Safe Harbour and Ipso Facto reform – the TMA perspective

Treasury has just released the draft safe harbour and ipso facto legislation and discussion papers.  In essence, a “better outcome” test is put forward which will allow a company to trade on when it is of doubtful solvency.  The onus is placed on directors to take appropriate steps to amongst other things obtain expert advice and prepare a restructuring plan.  Liability is carved out where appropriate steps have been taken.  Ipso facto reform will apply in relation to schemes of arrangement and voluntary administration.  Contractual counter-parties will not be able to enforce ipso facto contractual rights absent statutory exemption or court order.

Turnaround professionals will be central to safe harbour.  The draft legislation requires that advice be taken in relation to the financial position of the company from an appropriately qualified entity.   Directors must develop or implement a restructuring plan.

The TMAA has been at the forefront of working with Treasury and industry bodies to not only help boards understand the need to engage turnaround advisors to assist in distressed conditions, but also to ensure the broader business community recognises the benefits turnaround advisors bring to restructuring assignments (the success stories and awards we celebrate at our national conference and state events, our efforts to allow capital to meet turnaround counterparties, the education programs we run and CTP accreditations and our social citizenship initiatives are all designed to raise this awareness).  Legislative reform is a key part of building that culture, though legislative reform is not enough by itself.  As an industry body, and as members of that body, we need to keep explaining to the business world the benefits of an early intervention by management and boards to save value by engaging in turnaround initiatives well before the time when financial defaults start to limit options for enterprises.  As influencers in the debate, it is up to us all to encourage the business community to engage our members to assist in turning around the fortunes of an enterprise, saving jobs and tax revenues in consequence.

Providing advice in relation to a “better outcome”, developing a restructuring plan and being a “qualified entity” for giving advice will be important to the turnaround profession and our members.  Tomorrow the TMA will release the criteria for being accredited as a certified turnaround professional.  We see this as forming part of the fundamental professional fabric for safe harbour reform.

Click here to see the exposure drafts and here to see the TMAAs previous submission on these proposed reforms. Pleasingly, Government seems to have accepted most of our suggestions.  A sub-committee of your board will now review the drafts and prepare a follow up submission, due before the end of April, with further suggestions to make the reforms work in practice.