TGIF - Inquiry into Australian corporate insolvency regime commences - Insolvency/Bankruptcy

The Parliamentary Joint Committee on Corporations and Financial Services has commenced an inquiry into Australia's corporate insolvency regime. The inquiry, due to be completed by 30 May 2023, will examine the effectiveness of the current regime and consider potential reform.

Key takeaways

The Inquiry follows a recent uptick in insolvencies due to challenging economic conditions and the upheaval brought about by the COVID-19 pandemic.
The Inquiry will consider a range of issues including: current pressures on Australian businesses; areas for reform including unfair preference claims, corporate trustees and safe harbour laws; and the roles of insolvency professionals and government agencies.
The Committee is currently accepting written submissions and will hold public hearings before tabling its report in Parliament by 30 May 2023.

The Inquiry into Corporate Insolvency in Australia (Inquiry) will evaluate the insolvency system and provide a series of recommendations for reform in what will be the first major review of the Australian insolvency regime since the 1988 Harmer Inquiry.

Announced on 28 September 2022, the Inquiry has been prompted by a series of factors including the COVID-19 pandemic, which brought about a raft of temporary insolvency measures the impact of which has yet to be fully examined.

Challenging domestic and international economic conditions have also placed further pressure on Australian businesses leading to an increase in insolvencies.

These events have put a spotlight on the effectiveness of Australia's insolvency laws, which some have criticised as being overly complex for business owners, directors and insolvency practitioners.

Terms of reference

The Inquiry has a comprehensive scope and will consider:

recent trends in corporate insolvency, including the temporary measures introduced during the COVID-19 pandemic and the impact of current economic conditions;
the existing legal framework including recent reforms to small business restructuring, simplified liquidation and unlawful phoenixing as well as the operation of the Personal Property Securities Act 2009 (Cth)in the context of corporate insolvency;
areas for reform such as unfair preference claims, trusts with corporate trustees and safe harbour laws;
supporting business access to corporate turnarounds;
the role, remuneration, financial viability and conduct of corporate insolvency practitioners; and
the role of government agencies in the insolvency system including ASIC, the ATO, the Assetless Administration Fund and the Small Business Ombudsman.

Call for submissions

The Committee is currently accepting submissions addressing the terms of reference by interested parties. Written submissions are open until 30 November 2022 and public hearings will also be held.

Comment

Despite significant reform in this space in recent years, including the introduction of the safe harbour legislation and the simplified small business restructuring and liquidation frameworks, the complexity and costs associated with insolvency processes in Australia remains an overarching issue.

The Inquiry provides a rare opportunity for a whole of industry review and appears genuinely aimed at ensuring Australia's corporate insolvency regime is fit for purpose.

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