24 March 2021

Insolvency Reforms: Some Unintended Consequences

Article Three Andrew Lambros, Shereen Parvez
Andrew Lambros Litigation Lawyer
Shereen Parvez Intellectual Property Lawyer

The recent insolvency reforms are likely to have wide-ranging consequences, the full extent of which we will only learn about as cases are decided by the courts. Previously, we have covered some of the risks and issues that companies and directors may face when using the debt restructuring process. We have also separately covered risks that may arise for creditors when their debtors undergo debt restructuring or the simplified liquidation process.

In this article, we consider some of the unintended consequences that the insolvency reforms may have in relation to various licensing laws that have financial requirements that must be met as a condition of that licence.

By way of example, the amendments made to the Corporations Act 2001 (Cth) will interact with numerous other pieces of legislation, such as the Queensland Building and Construction Commission Act 1991 (Qld) (“QBCC Act”) which either ban or suspend licences of individuals who were involved with companies who go into liquidation or administration.   In the QBCC Act such a person is defined as an “excluded person” who is unable to hold a building licence (at least for a period of time).

At present, it is unclear how the debt restructuring process will interact with the QBCC Act’s requirements for holding a building licence. Specifically, it is unclear how the definition of “excluded person” under the QBCC Act may be construed in light of the unique nature of the debt restructuring process.

‘Excluded person’ under the QBCC Act

The QBCC Act states that a person is an ‘excluded person’ if they:

  1. become bankrupt, or take advantage of bankruptcy laws by entering into an agreement under the Bankruptcy Act 1966; or
  2. are a director, secretary or influential person for a construction company within the period of two years before the company appoints a provisional liquidator, liquidator, administrator or controller.

One technicality that could assist directors of companies undergoing the debt restructuring process is that the definition for ‘excluded persons’ specifically refers to the appointment of a liquidator, administrator or controller but not a small business restructuring practitioner. Essentially, as the definition does not explicitly identify restructuring practitioners it could provide a ‘loophole’. However, the QBCC has not yet commented on the impact of the insolvency reforms on the interpretation of the QBCC Act. Further, the QBCC Act has not yet been amended to take account of the insolvency reforms. It is possible that that may still occur.

Similar licensing rules can be found in numerous other pieces of legislation in  Queensland and the rest of Australia.  No doubt some of these are currently written to cover “arrangements with creditors or admitting the company is insolvent”.  In those circumstances, we would expect appointing a small business restructuring practitioner (given the way the process works) would still be grounds for a loss of the relevant licence.

Governments may also change the legislation to cover any such loopholes in time and may even make those changes retrospective.

At the moment however, it’s possible that a director of a small company who is worried that liquidating their company might impact on their licence could use the new small business restructuring process and possibly keep their licence.  If you would like any advice on this issue or would like to discuss this further, please contact Andrew Lambros on 07 3001 2925 or Shereen Parvez on 07 3001 2929

Individual liability limited by a scheme approved under professional standards legislation (personal injury work exempted).

Related Posts

16 June 2022 Publications

Security of Payment: NSW Court of Appeal Limits Jurisdictional Challenges

Find out more
03 June 2022 News & Media / Publications

Neighbours and the Fights we Have Over Water

Find out more
14 April 2022 News & Media

More Firsts for Registered Designs in Australia

Find out more

Stay in the know

Get our latest news and publications delivered straight to your inbox

  • This field is for validation purposes and should be left unchanged.