Potential insolvency law reforms

The Law Council of Australia (Law Council) has published submissions concerning the operation of the automatic stay provisions under the Corporations Act 2001 (Cth) (Corporations Act). 


The Law Council’s submissions note that while every corporate insolvency event results in some form of stay of proceedings, the relevant sections of the Corporations Act do not adopt consistent wording and as a result the operation of the stay provisions is not uniform. 

More particularly:

  • In the case of a court ordered winding up or voluntary administration, the automatic stay provided by sections 440D and 471B of the Corporations Act relevantly applies to “a proceeding in a court”.
  • Conversely, in the case of a creditors’ voluntary liquidation (see section 500(2)) and an application under section 467(7) of the Corporations Act, the stay relevantly applies to any “action or other civil proceeding”.

As a result of the different terminology adopted by these sections, the courts have held that arbitrations and certain proceedings before tribunals and commissions are stayed in the case of a creditors’ voluntary liquidation and under section 467(7), but not in a court ordered winding up or voluntary administration.

The courts have also found that there is some doubt concerning whether an appeal constitutes a “proceeding” for the purposes of the stay provisions.

Law Council submissions

The Law Council identifies this disparity as unhelpful and proposes the introduction of a uniform stay provision for all corporate insolvency events under the Corporations Act, in the following terms:

No person can commence or proceed with any action or other civil proceedings against the company (including the appeal of any decision) or enforcement against the property of the company without leave of the court and on such terms as the court imposes.

Interestingly, the Law Council proposes that in order to ensure uniformity, a voluntary administrator should lose the power under section 440D(1)(a) to consent to proceedings, with that power being expressly reserved for the court.

Lavan Legal comment

There is certainly merit to the proposal to introduce uniformity across the stay provisions in the Corporations Act.  In particular, it would seem contrary to the scheme and objectives of Part 5.3A of the Corporations Act to permit arbitrations to continue during the administration of a company.

Less obvious is the rationale for removing a voluntary administrator’s section 440D(1)(a) power to consent to proceedings.  In circumstances where a voluntary administrator forms the view that the proof of debt process will, in any event, result in legal proceedings involving a contested proof of debt, there seems to be merit in retaining the existing structure which allows the voluntary administrator to bring the matter before a court as soon as possible. 

Lavan Legal will continue to monitor this issue and will keep you updated of any resulting legislative changes.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.