Corporate Law Reform

19 August 2010

"We want a good, strong economy in Australia, but if we don't get this one right, so we can save viable businesses and jobs, when the next crisis comes, the economic consequences will be magnified because of the inadequacies of our legal system," argues Dr Robert Austin.

In an interview with the Law Society of NSW Journal, Dr Austin, who is the Challis Lecturer in Corporate Law at the University of Sydney, asserts that the system of voluntary administration may be in need of urgent reform.

"The GFC and its aftermath have left plenty of reasons for uneasiness.
"For example, a company may have on its balance sheet assets at market value, but the market may have collapsed or even disappeared.
"The assets might be impaired because of the risk that the counterparty will be unable to meet its obligations.

"Directors considering a workout are likely to be nervous, during the time it takes to put together a proposal, because of the risk that it may subsequently become clear that there were, all along, reasonable grounds to suspect insolvency, with the result that they are liable, even though they were trying to save the business.
"They will be confronted with difficult judgments in assessing solvency, in circumstances where they know there's every chance they will protect themselves from liability by moving into voluntary administration.
"And so there will be a strong temptation to do so."
Dr Austin believes the situation in the United Kingdom is highly relevant because it also has a system of voluntary administration under which, as here, the board is replaced by external insolvency practitioners.
"However, their law on insolvent trading liability is not as strict as ours," he says.
"Australia needs to look carefully at overseas experience to create a more effective system for workouts, particularly when they affect large companies whose failure will directly impact on our economy."

Sydney Law School will examine this topic further at the 2010 Supreme Court Corporate Law Conference - Restructuring Companies in Trouble - Director and Creditor Perspectives - which takes place on Tuesday, 24 August 2010.

To register and for further information - 2010 Supreme Court Corporate Law Conference

Contact: Greg Sherington

Phone: +61 2 9351 0202

Email: 020a5555192b5d32215a5c0a4c1b172c2b01214506495b5c17464a330c