The Australian Small Business and Family Enterprise Ombudsman has established an own-initiative inquiry into "the insolvency system". The inquiry will be conducted by the Ombudsman with the assistance of a Reference Group chaired by former Senator John 'Wacka' Williams. It aims to deliver an interim report in December 2019 and a final report in February 2020.

According to its terms of reference, the inquiry will examine:

  • The existing insolvency system through the experience of small businesses, in particular, where they may be able to contribute to the process
  • The degree of transparency of the governance, processes and costs of practitioners including legal experts, valuers, investigating accountants, administrators, receivers and liquidators
  • How the insolvency of a small or family business may lead to bankruptcy for the owners
  • How the established framework impacts the practices and fees of insolvency practitioners

Small businesses are defined as having fewer than 100 full-time equivalent employees or less than AU$5 million in annual revenue for a specified year.

The inquiry has come under criticism by ARITA for having too narrow a focus, and for being announced shortly after the launch of ARITA's own Financial Recovery Law Reform Commission.

Whatever view might be taken of the focus of the inquiry, the report and any recommendations made in it will no doubt attract industry interest when finalised in early 2020.

In the meantime, it is important for insolvency practitioners and others in the industry to understand how the Ombudsman might call on them to provide assistance to the inquiry.

Notices requiring information and documents

Given the inquiry is an 'own-initiative' inquiry, the Ombudsman cannot compel witnesses to give evidence at hearings. The Ombudsman can however compel a person to provide it with information and documents by issuing the person with a Notice.

The Ombudsman can serve a Notice on a person to provide specific information or documents within a particular time, which must be at least 10 business days after service of the Notice.

Anyone who receives a Notice must comply with it or risk a penalty. If the person does not have the information or documents required, they must take all reasonable steps available to them to obtain them.

As with most legal notices to produce documents and information, it may not be obvious from the Notice itself exactly what is required in order to comply with it.

Many of the usual grounds for declining to provide information or documents will apply to Notices issued by the Ombudsman. It is important to keep in mind that: 

  • Legal professional privilege may be claimed where appropriate
  • A recipient may refuse to provide information or documents on the basis that doing so might tend to incriminate them or make them liable to a penalty
  • A Notice should specify the documents or information required. If the categories of documents or information are too broad, the recipient might consider asking the Ombudsman to refine the request  
  • The Notice should relate to the inquiry's terms of reference, and be within the scope of an own-initiative inquiry under the Australian Small Business and Family Enterprise Ombudsman Act 2015 (Cth)

Determining which documents to produce and information to provide in response to a legal notice often involves the resolution of competing obligations (for example an obligation to maintain a document's confidentiality against the obligation to comply with the compulsive power). How these competing obligations are managed and resolved is not always straightforward.

What is required in order to comply with a particular notice will depend on factors such as the terms of the notice, the nature of the documents which fall within it and the person who receives it, and each notice should be considered carefully.

What the Ombudsman and Minister can do with information and documents

Ultimately, the Ombudsman may incorporate the information and documents obtained into her report.

The Ombudsman can provide the report to the Minister, who in turn can decide to publish it.

The Minster must consider whether an intended publication would be likely to adversely affect the interests of any person, for example by causing them reputational damage. If that is the case the Minister must direct the Ombudsman to give the person up to 30 days to respond to the relevant part of the report and the intended publication.

There are also protections for certain confidential information where the Minister intends to publish the report.

Dentons can assist

Should you receive a Notice from the Ombudsman, Dentons can assist.

With offices in every state jurisdiction in mainland Australia, our Restructuring, Insolvency and Bankruptcy team can provide technical and on-the-ground support to practitioners who receive a Notice and require assistance navigating some of the issues discussed in this alert.

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