On 15 October 2021 the Government commenced a consultation process to explore whether the treatment of corporate trusts in Australia's insolvency laws needed to be clarified.

Recognising the importance of the proposed reforms to our clients, we prepared a submission highlighting areas we thought were in need of improvement and providing recommendations to government.

We were particularly cognisant of the fact that lenders often may not know if they are extending credit to a company trading in a trust capacity and therefore believe the entity receiving the credit has assets, when in reality that is not the truth. We were also alive to the fact that liquidators were spending too much time and money making court applications to deal with uncertainty in the process of administering insolvent trading trusts and that needed to change.

Our submission to Treasury on a Legislative Framework for Insolvent Trading Trusts is attached.

We have recommended, amongst other things, that:

• The insolvency framework be amended to provide better clarity for all stakeholders and reduce costs for insolvency administrations involving trading trusts;
• A trusts register should be created;
• Insolvency practitioners should be able to administer an 'insolvent trust' without the need for a court application.

Please feel free to reach out if you have any comments on the reforms or wish to discuss in more detail.

To view Treasury's invitation for submissions please click here.