Ipso Facto Law Reform COMMBAR CPD SEMINAR 24 MAY 2018 OREN BIGOS, - - PowerPoint PPT Presentation

COMMBAR CPD SEMINAR – 24 MAY 2018 OREN BIGOS, BARRISTER MICHAEL SLOAN, PARTNER, ASHURST

Safe Harbour and Ipso Facto Law Reform

National Science and Innovation Agenda

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TREASURY LAWS AMENDMENT (2017 ENTERPRISE INCENTIVES NO 2) ACT 2017 (CTH)

Entrepreneurship Jobs Economic growth

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• Avoid early appointment of administrators
• Reduce "personal liability" barrier to

restructuring for directors

Safe Harbour

• Enable businesses to continue to trade in
• rder to recover from insolvency events

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Ipso Facto

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NEW SECTION 588GA – COMMENCED OPERATION ON 19 SEPTEMBER 2017

Safe Harbour

Directors should: monitor financial position, maintain appropriate financial records, prevent misconduct, seek advice and develop and implement a restructuring plan Indicia of Safe Harbour

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Directors must still comply with their other general law duties, including duties to provide books and records to any subsequently appointed insolvency practitioner . Continuous disclosure obligations must also be met. Limitations

• f Safe

Harbour

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Develop and implement a course of action that is reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or liquidator Requirement Payment of employee entitlements (including superannuation) and taxes

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Threshold Issues Directors bear an "evidential burden" only

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Carve out structure

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ISSUES FOR LITIGATORS

Elements of s 588GA

When does it start and end Duration of safe harbour

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Legal and evidential burden of proof Exception, not defence

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Better outcome, for the company, means an outcome that is better for the company than the immediate appointment of an administrator, or liquidator, of the company Better

• utcome

Directors should: monitor financial position, maintain appropriate financial records, prevent misconduct, seek advice and develop and implement a restructuring plan

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Indicia of Safe Harbour Debt is incurred directly or indirectly in connection with any courses of action that are reasonably likely to lead to a better outcome for the company

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Debts incurred

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Industry Guidance – TMA Best Practice Guidelines

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Navigating Safe Harbour

Advisors

ISSUES FOR ADVISERS

The test Self-designation Scope of work Managing conflicts and risk

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.

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Interaction between safe harbour and continuous disclosure

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Ipso Facto Clauses

Court power

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• a company enters voluntary administration, a receiver is appointed to all or

substantially all of the assets, the company announces/applies for/ enters into a scheme of arrangement

Stay applies when

• express rights that arise by reason of the relevant occurrence of an insolvency

event or the company's financial position

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Categories of rights subject to stay

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Exclusions

• counterparty maintains the right to terminate for any other breaches of contract
• contractual rights may be enforced with the consent of the relevant appointee
• rights may be carved out from the stay in post-appointment contracts

there is a Court discretion to allow a right to be enforced "in the interests of justice" broadly, the stay applies for the duration of the insolvency event, unless extended by the Court

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Timing

MORATORIUM ON ENFORCEMENT – WILL COMMENCE OPERATION ON 1 JULY 2018

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Ipso Facto Clauses

After stay period

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• If right to enforce for reason of insolvency event or financial position. But can be

enforced for another reason.

Right cannot be enforced

• If the right arises for that reason by express provision (however described) of a

contract, agreement or arrangement.

• Includes self-executing provision

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Types of rights

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Stay period

• Typically ends when administration ends, but may extend beyond that
• If the right starts to be enforced before the administration, it can continue to be

enforced

• Right is unenforceable indefinitely after the end of the stay period to the extent

that a reason for seeking to enforce the right is a proscribed reason

• Power to extend stay period
• Power to lift stay
• Power to order that right enforceable only with leave
• Interim orders

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Court power

STATUTORY PROVISIONS – SS 451E, F, G, GA; SS 434J, K, L, LA; SS 415D, E, F, FA

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Ipso Facto Clauses

Secured creditors

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• If right to enforce for reason of insolvency event or financial position.

But can be enforced for another reason. Post- administration right

• Draft Corporations Amendment (Stay on Enforcing Certain Rights) Regulations

2018

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Prescribed contracts

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Prescribed contractual rights

• Draft Corporations Amendment (Stay on Enforcing Certain Rights) Declaration 2018
• Secured creditors that have a security interest over the whole, or substantially the

whole, of the property of the company, who enforce the security interest within the 13 business day decision period

• Company cannot enforce right against financier for a new advance of money or

credit

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Financiers

EXCEPTIONS

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KEY ISSUES FOR INSOLVENCY PRACTITIONERS

Ipso facto clauses

Preservation of value Strategic disclaimer

• f contracts

Personal liability Limitations of Court powers

COMMBAR CPD SEMINAR – 24 MAY 2018 OREN BIGOS, BARRISTER MICHAEL SLOAN, PARTNER, ASHURST

Safe Harbour and Ipso Facto Law Reform