Safe Harbour and Ipso Facto Law Reform COMMBAR CPD SEMINAR – 24 MAY 2018 OREN BIGOS, BARRISTER MICHAEL SLOAN, PARTNER, ASHURST
National Science and Innovation Agenda TREASURY LAWS AMENDMENT (2017 ENTERPRISE INCENTIVES NO 2) ACT 2017 (CTH) Avoid early appointment of administrators • 1 Safe Entrepreneurship Reduce "personal liability" barrier to • Harbour restructuring for directors 2 Enable businesses to continue to trade in Ipso • Jobs Facto order to recover from insolvency events Economic growth 2
Safe Harbour NEW SECTION 588GA – COMMENCED OPERATION ON 19 SEPTEMBER 2017 Develop and implement a course of action that is reasonably likely to 1 Requirement lead to a better outcome for the company than the immediate appointment of an administrator or liquidator 2 Threshold Payment of employee entitlements (including superannuation) and Issues taxes 3 Carve out Directors bear an "evidential burden" only structure Directors should: monitor financial position , maintain appropriate 4 Indicia of financial records, prevent misconduct , seek advice and develop and Safe Harbour implement a restructuring plan Directors must still comply with their other general law duties , 5 Limitations including duties to provide books and records to any subsequently of Safe appointed insolvency practitioner . Continuous disclosure obligations Harbour must also be met. 3 Safe Harbour and Ipso Facto Law Reform
Elements of s 588GA ISSUES FOR LITIGATORS Better outcome , for the company, means an outcome that is better for 1 Better the company than the immediate appointment of an administrator, or outcome liquidator, of the company Directors should: monitor financial position , maintain appropriate 2 Indicia of financial records, prevent misconduct , seek advice and develop and Safe Harbour implement a restructuring plan Debt is incurred directly or indirectly in connection with any courses of 3 Debts action that are reasonably likely to lead to a better outcome for the incurred company 4 Duration of When does it start and end safe harbour 5 Exception, Legal and evidential burden of proof not defence 4 Safe Harbour and Ipso Facto Law Reform
Industry Guidance – TMA Best Practice Guidelines 5 Safe Harbour and Ipso Facto Law Reform
Navigating Safe Harbour ISSUES FOR ADVISERS The test Advisors Managing Self-designation conflicts and risk Scope of work 6 Safe Harbour and Ipso Facto Law Reform
Interaction between safe harbour and continuous disclosure ASX Listing Rule 3.1 guidance note The fact that an entity’s directors are relying on the safe harbour to • develop a course of action that may lead to a better outcome for the entity than an insolvent administration, in and of itself, is not something that ASX would generally require an entity to disclose. The fact that directors of an entity in financial difficulty are considering • whether there is a better alternative than an insolvent administration is not likely to require disclosure unless it ceases to be confidential or a definitive course of action has been determined. 7 Safe Harbour and Ipso Facto Law Reform
Ipso Facto Clauses MORATORIUM ON ENFORCEMENT – WILL COMMENCE OPERATION ON 1 JULY 2018 1 a company enters voluntary administration , a receiver is appointed to all or • Stay applies substantially all of the assets, the company announces/applies for/ enters into a when scheme of arrangement 2 Categories of express rights that arise by reason of the relevant occurrence of an insolvency • rights subject to stay event or the company's financial position counterparty maintains the right to terminate for any other breaches of contract • 3 contractual rights may be enforced with the consent of the relevant appointee • Exclusions rights may be carved out from the stay in post-appointment contracts • 4 there is a Court discretion to allow a right to be enforced " in the interests of Court power justice " 5 broadly, the stay applies for the duration of the insolvency event , unless Timing extended by the Court 8 Safe Harbour and Ipso Facto Law Reform
Ipso Facto Clauses STATUTORY PROVISIONS – SS 451E, F, G, GA; SS 434J, K, L, LA; SS 415D, E, F, FA 1 Right cannot If right to enforce for reason of insolvency event or financial position. But can be • be enforced enforced for another reason. 2 If the right arises for that reason by express provision (however described) of a • Types of rights contract, agreement or arrangement. Includes self-executing provision • Typically ends when administration ends, but may extend beyond that • 3 If the right starts to be enforced before the administration, it can continue to be • Stay period enforced 4 • Right is unenforceable indefinitely after the end of the stay period to the extent After stay period that a reason for seeking to enforce the right is a proscribed reason • Power to extend stay period 5 • Power to lift stay Court power • Power to order that right enforceable only with leave • Interim orders 9 Safe Harbour and Ipso Facto Law Reform
Ipso Facto Clauses EXCEPTIONS 1 Post- If right to enforce for reason of insolvency event or financial position. • administration right But can be enforced for another reason. 2 Prescribed Draft Corporations Amendment (Stay on Enforcing Certain Rights) Regulations • contracts 2018 Draft Corporations Amendment (Stay on Enforcing Certain Rights) Declaration 2018 • 3 Prescribed contractual rights 4 • Secured creditors that have a security interest over the whole, or substantially the Secured creditors whole, of the property of the company, who enforce the security interest within the 13 business day decision period 5 • Company cannot enforce right against financier for a new advance of money or Financiers credit 10 Safe Harbour and Ipso Facto Law Reform
Ipso facto clauses KEY ISSUES FOR INSOLVENCY PRACTITIONERS Preservation of value Limitations of Strategic disclaimer Court powers of contracts Personal liability 11 Safe Harbour and Ipso Facto Law Reform
Safe Harbour and Ipso Facto Law Reform COMMBAR CPD SEMINAR – 24 MAY 2018 OREN BIGOS, BARRISTER MICHAEL SLOAN, PARTNER, ASHURST
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