review ASIC’s findings and ensure whistleblowing is considered as a governance issue. Active steps that boards can take include:
- Discussing ASIC’s letter to CEOs with management to assess your organisation’s policies
- Refreshing board training on whistleblowing disclosures, protections and requirements
- Considering the adequacy of board reporting to identify systemic issues
- Confirming management’s commitment to a “speak-up” culture in practice, as well as policy
- Signalling the board's expectations clearly and directly to staff.
2022 Chair’s Mentoring Program
The AICD continues to focus on diversity on boards as a contributor to good governance outcomes. Australian listed companies have made substantial progress on gender diversity. In 2009, less than 10 per cent of all ASX 200 board positions were held by women. AICD’s latest quarterly statistics show that figure is now 34.5 per cent — the highest proportion of women directors to date.
While continued progress is welcome news, there is still work to be done, with 66 of ASX 200 companies yet to achieve the voluntary 30 per cent target for women directors on their boards.
There are many contributors to Australia’s diversity progress as noted in the University of Queensland’s 2021 Towards Board Gender Parity report, available on the AICD website. One of the important contributors is the AICD’s Chair’s Mentoring Program, which connects highly qualified women with senior directors and chairs from ASX 200 boards.
Last month, the AICD welcomed 46 accomplished women into the 2022 Chair’s Mentoring Program.
As good practice, the AICD encourages organisations to embrace a 40:40:20 model of board gender diversity, aiming to have at least 40 per cent women directors and 40 per cent men directors.
Regulatory reform priorities
The AICD advocates fair, fit-for-purpose and modern regulations that support diligent directors in governing for growth. Our FY22 reform priorities include:
- Modern, fit-for-purpose corporate and governance law
- Balanced director liability settings that reflect the role of the board
- NFP regulations that supports and sustains good governance outcomes
- Sustainability reporting that is clear, consistent and reflects stakeholder needs
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