Submission to Productivity Commission on Business Set Up, Transfer and Closure Draft Report

Friday, 03 July 2015

On 3 July 2015, we lodged a submission with the Productivity Commission in relation to various recommendations made in its draft report on Business Set-Up, Transfer and Closure. We had previously lodged a submission with the Productivity Commission on 17 February 2015 in response to a discussion paper released by it on the same inquiry. 

We confined our comments in the submission to the Productivity Commission’s recommendations on aspects of Australia’s corporate 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.

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

  • The voluntary administration regime should be available to insolvent companies and companies approaching insolvency, therefore, we do not support the Productivity Commission’s proposal that only solvent companies be able to appoint an administrator. We are concerned that the Productivity Commission’s Draft Recommendation 15.1 is not workable in practical business terms
  • While the AICD remains of the view that the introduction of our proposed Honest and Reasonable Director Defence is preferable, an appropriately formulated safe harbour provision for insolvent trading would be an improvement to the current position at law and may improve the ability of directors to attempt a restructure
  • The AICD supports the proposal that ipso facto clauses allowing contracts to be terminated due to an insolvency event be unenforceable on the appointment of an administrator or a receiver or when the company is in the safe harbour. However, some limited exceptions to this restriction could be considered
  • The changes proposed by the Productivity Commission to the powers and duties of receivers and managers require further consideration
  • The AICD supports effective efforts to reduce fraudulent phoenix activity. However, we query whether the resources necessary to introduce and supervise the Director Identification Number regime could be better utilised by ASIC to enforce existing laws targeted at phoenix activity.

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