Nick Xenophon (SA, Nick Xenophon Team) Share this | Hansard source

I can indicate that I and my colleagues do not support the amendments on sheet 8224. We have concerns that the prescriptive approach doesn't achieve the policy intent of the bill, and I believe there will be some significant unintended consequences with these amendments. Given the significant consultations over some 18 months and broad support for the carve-out model rather than a defence model, I and my colleagues think it is reasonable to support this model but to have the review as proposed by the opposition. Throughout the consultation process, Treasury has created a safe harbour approach that is workable, imposed a test on which directors' actions will be judged objectively and contains robust safeguards, including for employee entitlements and tax obligations.

The Senate Economics Legislation Committee report on this made the point at 2.15, in part, that 'requiring that a director meet an evidential burden in order to be entitled to a safe harbour', rather than a defence, was the preferred approach. The report says:

Most submitters expressed support for this approach and argued that it is in line with the bill's objective of facilitating successful restructures outside of formal insolvency.

In its submission—

and I think Senator Cormann made reference to this—

Ashurst noted that the carve-out model would provide 'an extra level of protection for directors who are making honest and diligent attempts to restore a company to solvency'—

And I emphasise 'honest and diligent attempts'—

Ashurst also explained the operation of a defence versus carve-out safe harbour model:

A defence would mean that directors continued to have prima facie liability for insolvent trading in the specified circumstances, subject to their being able to establish the elements of the defence.

By contrast, a carve-out would mean that a director would not be liable for insolvent trading unless the liquidator or other person taking action could establish that the director had failed to satisfy the safe harbour prerequisites.

And I think that sums up the policy very neatly. The report goes on:

TMA Australia submitted that a traditional defence 'would be a cold-comfort to directors' and pointed out that such a model would likely result in under-utilisation of the safe harbour protections.

They are important reasons for keeping it as is. I do not begrudge the opposition for putting up this amendment. I understand what they are trying to achieve, but I think there are a number of serious unintended consequences.

It is important that we put on the record that the 2013 report of Singapore's Insolvency Law Review Committee had the following to say:

The Australian provisions are considered to be some of the strictest provisions amongst the major jurisdictions, in the sense that they effectively prohibit trading once there are 'reasonable grounds for suspecting' that a company is insolvent … A wide notional cessation of trading even prior to the commencement of insolvency proceedings may further endanger a financially-troubled company's ability to trade through a period of crisis, and thus worsen the company's financial difficulties. It does not strike the best balance between the interest in protecting creditors against the reckless or unreasonable incurring of debts by an insolvent company, and the interest in allowing the directors of a distressed company a fair opportunity to take reasonable steps to avoid the company's financial ruin. There should be more latitude afforded to a director to continue to trade in the reasonable expectation that, although the company is insolvent, it is most likely to be able to trade out of its present difficulties.

Can I say: they are important considerations for companies that are struggling to stay open. They do so in good faith, and they have the benefit of the safe harbour provisions, and that has huge implications for the employees of that company, where those directors are doing all they can to keep that company going.

This amendment would go against that. I think the government's approach is appropriate. I think that the opposition's proposal for a thorough review of this is welcome, and I support that. We cannot support this particular amendment, but we do strongly support the review proposed on sheet 8239, and look forward to the results of that report.