The Parliamentary Joint Committee on Corporations and Financial Services released its report into Corporate Insolvency in Australia this week and the full list of the Committee’s recommendations can be viewed below, along with a link to the report.
Unsurprisingly, the main recommendation of the Committee is that inquiries continue.
The Committee has found that Australia’s insolvency regime is no longer fit for purpose and is burdened by inefficiencies and unnecessary cost as a result of decades of ad-hoc reforms.
A comprehensive, independent and appropriately resourced review of both the corporate and personal insolvency regimes is what is required, the Committee concluded, which places the ball firmly back in the court of Treasurer Jim Chalmers.
Recommendation 1
3.104 The committee recommends that as soon as practicable the government commission a comprehensive and independent review of Australia’s insolvency law, encompassing both corporate and personal insolvency. The committee is also recommending that the government progress several other near-term actions as identified in the executive summary.
Recommendation 2
4.61 The committee recommends that the comprehensive review, as part of its early work, consider and report on the appropriate principles and objectives of insolvency law. The committee further recommends that the government respond quickly to this first report of the comprehensive review to allow the comprehensive review to continue with further stages of work in a timely way.
Recommendation 3
5.77 The committee recommends that the comprehensive review consider and make recommendations on options to enhance public interest objectives and the effectiveness of, and interaction between, the personal and corporate insolvency systems.
Recommendation 4
6.75 The committee recommends that the Australian Securities and Investments Commission collect high quality, granular data in relation to insolvency and provide this data in a timely way to relevant government agencies and regulators.
Recommendation 5
6.76 The committee recommends that the proposed comprehensive review of insolvency consult data holders, researchers, industry participants, and public sector organisations to progress the access to and analysis of insolvency data.
Recommendation 6
7.98 The committee recommends that the proposed comprehensive review consider and report on the current system of corporate insolvency pathways from a holistic systems analysis perspective.
Recommendation 7
7.101 The committee recommends that the government implement recommendations from the SafeHarbour Review, independent and likely in advance of the further review, and consider referring the remainder of safe harbour reform issues identified in this report to a comprehensive review.
Recommendation 8
7.107 The committee recommends that as soon as practicable the government consider and consult on potential reforms to the:
small business restructuring pathway; and
simplified liquidation pathway.
Recommendation 9
7.108 The committee recommends that the comprehensive review consider the:
voluntary administration pathway; and
members voluntary liquidation pathway.
Recommendation 10
7.110 The committee recommends that the Australian Securities and Investments Commission collect and analyse data from an appropriately sized sample of voluntary and compulsory deregistrations, to provide greater visibility of the solvency status of deregistered companies.
Recommendation 11
8.25 The committee recommends that the comprehensive review consider the requirements for the registration of small business restructuring practitioners to understand the reasons for the limited number of registrations to date.
Recommendation 12
8.30 The committee recommends that the government reform the experience eligibility requirements for registered liquidators, to address the inequity of the requirements and the gender imbalance in the population of registered liquidators. Reforms could potentially include:
increasing the period over which experience is demonstrated, or
replacing part of the required hours with a competency-based exam.
Recommendation 13
8.67 The committee recommends that the comprehensive review include consideration of the remuneration of insolvency practitioners, including:
the extent to which public interest work carried out by liquidators for no or limited pay is sustainable; and
the impact of this on all stakeholders in external administrations.
Recommendation 14
8.87 The committee recommends that the comprehensive review include consideration of the operation, efficacy, and efficiency of the current independence requirements for insolvency practitioners, including:
whether the current requirements are achieving the policy settings that inform them and whether these policy settings are optimal; and
the advantages and disadvantages of formally separating the roles of advice and restructuring from formal appointments to liquidations and administrations.
Recommendation 15
8.108 The committee recommends that the comprehensive review include consideration of the nature and extent of the harm posed by ‘untrustworthy pre-insolvency advisors’, and whether further regulation or enforcement measures are needed to address this issue. The committee further recommends that in the interim, the government take prompt action to improve the regulation and active enforcement of pre-insolvency advisers.
Recommendation 16
9.46 The committee recommends that the government consider changes to the Assetless Administration Fund to ensure that it is achieving its intended policy objectives.
Recommendation 17
9.51 The committee recommends that the Department of the Treasury consider assessing the potential benefit of the Public Interest Administration Fund proposed by the Productivity Commission in 2015, including the impacts of the required increase on the annual review fee for company renewals; and either consider implementing the proposal, or provide that analysis to a comprehensive review.
Recommendation 18
9.73 The committee recommends that the comprehensive review consider and make recommendations on options for funding the administrations of assetless companies, including reforms to the Assetless Administration Fund (noting the committee’s recommendation 16) and the merits of creating a public liquidator for corporate insolvency.
Recommendation 19
10.35 The committee recommends that the comprehensive review consider whether the current statutory reporting obligations for insolvency practitioners are best serving the integrity, efficiency, and efficacy of the Australian corporate insolvency framework, including (but not limited to):
the ability of the Australian Securities and Investments Commission (ASIC) to appropriately process, utilise and respond to initial statutory reports on current resources; and
the appropriateness of existing reporting thresholds, having regard to their regulatory value as well as the burden imposed on insolvency practitioners.
The committee further recommends that in the interim, the government and ASIC consider whether any timely changes can be made to the regulations on reporting thresholds, and ASIC’s response to insolvency practitioner reports.
Recommendation 20
10.54 The committee recommends that the comprehensive review examine the operation of the insolvent trading regime and its impact on the broader corporate insolvency framework.
Recommendation 21
10.105 The committee recommends that the comprehensive review analyse and make recommendations on the overall economic and social benefits and costs of Australian Taxation Office relief to potentially insolvent companies in hard economic times, in the context of the impacts on the purposes of the insolvency system.
Recommendation 22
10.106 The committee recommends that the Australian Taxation Office consult, act on and publish model creditor guidelines, consistent with its model litigant obligations.
Recommendation 23
11.37 The committee recommends that the comprehensive review consider the relative priority of employees, liquidators, and secured creditors, including the priority over circulating assets under section 561 of the Corporations Act 2001. The committee further recommends that this be a high priority topic for the comprehensive review.
Recommendation 24
11.79 The committee recommends that the government develop reforms to improve the framework designed to ensure the policy objective of access to the Fair Entitlements Guarantee as a scheme of last resort, both to prevent misuse by novel schemes of arrangement, phoenixing, and other practices and to ensure capture of all individuals with valid entitlements.
Recommendation 25
11.87 The committee recommends that the comprehensive review consider and report on franchising insolvency issues.
Recommendation 26
12.65The committee recommends that the government provide a formal response to the Whittaker Review which was completed in 2015.
Recommendation 27
13.61 The committee recommends that the comprehensive review consider unfair preferences and voidable transactions as a core aspect of potential insolvency reform.
Recommendation 28
14.55 The committee recommends that the government amends the Corporations Act 2001 to expressly clarify the treatment of trusts with corporate trustees during insolvency.
To view the report in full: Corporate insolvency in Australia
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