Key points: |
Release of a package of reforms to Australia’s insolvency laws: the first comprehensive reforms since the 1988 Harmer Review. |
Reforms draw on input from many groups and individuals: including Corporations and Markets Advisory Committee, Parliamentary Joint Committee on Corporations and Financial Services, and insolvency practitioners. |
Reforms will: introduce greater flexibility into insolvency proceedings, remove unnecessary regulatory burdens, and modernise legal frameworks to reflect market developments. |
Thank you, John [Melluish, President of IPAA]
I’m delighted to be here this afternoon. And I’m particularly delighted to announce today the release of draft legislation implementing a comprehensive set of reforms to Australia’s insolvency laws.
Ladies and gentlemen, this package of reforms is a milestone. It is the first comprehensive reform package for insolvency law since the 1988 Harmer Review.
The reform package represents the collective wisdom and experience of many experts in the field.
Firstly, it reflects the recommendations of several reviews by the Corporations and Markets Advisory Committee. I’d like to extend my personal thanks for this work to Vince Jewell, who I understand is here today.
The reforms also take into account the recommendations of the Parliamentary Joint Committee on Corporations and Financial Services. Unfortunately, Senator Chapman couldn’t make it today, but I would like to recognise the important contribution made by his committee.
And finally, the reforms take account of the experiences of practitioners such as yourselves, as conveyed to the Government by the IPAA and other representative bodies. We have also drawn on areas of the law highlighted in the James Hardie Inquiry.
Before talking about the specific proposals, I will outline the Government’s broad vision for reform in this area.
Australia’s corporate insolvency regime is a critical part of our economic infrastructure. Insolvency law underpins the system of financial and contractual relationships that enable trade and commerce to take place.
A modern credit-based economy needs predictable, transparent and affordable means for enforcing secured and unsecured credit claims. A well-designed insolvency system helps business to obtain financing more easily and at a lower cost.
Insolvency laws and processes also complement the general body of rules governing directors’ duties, as they provide a set of incentives and sanctions that guide the behaviour of directors during the life of a company.
The broad objective of reform in this area is to ensure that the corporate insolvency regime continues to contribute to an already efficient and informed market.
In this sense, the insolvency regime should provide a “light-touch” framework, which facilitates efficient and transparent decision-making by market participants.
The reform package I am releasing today meets this objective in three ways…
Firstly, by introducing greater flexibility into insolvency proceedings…
Secondly, by removing unnecessary regulatory burdens…
And thirdly, by modernising legal frameworks to reflect market developments.
I would like to take this opportunity to highlight the comprehensive and integrated nature of the reforms.
Taken together, the reforms will substantially improve both the efficiency and the integrity of Australia’s insolvency proceedings.
Reforms to streamline insolvency processes will be complemented by improvements to practitioner registration… improved disclosure requirements… and a new approach to assetless administrations.
Specific proposals
Turning now to some of the key aspects of the reforms…
The package includes several measures designed to reduce the cost of insolvency processes. For example, we have worked closely with the IPAA to identify and remove redundant meeting and notice requirements.
Other cost-saving proposals will allow greater use of the internet, email and other communication technologies to conduct meetings and circulate information to creditors.
As well, the reforms will introduce a new statutory process for pooling the external administration of related companies.
These rules will provide for significant cost reductions in these circumstances, for example by allowing consolidated accounts, and consolidated meetings and minutes of meetings.
The package also includes several measures to improve the protection of employee entitlements. Perhaps the reform that will have the greatest practical impact is a clarification of the treatment of the Superannuation Guarantee Charge in insolvency.
This reform will confirm that these amounts should be accorded the same priority as employee entitlements. This will improve the prospects of recovering outstanding superannuation obligations in the event of employer insolvency.
The reforms will also clarify the law, addressing a source of cost and uncertainty for practitioners in many proceedings.
The package also includes measures to ensure that creditors are in a position to make informed decisions about key proposals.
For example, administrators will be required to declare certain relationships before taking an appointment. As well, insolvency practitioners will be required to explain the basis for remuneration proposals when seeking approval. These reforms will address some of the most common public criticisms of our insolvency framework.
We have consciously left space for the IPAA to provide specific guidance about the detail of these new disclosure frameworks.
We have chosen a co-regulatory approach in this area as we trust that it will avoid the need for more prescriptive reform further down the track.
The process going forward
The proposed reforms will be open for comment until the 23rd of February next year. Depending on the comments we receive, we will then make a decision about how to best proceed.
Having said that, let me take this opportunity to indicate clearly that the Government is keen to progress these reforms into law and we will pursuing this with vigour early next year.
I would invite any of you who have specific issues or queries to raise them directly with Treasury. Treasury officers are here today to take any initial comments you may have, or discuss any detailed issues that you are aware of.
Before concluding, I would like to recognise the work of the Insolvency Law Advisory Group in assisting Treasury with the design of this package. Advisory Group members provided a depth of knowledge and experience that has allowed us to develop what I think is an excellent package. In particular, I would like to thank Greg Hall, James Marshall, Kim Arnold, Paul Meredith, Ian Gilbert and David Cowling who are with us today.
Thank you.