Chapter 1Introduction
Inquiry commencement and terms of reference
1.1The Parliamentary Joint Committee on Corporations and Financial Services (the committee) is established by Part 14 of the Australian Securities and Investments Commission Act 2001 (ASIC Act).
1.2On 28 September 2022, the committee commenced an inquiry into corporate insolvency in Australia pursuant to its duties under section 243 of the ASIC Act. That provision provides as follows:
The Parliamentary Committee’s duties are:
(a)to inquire into, and report to both Houses on:
(i)activities of ASIC or the Takeovers Panel, or matters connected with such activities, to which, in the Parliamentary Committee’s opinion, the Parliament’s attention should be directed; or
(ii)the operation of the corporations legislation (other than the excluded provisions); or
(iii)the operation of any other law of the Commonwealth, or any law of a State or Territory, that appears to the Parliamentary Committee to affect significantly the operation of the corporations legislation (other than the excluded provisions); or
(iv)the operation of any foreign business law, or of any other law of a foreign country, that appears to the Parliamentary Committee to affect significantly the operation of the corporations legislation (other than the excluded provisions); and
(b)to examine each annual report that is prepared by a body established by this Act and of which a copy has been laid before a House, and to report to both Houses on matters that appear in, or arise out of, that annual report and to which, in the Parliamentary Committee’s opinion, the Parliament’s attention should be directed; and
(c)to inquire into any question in connection with its duties that is referred to it by a House, and to report to that House on that question.
1.3The terms of reference agreed upon by the committee call for 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, including:
(1)recent and emerging trends in the use of corporate insolvency and related practices in Australia, including in regard to:
(a)temporary COVID-19 pandemic insolvency measures, and other policy measures introduced in response to the pandemic that may have had an effect on such trends and practices;
(b)recent changes in domestic and international economic conditions, increases in material and input costs for businesses and inflationary pressures more broadly, and supply shortages in certain industries; and
(c)any other contributory factors or events that have impacted insolvency patterns;
(2)the operation of the existing legislation, common law, and regulatory arrangements, including:
(a)the small business restructuring reforms (2021);
(b)the simplified liquidation reforms (2021);
(c)the unlawful phoenixing reforms (2019); and
(d)the operation of thePersonal Property Securities Act 2009[PPS Act] in the context of corporate insolvency;
(3)other potential areas for reform, such as:
(a)unfair preference claims;
(b)trusts with corporate trustees;
(c)insolvent trading safe harbours; and
(d)international approaches and developments;
(e)supporting business access to corporate turnaround capabilities to manage financial distress;
(4)the role, remuneration, financial viability, and conduct of corporate insolvency practitioners (including receivers, liquidators, administrators, and small business restructuring practitioners);
(5)the role of government agencies in the corporate insolvency system, including:
(a)the role and effectiveness of the Australian Securities and Investments Commission (ASIC) as the corporate insolvency regulator;
(b)the Australian Taxation Office’s (ATO) role and enforcement approaches to corporate insolvency, and relevant changes to its approach over the course of the COVID-19 pandemic;
(c)the role, funding and operation of relevant bodies, including the Assetless Administration Fund and the Small Business Ombudsman; and
(6)any related corporate insolvency matters.
Conduct of the inquiry
1.4The committee called for submissions by advertising the inquiry on its webpage and wrote to relevant stakeholders and interested parties inviting written submissions by 30 November 2022. The committee also produced a media release which was published on the committee’s webpage on 28 September 2022.
Submissions
1.5The committee initially resolved that submissions were to be provided by 30November 2022. The committee continued to consider submissions and evidence provided after this date.
1.6The committee received 78 submissions as well as supplementary submissions, additional information and answers to questions on notice, which are listed in Appendix 1.
Public hearings
1.7The committee held the following public hearings:
13 December 2022 in Canberra;
14 December 2022 in Sydney;
21 February 2023 in Sydney;
28 February 2023 in Sydney; and
1 March 2023 in Canberra.
1.8A list of witnesses who gave evidence at the public hearings can be found in Appendix 2.
Structure of this report
1.9This report comprises 14 chapters, including this introductory chapter, with the remaining chapters set out as follows:
Chapter 2 provides a snapshot of corporate insolvency in Australia;
Chapter 3 discusses the purposes and performance of the corporate insolvency system;
Chapter 4 examines proposals for a comprehensive review of insolvency;
Chapter 5 considers suggestions for the harmonisations of corporate and personal insolvency;
Chapter 6 addresses data and benchmarks that may be needed for a comprehensive review;
Chapter 7 summarises the system of pathways for insolvency in Australia and proposals for reforms of pathways;
Chapter 8 covers the administration of liquidations and insolvencies;
Chapter 9 discusses assetless administrations and the role of the state;
Chapter 10 examines the role of government agencies in corporate insolvency;
Chapter 11 considers potential reforms for unsecured assets of the company and creditors’ priority;
Chapter 12 addresses secured assets and creditors and the PPS Act;
Chapter 13 analyses the debate on voidable transactions and unfair preferences; and
Chapter 14 considers corporate insolvency issues arising for property held in trust.
Acknowledgements
1.10The committee thanks all individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at the public hearings.
Notes on references
1.11References and page numbers of the committee Hansard are to the proof Hansard. Please note that page numbers may vary between the Proof and Official transcripts.