Corporate insolvency inquiry announced

By Katherine Payne and Mark Petrucco 

On 28 September 2022, the Federal Government, through the Parliamentary Joint Committee on Corporations and Financial Services (PJC), began an inquiry into corporate insolvency in Australia.

The announcement follows calls from industry for a ‘root and branch’ review of corporate insolvency law in Australia.

Submissions are open until 30 November 2022 and the PJC intends to table a report to Parliament by 30 May 2023.

The Terms of Reference and more information regarding the inquiry can be accessed on the Parliament’s website, but in essence they involve an inquiry into the effectiveness of Australia’s corporate insolvency laws ‘in protecting and maximising value for the benefit of all interested parties and the economy’.

The Terms of Reference include inquiry into:

1. recent and emerging trends in the use of corporate insolvency and related practices in Australia, including in regard to:
   1. temporary COVID-19 pandemic insolvency measures, and other policy measures introduced in response to the pandemic that may have had an effect on such trends and practices;
   2. recent changes in domestic and international economic conditions, increases in material and input costs for businesses and inflationary pressures more broadly, and supply shortages in certain industries; and
   3. any other contributory factors or events that have impacted insolvency patterns;
2. the operation of the existing legislation, common law, and regulatory arrangements, including:
   1. the small business restructuring reforms (2021);
   2. the simplified liquidation reforms (2021);
   3. the unlawful phoenixing reforms (2019); and
   4. the operation of the Personal Property Securities Act 2009 in the context of corporate insolvency;
3. other potential areas for reform, such as:
   1. unfair preference claims;
   2. trusts with corporate trustees;
   3. insolvent trading safe harbours; and
   4. international approaches and developments;
4. supporting business access to corporate turnaround capabilities to manage financial distress;
5. the role, remuneration, financial viability, and conduct of corporate insolvency practitioners (including receivers, liquidators, administrators, and small business restructuring practitioners);
6. the role of government agencies in the corporate insolvency system, including:
   1. the role and effectiveness of ASIC as the corporate insolvency regulator;
   2. the ATO’s role and enforcement approaches to corporate insolvency, and relevant changes to its approach over the course of the COVID-19 pandemic;
   3. the role, funding and operation of relevant bodies, including the Assetless Administration Fund and the Small Business Ombudsman; and
7. any related corporate insolvency matters.

The review is welcomed and allows scope for potential change to the legal and practical operation of the insolvency process, to address existing issues and complexities and to improve the efficiency and effectiveness of the regime.

As with all inquiries, the deeper that issues are considered, the more useful the outcome will be. We expect that a number of insolvency professionals (including this firm) will be entering submissions, and further note that the Australian Restructuring Insolvency and Turnaround Association and the Law Council of Australia are actively engaging with the PJC in relation to the inquiry.