Date posted: 07/09/2023

Priorities for change to Australia’s corporate insolvency regime

Following the final report from an inquiry into corporate insolvency, we highlight recommendations critical for effective reform.

In brief

  • Priority - to clarify the treatment of trusts with a corporate trustee
  • Critical – to remove untrustworthy advisers from the eco-system
  • Overall, for regulators to share the data they hold, and in a timely manner

On 28 September 2022, the Parliamentary Joint Committee on Corporations and Financial Services (the Committee) commenced an inquiry into Australia’s corporate insolvency laws. 

The inquiry sought to determine if Australia’s insolvency laws were effective in protecting and maximizing value for all interested parties and the economy. We made our initial submission on 30 November 2022 and appeared before the Committee on 28 February 2023. 

Submission on the effectiveness of Australia’s corporate insolvency laws

We recommend changes to the law and call on government agencies to consider the cost impost when asking for information in addition to that required by law.

Read submission

The Committee released its final report in July 2023 and assessed that Australia’s corporate insolvency system is overly complex, difficult to access and creates unnecessary cost and confusion for all parties. 

The Committee made 28 recommendations for reform and our letter sought to highlight those we consider critical and would be the most effective to reduce costs and complexity.

Recommendation 28 – Clarify the treatment of trusts

We suggest that the most impactful step the Government could take to address the complexity, cost and confusion in Australia’s corporate insolvency system is to clarify the treatment of trusts and corporate trustees when undergoing an external administration process. The accounting bodies seek an eviction clause in a trust deed, and the right of an appointor to appoint a new trustee, to be unenforceable when a corporation that is the trustee enters any form of external administration.

Recommendation 15 –Regulation or enforcement of untrustworthy advisers.

We strongly support active enforcement measures to remove untrustworthy, pre-insolvency advisers from the financial ecosystem. We suggest this can be best be achieved by government regulators sharing key data they already collect. Where enforcement is hampered by a gap in legislation, that gap should be clearly identified, and further regulation considered. 

Our letter also highlighted other recommendations where further clarity may be required.

Recommendation 8 – Potential reforms to small business restructuring (SBR)

As the number of SBR plans has grown, there is now an opportunity to review whether the additional information requested by the Australian Taxation Office from SBR practitioners is commensurate with the potential risks associated with the SBR plan.  We noted these requests increase the costs of the process which proportionally decreases the potential return for all creditors to the plan.

Recommendation 10 –Visibility of the solvency status of companies seeking deregistration.

As raised with the Committee, there is no requirement to ‘prove’ that the statements made in the application to deregister a corporation are true. We reiterated our call for, as part of the deregistration process, ASIC to also check with the Australian Taxation Office that there is no collectable debt outstanding.

We would like to thank our members, members who are also registered liquidators and our Insolvency Management Committee for their input and support during this inquiry.