Time for change 3 min read
On 28 September 2022, the Federal Government's Parliamentary Joint Committee on Corporations and Financial Services (Committee) announced an inquiry into corporate insolvency in Australia (Inquiry). The Inquiry is the first major review of Australia's corporate insolvency regime in more than 30 years.
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Key takeaways
- The Inquiry will be the first major review of the corporate insolvency regime since the Harmer Report in 1988.
- The Inquiry will consider the effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy.
- Submissions from interested parties and stakeholders are due by 30 November 2022.
- The Committee currently intends to table a report to Federal Parliament by 30 May 2023.
The Inquiry
Long awaited reform
It has been more than 30 years since the Harmer Report was published, which heralded in a range of amendments to Australian insolvency laws. Since then, there have been no major reviews of Australia's corporate insolvency regime, prompting criticism that it has failed to evolve and remains overly complex, burdensome and costly.
Why now?
In its media release, the Committee stated that it 'has resolved to undertake this inquiry in order to understand and describe the reality of what is happening in the corporate insolvency space right now and consider potential areas of reform'.
The Inquiry has been prompted by a series of recent challenges to the Australian economy, including:
- the COVID-19 pandemic, which saw a number of temporary insolvency measures introduced (such as the Government's stimulus package, an increase in the threshold at which creditors can issue a statutory demand, an extension of time for compliance with a statutory demand and temporary relief for directors from any personal liability while insolvent);
- recent changes in domestic and international economic conditions, such as increases in material and input costs for businesses, inflationary pressures and supply shortages in certain industries; and
- the highest level of external administrations since November 2019 and more than double the lows of 2020 and 2021.
Further, earlier this year a panel commissioned by the Morrison Government was tasked with reviewing the effectiveness of the then-Government’s 2017 safe harbour protections for directors. In their report, the panel called for an in-depth look at Australia's corporate insolvency regime, which they described as an 'impenetrable quagmire that is scary, complex and unknown'.
What will the Inquiry look at?
The Terms of Reference for the Inquiry reveal that the Committee is tasked with reviewing the effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy. To that end, the Terms of Reference provide seven key areas of focus, being:
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Recent and emerging trends in the use of corporate insolvency and related practices in Australia |
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The operation of the existing legislation, common law and regulatory arrangements |
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Other potential areas of reform |
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Supporting business access to corporate turnaround capabilities to manage financial distress |
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The role, remuneration, financial viability and conduct of corporate insolvency practitioners (including receivers, liquidators, administrators and small business restructuring practitioners) |
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The role of government agencies in the corporate insolvency system |
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Any related corporate insolvency matters |
Given the broad nature of the Terms of Reference, the Inquiry provides a unique opportunity for the corporate insolvency regime to be examined on a holistic level to ensure it appropriately meets the needs of both participants and the economy.
Next steps
Interested parties and stakeholders should consider making submissions to the Inquiry before the due date on 30 November 2022. Should you wish to discuss this inquiry, please do not hesitate to contact one of our experts.