Home featured Expert Featured Legal Expert Encouraging innovation through insolvency reform Sarah Bartholomeusz February 15, 2016 Current Insolvency provisions under the Australian Corporations Act impose a duty on Directors not to trade while insolvent, but also not to trade in a manner that will lead it to insolvency. Although this may not appear too onerous an obligation, it can actually be trickier than it seems. Some companies regularly flirt with insolvency, particularly if they trade in commodity prices or on the foreign exchange. The same can be said for directors who, in the pursuit of innovation, lead their company into unknown territory. The personal liability provisions under the existing insolvency framework in Australia means directors may be unwilling to take the necessary risks in order to truly innovate, and risk aversion among company directors in Australia is significantly higher than other OECD countries. The Senate Economics References Committee has recently released its long awaited Innovation Report. The Report identified several barriers to innovation and made recommendations with a view to creating a long term strategic framework to support innovation in Australia. In a swift response to the Report, the Government has outlined 28 significant new initiatives, including Insolvency Reform. The Insolvency Reform intends to make three significant changes: Reduce the current default bankruptcy period from three years to one year; Introduce a ‘safe harbour’ for directors from personal liability for insolvent trading if they appoint a restructuring adviser; and Make ‘ipso facto’ clauses, unenforceable if a company is undertaking a