The latest from AICD's advocacy team.
Insolvency rethink required
The Australian Institute of Company Directors (AICD) has urged the Productivity Commission to reconsider its proposal that voluntary administration should only be available to solvent companies and that insolvent companies should go straight into liquidation. The draft recommendation could force companies that are deemed insolvent to close when restructuring options are available.
The AICD made its comments in a detailed response to the Productivity Commission’s Draft Report on Business Set-up, Transfer and Closure in which the AICD argued that insolvency laws should focus on corporate recovery to protect jobs and support economic growth.
The Productivity Commission’s proposal to introduce a safe harbour mechanism to allow company directors to explore restructuring options without liability for insolvent trading would be an improvement to the current system, but the precise formulation of such a safe harbour requires careful consideration, according to the AICD submission.
Our submission supports the proposal to limit the use of clauses which allow suppliers and others to cancel contracts immediately when an administrator or a receiver is appointed to the company, or when, as proposed by the Productivity Commission, the company is in safe harbour.
Changes to super boards welcome
We have welcomed proposed changes to improve superannuation governance and encourage greater independence on the boards of superannuation funds.
The proposal will introduce a requirement that at least one-third of the board of superannuation trustees be independent, with an independent chair, and allow a three-year transition period to comply. Having a majority of independent directors will be encouraged through an “if not, why not” disclosure requirement.
We have long called for greater independence on superannuation boards consistent with internationally recognised principles of good governance, including those that apply to ASX companies.
The Australian Institute of Company Directors’ submission recommends that a broad description of “independent” be adopted for superannuation trustees under the Superannuation Industry (Supervision) Act 1993, similar to the one that is in principle 2 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations.
Further guidance should then be provided in the relevant prudential standard as to what relationships are likely to compromise a director’s independence.
Extra time required
On 22 July, the International Accounting Standards Board confirmed the one-year deferral of the effective date of IFRS 15 to annual reporting periods commencing on or after 1 January 2018.
The advocacy team at the Australian Institute of Company Directors had lodged a submission in the last week of June which supported this extension as it will provide preparers with much-needed time to implement the requirements of IFRS 15 into their organisations.
The Productivity Commission’s Draft Report on Business Set-up, Transfer and Closure suggested that directors be allocated a unique director identification number in an attempt to reduce fraudulent phoenix activity.
Our submission to the draft report suggests that a cost-benefit analysis needs to be conducted before such a proposal is progressed. This analysis could establish whether phoenix activity would be better curtailed by allocating funds for the Australian Securities and Investments Commission (ASIC) to enforce existing laws rather than overseeing the proposed identification number regime. If ASIC is required to implement the proposed identification number regime, it should be adequately funded.
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