Why we think the latest insolvency laws reform is a great idea

As part of its National Innovation & Science Agenda, the Australian government is making a few changes to its insolvency laws.

“Oh, great,” we hear you moan. “Another bunch of changes to make things even more complicated for business owners.”

Actually, we think the latest changes are a great idea, and look forward to seeing the proposal paper next year.

Here’s why.

As you probably know, being an entrepreneur isn’t always easy. For every story about a business that made it, there are probably a dozen stories about businesses that didn’t. And while some may have failed because they were simply bad ideas, others may have failed for different reasons. The timing may have been wrong. Maybe the business model wasn’t quite right. Or maybe the owners misjudged the amount of capital they’d need to get it off the ground.

In an ideal world, these entrepreneurs would learn from their mistakes and try again, either with the same plan or a better one. But with the penalties for failure being so high, even if they wanted to give it another shot they may not be able to.

Which is why we’re right behind the latest reform to our insolvency laws. By reducing the penalties for insolvency they’ll encourage entrepreneurs to take more risks, be more ambitious, and come up with the innovations that will make their business a success.

So what’s changing? Well, according to the insolvency laws reform web page they’re going to:

  • reduce the default bankruptcy period from three years to one year
  • introduce a ‘safe harbour’ that protects directors from personal liability for insolvent trading if a restructuring adviser is helping them come up with a turnaround plan for the company
  • making ‘ipso facto’ clauses that can terminate a contract due to insolvency (which often leads to a company’s liquidation) unenforceable if a company is being restructured.

We’re sure you’ll agree these changes are a step in the right direction. In fact, the only downside is they’re not expected to be introduced and passed until mid-2017.

If you’d like to know more about these changes, and how they could affect you, don’t hesitate to get in touch with the team here at Rapsey Griffiths.