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Debt collection commentary by Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group.

Credit Managers should be aware of the reforms made to the Corporations Act 2001 (“the Act”) that attempt to create a shield for directors of companies that believe their company is in financial stress and how it affects their debt collection strategies.

Changes in September 2017 to the Act created section 588GA and deal with specific actions taken by directors in relation to debts incurred after 19 September 2017. These reforms are commonly referred to as the “Safe Harbour Reforms”.

It idea behind the reforms is to assist directors by not penalising them should they recognise their company is in financial distress and seek professional advice from an “appropriately qualified entity” to get out of that situation.

If when a debt has been incurred the director has a suspicion that their company is, or may become, insolvent, and they are attempting to trade out of that position with advice from the appropriately qualified entity, then the director may be protected from the insolvent trading provisions under the Act.
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By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group.

As the 2017 year draws to a close, creditors would be aware that both instalments of the Insolvency Law Reform Act 2016 (“the ILRA”) have come to pass.

What should creditors be aware of under the new regime?

The ILRA is an attempt to reform the insolvency law but also to provide an improvement in the confidence of the public in the overall performance of the trustees and liquidators appointed to the various estates and administrations that are commenced every day.

Under the Corporations Act 2001 only the liquidator of the company can commence an action for preference payments or voidable transactions. The ILRA allows a liquidator to assign a voidable transaction to a third party (including creditors!). This may result in claims being commenced which the liquidator thought were not commercial to pursue.

Under the ILRA creditors are given significant additional powers to call meetings, request information, and documentation regarding the administration of a bankrupt or corporate insolvency administration. This gives control, upon the passing of a resolution, to give certain directions to the trustee or liquidator and in addition, to remove the trustee or liquidator, although the practitioner has a right to apply to the Court to avert removal.
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