Michael Murray and I launched the 9th edition of Keay’s Insolvency last Monday night. The launch was hosted by leading international insolvency and restructuring firm Ferrier Hodgson. At the launch, Michael and I were joined by INSOL President Mark Robinson in calling for a wholesale review of insolvency law to address the challenges facing the modern Australian economy.
The 9th edition of Keay’s includes discussion of the Insolvency Law Reform Act 2016 (Cth), but Michael and I argue that this reform Act is yet more ‘micro reform’ to address perceptions of regulatory failure. We argue that Australia is falling behind in focusing on practitioner regulation when a wholesale system review of both personal and corporate insolvency is needed to address an increasing focus internally on restructuring and turnaround. While the Government’s Innovation Statement promises reform on safe harbor for directors during good faith restructuring and on ipso facto termination clauses, the chance for meaningful reform at a macro level has been missed.
At the launch Michael and I noted that more than 25 law reform reports and proposals dealing with aspects of insolvency have been left on the shelf while the government and ASIC focus on point scoring against insolvency practitioners as a façade to obscure gaps in enforcement. This is not to say that the ILRA does not contain some positive measures, but the authors’ argued in their speeches at the book launch that the focus is skewed towards fighting previous problems with practitioners such as Ariff, rather than doing what other developed economies are doing, which is to enhance and encourage restructuring and turnaround. Australia is in a global competition for restructuring capital and if our regime is less efficient and less effective than jurisdictions like Singapore and Hong Kong we will see more applications for recognition of foreign non-main proceedings while restructuring goes offshore.
The book was launched Ferrier Hodgson partner Peter Gothard and featured a thought provoking speech by the President of INSOL International, PPB Advisory’s Mark Robinson. Mark supported the need for reform in order to meet the consequences of what he described as Australia’s 3D Wall – lower external Demand, price Disinflation, and high private Debt, all of which have the potential to lead to on-going business collapses. He supported the government’s recent announcement of innovation reforms to insolvency, giving greater flexibility for corporate restructuring, but agreed with the authors that a wider review was necessary.
Ferrier Hodgson partner Peter Gothard (L); PPB Partner Mark Robinson (R) with Michael Murray (2nd from left) and me.
Michael and I discussed Chapter 21 of the 9th edition of Keay’s, which provides a critical analysis to the macro regulation of insolvency. In particular, Michael Murray highlighted the ‘expectation gap’ in insolvency – what the community, and politicians, expect insolvency to achieve and what it can achieve, in reality. These high expectations are limited by the complexity of our laws, poor corporate business culture, and a failure to acknowledge the delicate balance needed between the costs of trying to meet those expectations from limited funds, funds which creditors often unrealistically consider are all theirs.
Michael and I argued for a major review not only of insolvency itself but how it fits into the economy’s and society’s broader needs, and based on law, accounting and economics and embracing and harnessing the increasing benefits, and challenges of technology. It was suggested that the review could start with an assessment of all those law reform reports already completed.
It has been nearly 30 years since the Harmer Report that led to the last major wholesale reform of insolvency laws. Think about how much businesses and the economy have changed since 1988 (when Harmer reported), and yet many of our laws date back much earlier than that. It’s time to break the reactive regulatory navel gazing and finger pointing about what returns to creditors in insolvency proceedings are low.
We need another Harmer Report to pull Australian insolvency law from the 19th Century into the 21st Century.
An indication of the need simply to tidy up the insolvency provisions in Chapter 5 of the Corporations Act comes from a law reform plea of Justice Paul Brereton in one of his recent decisions – THO Services Limited  NSWSC 509.
This was in the context of the Judge having to decide whether an arbitration proceeding against a company in administration was stayed under s 440D; he said no, but effected a stay by applying s 447A.
But in reaching that decision about s 440D, Justice Brereton reviewed all the comparable stay provisions in Chapter 5, pointing out that the Act “contains no less than four relevant provisions, each in different terms and each making slightly different provision”.
The other related provisions are s 500(2), s 471B, and s 444E the differing terms of which he reviewed in detail.
Justice Brereton concluded by saying that his review of the various provisions in Ch 5 “reveals a situation which is ripe for the attention of an appropriate corporations law reform agency”: .
The differences in the stay provisions may reflect insolvency policy but that does not appear to be the case.
More likely it reflects a law reform process of constantly adding, altering and removing without regard to the wider context – a reason why Jason Harris and I say a broad review of insolvency law is required.
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