The resulting report required an “inquiry into the effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy” and has been welcomed by ARITA.

The report recommends that the government commission a “comprehensive and independent review of Australia’s insolvency law”, encompassing both corporate and personal insolvency. The committee is also recommending that the government progress several other near-term actions as identified in the executive summary.

In addition, the committee emphasised in its report that the government implement recommendations from the Safe Harbour Review, independent and likely in advance of the further review, and consider referring the remainder of safe harbour reform issues identified in the report to a comprehensive review.

ARITA chief executive John Winter said that it was particularly pleasing to see that the committee had echoed a number of the association’s recommendations.

“This is a great example of our elected representatives working in a bipartisan way to review our laws and make recommendations that will have a profoundly positive impact on the efficient operation of our economy, save more jobs and businesses and deliver better outcomes for creditors. And we especially recognise the chair of the committee, Senator Deborah O’Neill, for her strong leadership in this very complex area of law,” he said.

“We are delighted that the committee has agreed with almost all of our key recommendations, especially around the need for a ‘root and branch’ review of insolvency law to create a more simple, efficient and effective regime to foster better outcomes for companies in financial distress.”

“Importantly, the committee has also seen the wisdom of bringing our personal and corporate insolvency regimes and oversight together, which will significantly reduce costs and complexity and make a lot more sense for those in small and micro-businesses in particular.”

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The report also notes that the Australian government should consider and consult on potential reforms to the small business restructuring pathway and simplified liquidation pathway, in addition to shifting the experience eligibility requirements for registered liquidators, to address the inequity of the requirements and the gender imbalance in the population of registered liquidators.

“The report also identifies the need to understand the process that people go through in an insolvency situation and better build our laws to fit that. This has been something ARITA has been urging for many years, and it should make dealing with financial distress much less difficult,” Mr Winter added.

“Through its work, the committee has seen evidence of how complex and unapproachable our insolvency law has become for directors and creditors. They’ve also recognised the unjustness of liquidators being required by law to do extensive work that often doesn’t get paid for and isn’t delivering any public good outcomes and certainly not being used by regulators.”

“We are particularly pleased to see a call for urgent action to address the costly impact of trusts in insolvency to enhance returns to creditors. This has been a recommendation sitting on the books from the Australian Law Reform Commission for over 30 years and is a vital reform.”

The review also included a number of considerations around the remuneration of insolvency practitioners, including the extent to which public interest work carried out by liquidators for no or limited pay is sustainable and the impact of this on external stakeholders.

However, Taylor David Lawyers senior legal consultant Dr Garry J Hamilton said that a comprehensive review of insolvency law might not be needed – and that a number of areas can be “easily addressed” without a government review.

“Apart from several areas referred to as the ‘low-hanging fruit’ of corporate insolvency, the principal and perhaps somewhat disappointing recommendation (which runs throughout the report and is repeated in almost every area) is that ‘the government commission a comprehensive and independent review of Australia’s insolvency law, encompassing both corporate and personal insolvency.’

“Quite apart from the ‘low-hanging’ fruit, there are, however, various areas [that] can be relatively easily addressed without the need for a comprehensive review. To some extent, these involve policy issues, but they relate to areas where the existing legal mechanisms are working adequately but require some ‘tweaking’ to remove problems which have been identified in practice. Such areas include the simplified liquidation process, the voluntary administration regime, aspects of deeds of company arrangement, and voidable transactions (and in particular, voidable preferences),” he explained.

“There are other areas which concern high-level policy considerations such as the desirability of establishing a ‘public liquidator’ role, the possible reconsideration of the interaction (from a priority perspective) of the rights and entitlements of employees, liquidators and receivers (in respect of their remuneration) and secured creditors, and to some extent the ‘harmonisation’ of corporate and personal insolvency laws. In order to resolve these types of issues, a ‘comprehensive review’ would need to settle on one of a number of policy positions which differ because they are influenced by economic, political and societal factors.”

According to the committee, the comprehensive review should also take note of the nature and extent of the harm posed by ‘untrustworthy pre-insolvency advisors’ and urges the government to consider changes to the Assetless Administration Fund to ensure that it is achieving its intended policy objectives.

The regulation of pre-insolvency advisers and changes to both the Assetless Administration Fund and amendments to the thresholds for reporting for insolvency practitioners, however, are not likely to be implemented “speedily”, according to Dr Hamilton.

“Whilst each of these is identified as constituting ‘more immediate potential reforms’, it is unlikely that any of them will in fact be implemented speedily. They are all likely to involve further discussion and debate, with the decision-making process being undertaken by multiple stakeholders,” he said.

“One piece of ‘low-hanging fruit’ which may in fact be able to be implemented quickly, however, is all or part of recommendation 28, i.e. that ‘the government amends the Corporations Act 2001 to expressly clarify the treatment of trusts with corporate trustees during insolvency.’ This area has remained problematic since the Harmer Report first identified it as an issue in 1988 and recommended legislative reform. As the committee notes: ‘there appears to be broad consensus [on this issue]’ and ‘it could be addressed in the short-term future without need for consideration by the comprehensive review’. It was also noted that draft remedial legislation had already been prepared.”

The Australian Law Reform Commission General Insolvency Inquiry Report No 45 (1988), also referred to as the Harmer Report, was tabled in 1988 in a review that lasted a decade, from the terms of reference on 20 November 1983 until the introduction of the Corporate Law Reform Act 1992 on 23 June 1993.

“However, the legislation which it introduced was ‘cutting edge’ and has served us well for almost 30 years. Social and economic circumstances, however, are now very different from those in 1988, and as the report notes, it is time for a complete refresh of our personal and corporate insolvency regimes,” Dr Hamilton added.

“Overall, the report may not have been all that the insolvency profession was hoping to see; however, it is a useful exercise in identifying the issues which practitioners face in dealing with corporate and personal insolvencies on a daily basis. It also has clearly exposed those ‘larger’ areas of corporate insolvency law where views will differ not on purely technical legal points but on the broader and perhaps even more important policy considerations.”