International Legislative Update
Australian Insolvency Law Reform Process Continues
On December 7, 2015, the Australian government released its “National Innovation and Science Agenda” (the “Agenda”). In the Agenda, the government outlined its intention to make three significant reforms to Australia’s insolvency laws, adopting the recommendations of the Productivity Commission in its report, “Business Set-up, Transfer and Closure,” which was released on the same day as the Agenda. The proposed reforms include the following:
- Reducing the default bankruptcy period (the customary length of time before the debtor receives a discharge) for individuals from three years to one year.
- Introducing a “safe harbour” providing corporate directors with immunity from personal liability for insolvent trading under section 588G of the Corporations Act 2001 (the “Act”) during the implementation of a restructuring plan; and
- Preventing the enforcement of “ipso facto” contractual clauses during a restructuring attempt.
Insolvency reforms of the kind proposed in the Agenda have long been welcomed in the industry. Indeed, there has been a widespread perception that directors have increasingly appointed voluntary administrators for companies at the first sign of financial trouble to take advantage of the defense to insolvent trading in sections 588H(5) and 588H(6) of the Act. Voluntary administration has in turn triggered the destruction of companies’ enterprise value, as core creditors and suppliers have terminated their contracts in reliance on ipso facto clauses that apply when companies experience an “insolvency event.” All too often, those companies have ultimately been liquidated to the detriment of employees and other unsecured creditors.
In advancing the reforms, the Australian government released a proposals paper entitled “Improving Bankruptcy and Insolvency Laws” (the “Proposals Paper”) on April 29, 2016, for public consultation. Public submissions on the Proposals Paper closed on May 27. The new government is expected to advance the insolvency reforms by preparing draft legislation and actively engaging with stakeholders in what would appear to be the most significant adjustment to Australia’s insolvency landscape in the last decade.
A more detailed discussion of the proposed reforms is available here.
Decree to Promote Efficiency of Italian Insolvency Proceedings
A recent decree issued by the Italian Council of Ministers would—if enacted in its current form by the Italian Parliament—establish provisions governing nonpossessory pledges of certain assets, permit extrajudicial appropriation of real estate assets used to secure financing, and raise efficiency levels for insolvency proceedings. During the last two years, the Italian government has focused on reforming the Italian lending market, with the aim of boosting access to financing for Italian businesses and improving bankruptcy and enforcement proceedings in Italy. As part of this reform process, the Italian Council of Ministers enacted Decree No. 59 of 3 May 2016 (the “Decree”). The Decree introduces measures designed to, among other things: (i) create a new form of security—a “nonpossessory pledge,” or floating charge; (ii) establish the “patto marciano” agreement, which permits extrajudicial foreclosure on real property collateral; and (iii) expedite and improve the efficiency of enforcement and insolvency proceedings. A more detailed discussion of the Decree is available here.
United Kingdom Legislation Soon Effective to Expedite Recovery From Insolvent Debtor’s Liability Insurers
On August 1, 2016, six years after it received Royal Assent, the U.K. Third Parties (Rights against Insurers) Act 2010 (the “2010 Act”) will finally come into force. It is expected to provide a more effective mechanism for third-party claimants to seek recovery directly from an insolvent debtor’s liability insurers. The 2010 Act will supersede the U.K. Third Parties (Rights against Insurers) Act 1930 (the “1930 Act”), which provides for a statutory assignment to a third-party claimant of an insolvent debtor’s rights to claim against its liability insurer. This allows the third party to “step into the shoes” of the insured debtor and sue the debtor’s insurers directly, rather than having its judgment left unsatisfied through the judgment debtor’s insolvency. The 1930 Act, however, has proved cumbersome in operation because, before being able to pursue action directly against insurers, the claimant first has to pursue the defunct (insured) defendant to a successful outcome (establishing liability by agreement, award, or judgment). Two separate sets of proceedings have therefore been needed. With the coming into force on August 1, 2016, of the 2010 Act, however, while the statutory assignment device is retained, it will no longer be necessary to institute two separate sets of proceedings in order to benefit from it. Instead, the claimant can simply sue the defendant’s insurers directly, while at the same time seeking a declaration of the insured defendant’s liability in that single set of proceedings. A more detailed discussion of the 2010 Act can be found here.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.