Sweeping reforms to insolvency laws and regulations will commence in Australia from July 1, 2018, and impact on all businesses, says leading legal firm Creevey Russell Lawyers.
Creevey Russell Principal Dan Creevey said the reforms are being introduced as part of the federal government’s science and innovation agenda.
“This is an attempt to shift corporate culture in Australia from what is currently viewed as one of risk avoidance and shame associated with failure, towards more of an entrepreneurship and innovation driven culture,” Mr Creevey said.
“The new laws are expected to change the negotiating dynamics as Australian companies approach distress, and in restructuring.”
Mr Creevey said the new laws will make clauses in commercial contracts which allow parties to exercise a right or terminate the contract solely because of the financial difficulties being encountered by the other party unenforceable.
“The new laws will impact how businesses deal with the insolvencies and financial difficulties of counter parties,” he said.
“While this will impact on businesses across all industries, sectors such as the construction industry will be particularly affected as they rely on swift rights to terminate and replace contractors and suppliers who are insolvent and performing poorly.”
Mr Creevey said the types of contractual rights that will now be unenforceable under the new laws include:
the other party having a receiver or administrator appointed,
the other party flagging an intention to pursue or making a court application for a compromise or scheme of arrangement with its creditors to avoid a liquidation, or a reason that relates to this event,
the financial circumstances of the other party before or during the above receivership, administration or application/announcement to pursue an application in relation to a scheme of arrangement with creditors to avoid liquidation.
Mr Creevey said businesses will need to carefully vet the financial strength and perceived future financial security of all counter parties before entering into significant contracts from July 1, 2018.
Any businesses requiring advice on the impact of the new laws should contact Creevey Russell Lawyers on 07 4617 8777