SAFE HARBOUR REFORMS – A BETTER OUTCOME FOR WHOM?
Much has been published about the ‘Safe Harbour Reforms’ recently enacted into Australian law. Its stated goal is to protect directors and officers of companies who believe that their company is or may be insolvent and on satisfaction of certain preconditions may make a proposal to restructure the company and continue to trade within the ‘Safe Harbour’ provided it can be demonstrated that the proposal is likely to achieve ‘a better outcome for the company’.
But who was ‘the company’? What does a better outcome for the company really mean – is it a better outcome for creditors, if so, is it the secured creditors or unsecured creditors or all of them? Is it shareholders? What of other stakeholders including employees in the community as a whole?
Clearly the survival of a trading entity is vastly superior outcome to a typical external administration – if ‘a better outcome’ is treated as a reference to a better outcome for a broader group of stakeholders than simply shareholders and creditors, such an outcome is clearly in the public interest and to be applauded.
The survival of a trading entity leaves the community as a whole better off. It provides an opportunity to sustain the enterprise which would be lost in a conventional external administration – the maintenance of jobs, both within the entity and suppliers (witness the effect of the withdrawal of the car manufacturers in Melbourne and Adelaide), the payment of accumulated but unpaid employee entitlements, the maintenance of the goodwill, intellectual property and expertise built up by an enterprise, an opportunity for unsecured creditors to receive payment and avoids the sale of valuable assets by secured creditors resulting extraordinary losses and of course, the generation of tax revenue is a worthy goal.
These are highly leveraged values – spiral down if lost – spiral up on survival.
The return to health of a trading enterprise in our community is clearly ‘a better outcome’.