The Parliamentary Secretary to the Treasurer, the Hon Chris Pearce MP, today announced an integrated package of reforms to improve the operation of Australia’s insolvency laws.
“While Australia’s insolvency regime is fundamentally sound, there are some areas that have not been updated since the 1988 Harmer Review. The Government is particularly concerned to ensure that vulnerable creditors, such as employees and small business, are adequately protected,” said Mr Pearce.
The package proposes a number of reforms, including: improved access to the General Employee Entitlements and Redundancy Scheme (GEERS); enhancing the prospect of payment of employee entitlements and personal injury claims in insolvency; and the establishment of a fund to finance preliminary investigations of ‘assetless’ companies to curb fraudulent phoenix activity.
The Government will allocate an additional $62 million over four years to enhance the range of entitlements under GEERS. Since the Howard Government introduced employee entitlements assistance in January 2000, over 54,000 Australian workers have received more than $661 million in assistance for their entitlements lost due to the insolvency of their employer.
As recommended by the PJC, the Government will retain the existing priority of employee entitlements in insolvency. The Government will also move to prevent this priority being downgraded in deeds of company arrangement without the agreement of employees, and clarify the status and priority of the Superannuation Guarantee Charge in external administrations.
The Government will allocate $23 million over four years to establish an ‘assetless administration’ fund and complementary enforcement programme by the Australian Securities and Investments Commission (ASIC). The fund will finance preliminary investigations by expert liquidators of companies, selected by ASIC, that have been left insolvent with little or no assets.
Reflecting the findings of the Report of the James Hardie Special Commission of Inquiry, the Government considers there is a strong case for introducing new protections for personal injury claimants, where a company expects a large number of successful personal injury claims arising from its conduct or products. However, the recognition of mass future claims in insolvency has risks that must be carefully addressed.
As such, the Government will refer this issue to its expert advisory committee, the Corporations and Markets Advisory Committee (CAMAC), for detailed consideration.
Additionally, the Government will introduce minor reforms to improve the registration of insolvency practitioners, and to fine-tune the voluntary administration process.
“The corporate insolvency regime has the potential to affect the conduct of every Australian business. It’s therefore vitally important that we ensure that any reform in this area is well-considered,” stated Mr Pearce.
“The Government’s package of reforms provides an integrated and comprehensive response that will improve protections and address regulatory gaps, while avoiding additional costs to business.”
The package has been developed after taking into account the recommendations of a number of recent reviews, including the Parliamentary Joint Committee on Corporations and Financial Services Report titled Corporate Insolvency Laws: a Stocktake, the Report of the James Hardie Special Commission of Inquiry, and several reports by the Corporations and Markets Advisory Committee.
Exposure draft legislation will be prepared in consultation with industry groups. It is anticipated that legislation will be circulated for public comment in early 2006 and a bill introduced later that year.
Further details about the reform package are available from the Treasury website and the reference to CAMAC can be found on the CAMAC website.
12 October 2005
CANBERRA
Contact: Catherine Whitby (02) 6277 2088