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The government has released a draft legislation which reforms insolvency laws, highlighting the importance of accurate and timely bookkeeping records for accountants.
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New insolvency rules ‘important’ for accountants
30 March 2017
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The proposed laws move to protect company directors from personal liability and make ipso facto clauses unenforceable during a formal insolvency process.
Minister for Revenue and Financial Services, Kelly O’Dwyer, said the proposed ‘safe harbour’ will apply to directors of companies undertaking a restructure and will protect them from personal liability for insolvent trading in certain circumstances.
“This will drive cultural change among company directors and encourage them to engage early with a plan for business rescue to keep control of the company while the plan is executed, and to take reasonable risks to facilitate the company’s recovery, rather than placing the company prematurely into voluntary administration or liquidation,” said Ms O’Dwyer.
“This will not only promote a culture of entrepreneurship and help reduce the stigma associated with business failure, but offers businesses a better chance of restructuring outside of a formal insolvency, which often produces significantly better outcomes for the company, its employees and its creditors.”
Liz Stamford, Audit and Insolvency leader at Chartered Accountants Australia and New Zealand, said these changes emphasise the importance for accountants to maintain good bookkeeping records and being informed of the company’s financial position.
The amendments to the ipso facto clauses will also give companies a greater chance to successfully restructure and may increase the likelihood of being able to sell the business as a going concern.
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“This is important for accountants because if you’re working with a company or as a company that is trying to restructure or do a rearrangement of their financial position, you can then take those contracts as contracts that will continue when you are doing your accounting and estimating or working through financial positions,” said Ms Stamford.
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