The first major review of Australia’s corporate insolvency regime in more than 30 years, the Federal Government’s Parliamentary Joint Committee on Corporations and Financial Services (‘Committee’) has announced a “root and branch” overhaul of the structures regulating corporate insolvency within Australia (‘Inquiry’).
Why now?
With the last major review of Australia’s corporate insolvency regime occurring through the Harmer Report in 1988, the Committee’s current Inquiry has been prompted from a series of recent challenges to Australia’s economy, including:
- the COVID-19 pandemic and the introduction of temporary (now lapsed) insolvency measures, such as:
- Government stimulus packages;
- amendments to the statutory demand regime; and
- temporary relief for directors from personal liability.
- recent changes to economic conditions, both in domestic and international markets, including inflationary pressures and supply shortages; and
- the highest level of external administrator appointments since November 2019, double that as seen in both 2020 and 2021.
The Inquiry was further prompted from the recent review of the Morrison Government’s 2017 insolvent trading safe harbour protections for directors. Describing Australia’s current insolvency regime as an “impenetrable quagmire that is scary, complex and unknown”, the review urged for national reform and an in-depth consideration of Australia’s current corporate insolvency regime.
What will be considered?
The terms of reference for the Inquiry reveal the following seven key areas of focus that the Committee will consider:
- recent and emerging trends within corporate insolvency and related practices within Australia;
- the operation of existing legislation, common law and regulatory arrangements;
- potential areas of reform;
- new and reformed means through which to support business access to corporate turnaround capabilities to manage financial distress;
- consideration of the role, remuneration, financial viability and conduct of corporate insolvency practitioners;
- the role of government agencies within the corporate insolvency system; and
- any related or emerging corporate insolvency matters.
These broad terms of reference are an attempt by the Committee to ensure any future reform appropriately meets the needs of both participants and the nation’s economy. It is anticipated that the significant costs of external administration and the high rates of Court involvement will be addressed.
Next Steps
Pragma will report back on the outcomes of the Inquiry when the Committee’s report is tabled in 2023. Interested parties and stakeholders who wish to make a submission to the inquiry have until 30 November 2022 to do so. Should you require assistance in relation to any of the information provided above, or wish to discuss any aspect of the Inquiry or insolvency law more generally, Pragma Lawyers can provide advice to you. Contact us today at hello@pragma.law or call us on (08) 6188 3340.
