Insolvency Law Reform Bill: Exposure Draft Released

Tuesday 25 November 2014 @ 11.13 a.m. | Corporate & Regulatory | Trade & Commerce

On 7 November 2014, the Federal Government released a draft version of its proposed Insolvency Law Reform Bill 2014 (the draft Bill) which it announced on the Treasury website and contains a package of proposals that seek to amend and streamline both the Bankruptcy Act 1966 (Cth) and the Corporations Act 2001 (Cth).

Key Amendments Proposed by the Bill

The Government's Insolvency practice rules: Proposal Paper released with the Draft Bill states:

"The Government has [today] released draft legislation to strengthen and streamline Australia’s personal bankruptcy and corporate insolvency regimes. The reforms aim to align, simplify and strengthen Australia’s insolvency framework in order to remove unnecessary costs from the insolvency industry. The reform package is expected to result in savings of around $215 million over the first four years of operation".

The draft Bill proposes amendments that will:

  • remove unnecessary costs and increase efficiency in insolvency administrations;
  • enhance communication and transparency between stakeholders;
  • promote market competition on price and quality;
  • boost confidence in the professionalism and competence of insolvency practitioners; and
  • remove unnecessary costs from the insolvency industry resulting in around $55.4 million per annum in compliance cost savings.

One of the key new changes proposed by the Bill that  would bring about requirements that do not exist in the current legislation is the establishment of a Register of Trustees by the Inspector-General in Bankruptcy and the introduction of provisions requiring the Inspector-General’s Registration Committee to be:

  • satisfied that an applicant has not had their liquidation registration cancelled within the past 10 years,
  • has not been disqualified from managing a corporation, and
  • is “a fit and proper person”.

Other changes proposed include, the requirement for liquidators to be licenced and the ability of creditors to remove poorly performing practitioners. Reforms aimed, it is said, at improving consumer confidence in an area of commercial dealing recently saddled with controversy.

Reaction and Comment

SmartCompany reports Jarrod Sierocki, Director of Insolvency Guardian, as having welcomed the proposed draft Bill, taking the view the changes will deliver a "much-needed shake-up” in the industry, by eliminating "more red tape” and encouraging greater price competition among liquidators. Saying further that:

“It will legitimise firms that are doing their best to be cost-effective . . . And it will remove those who don’t.”

But the question appears to be will it?

Professional codes of conduct have been in place for a long time in the insolvency industry, but even so, the same criticisms raised from a long line of inquiries and their yet to be applied recommendations, into the insolvency industry appear to remain. A position that sees the insolvency industry open to "criticism of over-servicing, excessive fees and self-interest".

The Conversation in an article by Jennifer Dickfos, Lecturer in Business Law and Corporations Law at Griffith University, takes the view that the:

"Proposed laws to reform the insolvency industry are long overdue . . . However, they still fail to meet the need for transparency around corporate insolvencies."

The article goes on to point out that the insolvency industry has ". . . a chequered history when it comes to attempted reform" with prior proposed changes having stalled and regulation of the industry having been "the subject of eight major reviews and inquiries over the last 25 years".

The scope of the reforms outlined by the government is also criticised for not addressing the amounts being charged by liquidators. SmartCompany further quotes Jarrod Sierocki, Director of Insolvency Guardian, as saying:

“The reform only addresses making it tougher for trustees and liquidators to register, it doesn’t address the costs actually being charged, . . .”

“That’s a big part of it . . . we need to address the costs that some liquidators are charging.”

Another area of criticism which the proposed changes fail to address is a lack of corporate insolvency data which is said to preclude effective policy making and legislative reform, as The Conversation reports:

"The changes also fail to address a common theme in previous reviews: there is no adequate and publicly available corporate insolvency data. This information is needed for effective policy making, public debate, regulation implementation and ongoing review. It is imperative that such data be independently collected, maintained and available to the public free of charge."

What Next?

Submissions on the draft Bill are requested and due by Friday 19 December 2014 and it seems unlikely that an actual Bill will be introduced before the 2015 sitting calendar commences.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Sources:

Related Articles: