Insolvency reform a critical step to better boardroom decisions

“The proposed safe harbour is a recognition that we must acknowledge the risk of failure in order to allow innovation to succeed. A properly designed safe harbour could encourage directors to seek turnaround advice earlier, avoiding voluntary administration and preserving jobs,” said John Brogden, Managing Director & Chief Executive Officer of the Australian Institute of Company Directors.

“The safe harbour and proposed changes to so-called ipso facto clauses will help overcome a risk-averse culture in boardrooms and facilitate decisions which have the real potential to stimulate economic growth,” Mr Brogden said.

The bi-annual Director Sentiment Index released by The Australian Institute of Company Directors on 11 November found that almost 75 per cent of directors believe that there is a risk-averse decision-making culture on Australian boards. And 85 per cent of directors believe that the risk of personal liability has caused them to take an overly cautious approach in their decision-making at some point.

The safe harbour will protect directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company.

“Today’s announcement is the first step in reforming Australia’s out-dated director liability regime. A broad defence should ultimately be applied beyond insolvency if the law is to truly reward innovative thinking,” Mr Brogden said.

“The innovation statement contained a number of other measures which will help create a business culture that is focused on performance and reducing unnecessary government intervention in decision-making.

“Directors are encouraged by today’s announcement and will be active participants in discussions about the final shape of these reforms.”