Loan reform floated

Written on the 13 May 2009

 

A BRISBANE lawyer has called for insolvency law reform to prevent businesses collapsing when they have a reasonable ability to trade their way out of difficulties.
McCullough Robertson partner Scott Butler says under existing laws, directors must not allow their company to incur a debt unless they have a reasonably held expectation that it is solvent, but this is preventing otherwise creditworthy companies acquiring funding to keep themselves afloat.
“My view would be that where directors are forced in a position either to incur debt and trade or not to survive the downturn, the test should be whether the decision to trade is reasonable or not,” says Butler.
“In the UK it’s called wrongful trading and their courts applied it to realise that if a director makes a tough decision, they look at it from the standard of what a reasonable business person would do,” he says.
“It’s better to save a situation rather than never give that opportunity and my view is that in a lot of cases some shareholder value could be saved, businesses can survive and employees don’t have to be sacked.”
The reforms Butler is suggesting have also been referred to as ‘reckless trading’ and apply even before insolvency, allowing directors to take more responsibility.
But The Corporations Act 2001 leaves directors open to civil and possibly criminal penalties, as well as being personally liable to compensate for losses if insolvent trading occurs.
“This legislation means that directors are walking a legal tightrope if they attempt to keep their businesses afloat rather than declaring insolvency.”
Butler has recently joined McCullough Robertson’s insolvency team which he expects to grow by 50 per cent – an increase roughly in proportion to the amount of new insolvency litigation cases the firm has been experiencing.
“Insolvency cases have increased by that amount if not more,” he says.

Latest News

BELLAMY'S FINDS EXPORTING BABY FORMULA INTO CHINA IS NO CHILD'S PLAY

BELLAMY'S (ASX: BAL) shares have suffered a 40 per cent drop in value today after the company hit a regulatory...

BRISBANE WATCH BRAND ADINA AIMS FOR ICONIC

ADINA watches is at a turning point in its history, 45 years after being founded by Robert 'Bob' Menzies i...

WHY YOU SHOULD CARE FOR YOUR BODY AS MUCH AS YOUR BUSINESS

ENTREPRENEURSHIP is a busy business. It can be all-consuming, but it is important not to neglect your health Y...

BULLETS BACK IN THE BUSINESS COMMUNITY

ALTHOUGH new to the current south-east Queensland sporting landscape, the Brisbane Bullets have a rich basketball ...

Related News

JB HI-FI IS THE GOOD GUY IN $870 MILLION ACQUISITION

ELECTRONICS giant JB Hi-Fi has formally completed its $870 million acquisition of home appliance chain The Good Gu...

ACCC ACTS AGAINST MERITON'S RIGGED REVIEWS

MERITON Property Services is under fire from Australia's main consumer watchdog, after it allegedly engaged in mi...

ACCC FIRES WARNING SHOT TO IVF PROVIDERS

IVF clinics have been put on notice by consumer watchdog, the Australian Competition and Consumer Commission (ACCC...

BIG W CEO QUITS AFTER 11 MONTHS

SALLY MacDonald has resigned as chief executive of BIG W ending her tenure at the helm of the struggling discount ...

Contact us

Email News Update Sign Up Contact Details

Subscribe to our mailing list

* indicates required
Email Format

PO Box 2087
Brisbane QLD 4001

LoginTell a FriendSign Up to Newsletter