Chapter 6Data and benchmarks for analysis and review

6.1Inadequate data availability for analysis to support insolvency policy and legislative decisions has been a long-standing issue. While some improvements have been made over the years, evidence to this inquiry suggests that significant challenges remain. This chapter summarises:

the consideration of insolvency data by previous inquiries and reviews;

existing data on corporate insolvency made available by the Australian Securities and Investments Commission (ASIC);

general observations about the need for better insolvency data;

specific data that submitters and witnesses have suggested is needed for the comprehensive review and other reforms; and

an overview of three international analysis frameworks.

Historical consideration of data availability

6.2Inadequate access to insolvency data is a long-standing issue that has been identified in previous inquiries and reviews.

6.3The 1988 Harmer Review noted that one of the major handicaps that impeded its work was the difficulty in obtaining pertinent statistical information about corporate insolvency in a readily available and intelligible form.[1]

6.4In 2004, this committee noted the need for more data on the operation of corporate insolvency laws, particularly for voluntary administrations. The committee observed the contrast with better data availability for personal insolvency. The committee recommended (Recommendation 58) that the government support a research program into the impact of insolvency procedures, if necessary by providing a specific allocation for such research by ASIC, professional associations and commissioned researchers. The committee also recommended that the law should authorise the collection of statistical data by ASIC.[2]

6.5The government at the time supported Recommendation 58 in principle and noted that the collection of statistical data by ASIC through forms approved by it pursuant to Section 350 of the Corporations Act or prescribed forms is currently permitted by the law.[3]

6.6In 2010, the Senate Economics References Committee (Economics Committee) inquiry into Liquidators and Administrators opened its chapter on the need for better data by stating that one of the frustrations of its inquiry was the lack of adequate data to identify the policy problems.[4] The Economics Committee inquiry also noted the paucity of corporate insolvency data relative to personal insolvency data. The Economics Committee suggested that improving corporate insolvency data gathering and dissemination should be a benefit of its proposal to bring regulation of all insolvency practitioners under a single body.[5]

6.7In 2014, the Productivity Commission observed a lack of detail regarding the circumstances of company failures in the returns submitted to the regulator by external administrators.[6]

6.8In 2022, Professor Jason Harris noted the lack of comprehensive data on how voluntary administration works and how stakeholders perceive the procedure, significantly hindering practical policy analysis.[7]

6.9Despite being an issue of long-standing concern, evidence to this inquiry, as explained below, clearly suggests the lack of readily accessible and appropriately comprehensive data on corporate insolvency is yet to be properly addressed.

Existing data on the state of the insolvency system

6.10This section presents a summary of evidence provided to the committee in relation to existing data on corporate insolvency. The information provided here does not purport to be a thorough audit of all relevant data sources (a task more appropriate for a comprehensive review, as discussed at Chapter 4). The following sections discuss data that is available from ASIC and the Australian Financial Security Authority (AFSA).

6.11The Attorney-General’s Department advised that it does not collate data on insolvencies.[8] The Department of the Treasury (Treasury) indicated that it had collated bespoke data on an ad‑hoc basis for policy development and advice to governments.[9] Other agencies, such as the Australian Taxation Office (ATO) and the Fair Entitlements Guarantee (FEG) recovery program, may also hold relevant data.

ASIC’s corporate insolvency statistics

6.12ASIC publishes three types of statistics, which are summarised below:

weekly insolvency statistics (Series 1 and 2);

external administrators’ and receivers’ reports (Series 3.1, 3.2, and 3.3); and

registered liquidator demographics (Series 4 and 4A).[10]

Series 1—Number of companies entering insolvency for the first time

6.13ASIC Series 1 insolvency statistics provide weekly data on the number of companies entering external administration or controller appointments for the first time. Series 1 includes tables and charts indicating, among other things, the Australian Company Number (ACN) and organisation name; the state (or territory) of incorporation, and principal place of business; the initial type of appointment, the start date of the appointment and relevant financial year; and the person or company appointed.[11]

Series 2—All insolvency appointments over a company

6.14ASIC Series 2 insolvency statistics provide weekly data on the total number of external administration and controller appointments recorded, including the first, subsequent and transitional appointments. A company can be the subject of multiple forms of external administration or controller appointment at any time and can progress from one type to another. Hence, Series 2 statistics can include a company more than once. To accurately track trends in corporate business failures, ASIC prefers Series 1 statistics as they give a more precise measure of the number of companies subject to a formal appointment.[12]

Series 3.1 – 3.3—External administrators’ and receivers’ reports

6.15ASIC Series 3 insolvency statistics are based on reports provided to ASIC when the external administrator or receiver suspects:

that a relevant person may have committed an offence in relation to the company, been negligent or otherwise engaged in misconduct, or

in the case of a liquidation, the company may be unable to pay its unsecured creditors more than 50 cents in the dollar.[13]

6.16There are three data series available in Series 3:

Series 3.1: Reports identifying causes of failure, available assets, liabilities, employee entitlements, creditors, remuneration, and possible misconduct (categorised by industry and region).

Series 3.2: Reports identifying selected industries showing the five industries with the highest number of external administrators’ reports lodged (by region).

Series 3.3: Reports providing time series data comparing causes of failure, available assets, liabilities, employee entitlements, creditors, remuneration, and possible misconduct as a time series by financial year.[14]

Series 4 & 4A—Registered liquidator demographics and lists

6.17ASIC Series 4 insolvency statistics provide quarterly and monthly data on registered liquidator demographics, including by region (for new, ceased, and current total registrations), gender, age, years of registration, and firm size.[15] Series 4A also identifies if the liquidator is suspended voluntarily or otherwise, or if there are any current conditions on a liquidator’s registration (excluding industry-wide conditions), such as being restricted in the type of appointments that a person may be appointed to undertake.[16]

Series 5 – Members’ voluntary liquidation statistics

6.18ASIC Series 5 insolvency statistics provide quarterly data on the number of solvent companies entering into external administration. Series 5 includes similar charts and tables to Series 1.[17]

AFSA insolvency data

6.19AFSA collects and collates data on personal insolvencies, including business-related personal insolvencies. Much of this data is protected personal information and cannot be made publicly available except in aggregate. Business-related data is collected from individuals completing a bankruptcy form which captures data on whether insolvent individuals are directors of an incorporated company at the time of their insolvency.[18] However, in many instances, there is a lack of root cause information—for example, whether a sole trader or partnership becomes insolvent due to being a creditor in a corporate insolvency process. Hence, gaining insights to strengthen regulation and support earlier intervention in the credit or insolvency system is difficult.[19]

6.20AFSA publishes a range of data-based reports at regular intervals, including:

monthly and quarterly personal insolvency statistics;

regional personal insolvency statistics;

annual administration statistics;

practitioner supervision statistics;

enforcement statistics;

personal insolvency compliance reports; and

debts in business-related personal insolvencies.[20]

6.21At the beginning of the COVID-19 pandemic, AFSA provided additional fortnightly aggregations of personal insolvency statistics. These statistics tracked numbers by type of administration and industry if the insolvency was business-related. The frequency of the statistics and the additional information provided valuable insights into how the pandemic impacted the economy. From April 2022, AFSA released statistics monthly. AFSA also includes a range of data-based information in its annual reports.[21]

6.22AFSA also noted that:

Professional associations, academics, statisticians, and other government agencies use AFSA statistics to support policy choices and research.

AFSA has established relationships with insolvency researchers and is a member of the Insolvency Academics Network.

AFSA regularly considers what sort of research it can partner with experts and academics on to use data held by AFSA.[22]

General observations about the need for better insolvency data

6.23Submitters and witnesses suggested that more and better-quality data was needed to inform policy and legislative decisions on insolvency. This section summarises general suggestions received by the committee, while the following section identifies specific data types that have been suggested for collection.

6.24Ms Catherine Robinson emphasised the importance of better data access for ensuring confidence in the insolvency system as a whole:

Along with best practice regulation, one aspect of building confidence in the system, which many submissions and indeed this committee have already addressed, is the issue of data provision. While data is only one story of the regulator’s performance, to stakeholders it is the only snapshot we see of how our insolvency system is regulated. Being transparent and publishing and speaking to this data consistently is critical to not guessing if ASIC is under-resourced or inactive or whether there are low or high levels of misconduct in the profession.[23]

6.25Mr Michael Murray also addressed the need for improved data and suggested that both regulators and professional bodies would be sources or collectors of such data. Mr Murray also noted the new possibilities for data collection and analysis arising out of the recently introduced director identity requirements and broader technological innovations:

Certainly the regulators, in terms of their collection of a lot of information. But I’ve also said rather bluntly that the professional bodies—in other words the practitioners themselves—hold a lot of the core data as to how the insolvency system works and, if the professional bodies could be enlisted to take part in that data collection, that would be very valuable. I think we are on the cusp of much better data collection when we have the director identity number … I have got great faith—I hope it’s not misplaced—in terms of artificial intelligence and information technology, which the government seems to be gearing up for.[24]

6.26Professor Anil Hargovan, from the Society of Corporate Law Academics (SCoLA), suggested that ASIC held a ‘treasure trove’ of documents and data on the insolvency system, which could provide ‘rich and fertile ground’ for both academic research and policymakers. In connection with improving the availability and accessibility of this data, Professor Hargovan also emphasised that a proposed comprehensive inquiry would require a strong evidence base that properly reflected current realities.[25]

6.27Asked what assistance and information ASIC could provide in contribution to a comprehensive review, ASIC responded that in addition to providing many of the insolvency statistics it already releases, there is:

…probably a whole lot of other information about our own experiences in relation to enforcing and applying the laws we’ve got at the moment. Obviously, we have a lot of practitioner information and feedback we would give, so I can see that there’s a range of things we’d be able to contribute to that … I think we’d also be able to provide better detail about how some of these more recent—I’ll use the word ‘innovations’ have gone and what they’ve actually provided in an Australian context.[26]

6.28Asked about the accessibility of ATO data on insolvency to academics and other experts, the ATO responded that while it held ‘a lot of data’, for privacy reasons little was made publicly available. At the same time, the ATO indicated that de-identified, aggregated data could be provided on notice to the committee.[27] Although the ATO did not say so directly, it could be reasonably inferred, then, that similar information might be available to a body conducting a comprehensive review.

6.29Treasury noted some of the inherent challenges in collecting quality data about the insolvency system in the context of whether the system is properly meeting its objectives, and in reference to a potential comprehensive review:

…in this space one of the things you may be asking businesses to do is to hang out all of their dirty laundry at once. Businesses don’t necessarily want to declare that they’re a bit wobbly. They don’t necessarily want to declare that they’re taking advantage of the safe harbour. There is going to be a natural constraint on our ability to have precise data to inform policy. It’s going to require more judgement based on incomplete information. That’s the challenge.[28]

6.30The Association of Independent Insolvency Practitioners (AIIP) indicated that more or different data would be needed to assess the efficiency of insolvency regulators. There is an absence, it noted, of statistical data and relevant criteria to measure insolvency regulators’ current and ongoing efficiency.[29]

6.31Mr Ben Sewell explained that he suspected the large number of section533 misconduct reports[30] to ASIC overstated the level of misconduct (he suggested there were somewhere in the order of 8000per year, from a total of 10 000 appointments). In many cases, Mr Sewell told the committee, these reports might relate to wind-ups where the directors have been ‘completely overwhelmed, rather than people that are dishonest or doing the wrong thing’. However, the reports are confidential, so Mr Sewell noted he could not confirm whether this was the case:

The data issue is a big one, in that this is a very opaque area. It’s been opaque across my career. What I would say you are forced to rely on is the opinions of people who have a viewpoint of the industry, and that’s obviously guided by their position and bias and a lot of other things. So, if there is genuine misconduct in 88 per cent of these processes, I think that should be reviewed.[31]

6.32It is worth reiterating that concerns about corporate insolvency data availability are long-standing and have been well-ventilated in other forums. A recent articulation of the problem and how it might be addressed was provided by MrMurry and Professor Harris. In answer to a question on notice they provided a copy of a 2019 letter from a group of academics (many of whom contributed to this inquiry) to the Office of the National Data Commissioner as part of a review on data sharing and release reforms.[32] In that letter, the group of academics argued that more affordable corporate insolvency data is needed to assist with research projects that help inform and shape national public policy debates. Data relating to personal insolvency, they suggested, is better but could also be improved. The group of academics observed that:

Insolvency law reform and policy lacks empirical data on the most basic outcomes of the corporate regime – assets, realisations, recoveries, costs, returns to creditors, including employees – across liquidations and administrations. Personal insolvency reports some of these, across different types of administrations. Insolvency law reform, of its nature, should be based on empirical data.[33]

6.33The group of academics noted that while some data are freely available, the other corporate insolvency data held by ASIC can only be obtained by paying significant fees. The group of academics noted that university researchers find it challenging to obtain funding to pay for search and download fees to access information contained on public registers, severely limiting the scope and significance of research that can be undertaken. They argued that a more effective, efficient and economical way to obtain access to data is needed.[34]

6.34The group of academics contrasted the data release processes of AFSA and ASIC, noting that AFSA had a more open and collaborative approach:

AFSA has always extracted data on the operation of the bankruptcy system, and often published papers and outcomes. These usefully feed into bankruptcy law reform and policy. In addition, AFSA has a policy of inviting requests by academics for particular data sets which it will then try to meet. Academic research on such data sets can provide more useful policy information.[35]

6.35The Business Law Section of the Law Council of Australia (BLS LCA) suggested that the Australian Law Reform Commission (ALRC) (or other appropriate body tasked with a review) might be left to consider data requirements itself. The BLS LCA noted the ALRC compilation of relevant data as part of its Review of the Legislative Framework for Corporations and Financial Services Regulation.[36]

Specific areas where better data may be useful

6.36This section identifies specific data that submitters and witnesses suggested would be useful. To assist further work in this area, the committee has briefly summarised the issues and then set out its understanding of the data that would be needed. The suggestions are collated in a box at the end of the section.

Efficiency of the insolvency system

6.37Mr Murray and Professor Harris drew attention to the inefficiencies of the insolvency system associated with liquidators having to undertake activities with both private and public purposes. The efficiency of the system, they argued:

… is qualified by the unfunded cost of administrations, the unrecognised public interest work performed by insolvency practitioners, and the unnecessary complexity of the system’.[37]

6.38Mr Salman Shah (in an article provided by Mr Murray and Professor Harris) argued that the extent of the ‘debt justice’ problem—the need to balance the different interests of creditors, debtors and the public—was difficult to assess given the lack of sufficient data:

Data from the Australian Financial Security Authority regarding personal insolvencies shows that only 16.84% of all estates finalised in 2021–22 paid a dividend and unsecured creditors recovered only 2.23% of their total claims in all finalised estates in 2021–22. These numbers simply beg the question: what was the quantum recovered in the 83.16% of estates which did not pay a dividend in 2021–22? Further, in the 16.84% of estates which paid a dividend, what is the ratio between the return to unsecured creditors and the return to the [insolvency practitioners] themselves? As Murray and Harris correctly observe, there is simply insufficient data collected and collated regarding both personal and corporate insolvencies which explains the extent of the inefficiency.[38]

6.39The BLS LCA also observed that more data was required to determine the extent of unfunded public purpose work undertaken by liquidators.[39] The AIIP observed that in the absence of data, it is difficult to assess whether an Official Receiver for corporations matters will result in efficiencies.[40]

Outcomes of corporate insolvency

6.40In the aforementioned 2019 letter from a group of academics to the Office of the National Data Commissioner, the authors suggested data is needed on the assets, realisations, recoveries, costs, and returns to creditors across liquidations and administrations.[41] In answers to questions on notice, MrMurray and Professor Harris argued that those concerns remain relevant today.[42]

6.41Professor Lynne Taylor, a New Zealand-based academic, added that there might be value in Australia coordinating with the NewZealand Registrar of Companies for potentially valuable comparative data on returns to creditors (while also noting that New Zealand’s current data was not as comprehensive as that available in Australia):

Since 2021 New Zealand liquidators have been required to file quite detailed six monthly and final reports about their remuneration, about returns to creditors. I think it would be absolutely fascinating to be able to do a comparison as to whether ultimately returns to creditors are better in NewZealand’s light regulatory system or whether, in fact, Australia’s far more onerous regulatory system is the winner.[43]

6.42Mr Murray and Professor Harris suggested that a comprehensive review will likely require more and better-quality data, including:

trends in the number of companies that are deregistered by default;

the extent of assetless company administrations and the value forgone;

the average net return to creditors from voidable transaction claims; and

the length, cost, creditor returns, and outcomes of insolvency processes.[44]

6.43The BLS LCA also identified some types of data that may assist a comprehensive review, including:

the level of creditor attendance and voting in formal insolvency processes;

the level of practitioner fees and recovery; and

the comparative success of foreign jurisdiction’s insolvency processes relative to Australia.[45]

6.44Barrett Walker, a Certified Practising Accountant (CPA) Practice, suggested that a comprehensive review would benefit from information on:

corporate insolvency and bankruptcy the returns to creditors by category, such as priority creditors, secured and unsecured creditors; and

data to indicate whether voluntary administration and other pathways had achieved the benefits that were envisaged when those pathways were introduced.[46]

Unfair preference claims

6.45Registered liquidator, trustee, and accounting firm Kroll Corporate Finance and Restructuring argued for improved data capture and reporting to address the debate (See Chapter 13) on whether the law ought to be amended to limit or extinguish preference claims available to a liquidator in a winding up. The data needed may include:

the book values and realisations of unfair preference claims;

the direct costs of recovering unfair preferences; and

the benefits accrued to ordinary unsecured creditors (if any).[47]

Fair Entitlements Guarantee

6.46The committee sought information on what data may be available to evaluate the effectiveness of the FEG. The Australian Council of Trade Unions (ACTU) indicated that, at present, there is limited data on the gap between workers’ actual entitlements and the level of entitlements covered by the FEG:

…the ACTU notes evidence given to the Joint Committee by Fair Entitlements Guarantee Branch, Department of Employment and Workplace Relations that it doesn’t collect data on gap losses workers experience as a result [of] insolvencies. In our view the FEG branch should, as a matter of course, together with ASIC, other agencies and external administrators, work to collect and publish such statistics to get closer to real-world losses workers experience in insolvencies (noting that other cohorts of workers such [as] dependent contractors often experience total loss because they are unsecured creditors).[48]

Deregistered businesses and companies

6.47The AIIP suggested that data is needed to analyse the thousands of companies abandoned via deregistration following failure to lodge an annual return. There is no investigation of those companies before deregistration by ASIC.[49]

6.48On the question of how many businesses are passively deregistered rather than go through an insolvency process Mr Michael Brennan, from Offermans, told the committee:

I think the problem is that there is a massive amount of data out there, but it’s about trying to identify what is the correct data. This is why we’ve always tracked the ATO debt. If we’re looking at, say, the 50-odd thousand businesses that seem to have been taken off the register by ASIC, what we’re looking at is how many of those are actually insolvent, as opposed to having ceased to operate.[50]

Insolvent trading safe harbour

6.49The Treasury Review of the Insolvent Trading Safe Harbour observed that data collection from registered liquidators in their Form 908 Annual liquidator return would only capture information where registered liquidators have been appointed either as a safe harbour adviser or as a subsequent administrator or liquidator. The review suggested, provided the cost of collecting data is low, there is utility in using existing forms to garner information from at least one key industry participant. The review suggested there would be utility in a data collection point being included in reports provided by voluntary administrators and liquidators. While this would relate only to safe harbours that have ended in formal appointments, it would allow for further quantitative analysis of the use of the safe harbour in such circumstances and its success in preventing a worse outcome for the company. Such reports would also assist in assessing any difficulties for registered liquidators in pursuing insolvent trading actions.[51]

6.50KPMG also supported gathering data on the safe harbour, suggesting that there should be a role for ASIC to collect anonymised data on safe harbour engagements so an assessment can be made on the uptake and usefulness of the safe harbour provisions. Data could be collected through Registered Liquidator annual returns or other means. Such data collection could be extended to other parties which play a safe harbour role.[52]

Misconduct and enforcement data

6.51In a published paper attached to her submission, Ms Robinson identified significant gaps and inconsistencies in reporting enforcement statistics and effective engagement with stakeholders regarding the provision of key data. MsRobinson observed that ASIC no longer provides a breakdown of the classification of reports of alleged misconduct, and further argued that the omission of this information is concerning, noting:

It makes it impossible to ascertain whether ASIC’s low-level use of enforcement tools is due to a correspondingly low number of conduct‑related complaints.

Appropriate information is unlikely to be forthcoming in the short term, given ASIC’s position that it will consider publishing this data in the future after data has been collected for subsequent years.

The lack of transparency also does not allow for a study of trends in enforcement actions. Nor does it allow for an assessment of ASIC’s performance compared to AFSA.[53]

6.52Other suggestions for the collection and publication of misconduct and enforcement data include quantitative and qualitative data on regulatory enforcement.[54]

ASIC’s corporate insolvency statistics

6.53ASIC indicated that it would welcome further information from stakeholders about information or data collection that may assist the public in understanding how the current insolvency regime is working. ASIC indicated that to avoid unnecessarily imposing an administrative burden on parties completing and lodging documents, ASIC is mindful of collecting only information and data that is required by law to be provided or which serves a regulatory purpose and is reasonable to collect.[55]

6.54ASIC’s registry function is being progressively transitioned to Australian Business Registry Services (ABRS) under the modernisation of the business registers program. Under this program, the Registrar will set the data standards and receive much of the data lodged by registered liquidators and other parties relating to companies’ external administration and controllership. When the registry transition is complete, the ABRS may be best placed to publish insolvency data.[56]

6.55The Australian Small Business and Family Enterprise Ombudsman acknowledged the helpful data in ASIC’s insolvency statistics and suggested that the following enhancements would assist policymakers and academics to develop more targeted reforms:

We recommend that ASIC’s insolvency data series include the estimated size of the business, the extent of phoenixing activity, outcomes of liquidations (such as returns to creditors), insolvency-related fees per liquidation and restructure, and financial positions of deregistered companies (including the cause of company failure).[57]

Collated data suggestions

6.56For ease of reading, Box 6.1 (below) collates the data suggestions from the previous section.

International analysis frameworks

6.57The utility of data is enhanced when there are well-developed principles and frameworks to shape the analysis. Fortunately, multiple frameworks and sets of principles are available. Three are summarised below from the International Monetary Fund, the United Nations, and the World Bank.

International Monetary Fund

6.58The International Monetary Fund (IMF) observed that Australia is not alone in having insufficient data to support insolvency law reform in the past. The IMF indicated that the use of empirical data in insolvency law analysis has been sporadic:

For a long time, insolvency legislation, as [with] most legal reforms, has been designed without a proper empirical foundation. Isolated from developments in other areas, insolvency law, and creditor-debtor law in general, is still designed in most countries without the support of detailed data on the actual performance of the system, or the issues experienced in its application.[70]

6.59The IMF further noted that while there are qualitative assessments of insolvency systems based on compliance with international standards or customized indicators, there are few such assessments based on empirical data. The IMF indicated that while qualitative methods have their use, they should not substitute for reliable quantitative data. The IMF maintained that assessments and design of insolvency regimes should be based on relevant statistics, thereby providing a basis for sound policy decisions.[71]

6.60The IMF analysed existing sources of data on insolvency proceedings, including general insolvency statistics, judicial statistics, statistics of insolvency regulators and other sources. It proposed methodologies, principles, and a conceptual framework for the use of data to assess the effectiveness and efficiency of insolvency systems. The IMF advocated for the design of special data collection mechanisms and statistics to conduct detailed assessments of insolvency systems and to assist in the design of legal reforms.[72] The IMF noted that measuring the effectiveness and efficiency of insolvency procedures begins with establishing the desired objectives, or outcomes of an insolvency system.[73]

UNCITRAL

6.61The United Nations Commission on International Trade Law (UNCITRAL) has developed a legislative guide on insolvency law. The Legislative Guide on Insolvency Law (Legislative Guide) (with its various parts adopted between 2004 and 2021) provides a comprehensive statement of the key objectives and principles that should be reflected in a nation’s insolvency laws. The Legislative Guide is intended to inform and assist insolvency law reform worldwide, providing a reference tool for national authorities and legislative bodies when preparing new laws and regulations or reviewing the adequacy of existing laws and regulations. The advice provided aims at achieving a balance between the need to address a debtor’s financial difficulty as quickly and efficiently as possible; the interests of the various parties directly concerned with that financial difficulty, principally creditors and other stakeholders in the debtor’s business; and public policy concerns, such as employment and taxation.[74]

6.62UNCITRAL’s Legislative Guide has five parts. Parts One and Two, adopted in 2004, deal with insolvency laws generally. Part Three, adopted in 2010, addresses the treatment of enterprise groups in insolvency.[75] Part Four, adopted in 2013, deals with directors’ obligations in the period approaching insolvency. Finally, Part Five, adopted in 2021, deals with insolvency law for micro and small enterprises.[76]

6.63The box below summarises the alignment of Australia’s insolvency laws with the UNCITRAL Legislative Guide based on analysis by the United Nations National Coordination Committee for Australia (UNCCA).

The World Bank

6.64The World Bank has developed principles for effective insolvency and creditor and debtor regimes which distil international best practices. The principles have been designed as a broad-spectrum assessment tool to assist countries in their efforts to evaluate and improve core aspects of their commercial law systems. The World Bank argues that efficient, reliable, and transparent creditor and debtor regimes and insolvency systems are of key importance for the reallocation of productive resources in the corporate sector for investor confidence and forward-looking corporate restructuring. Furthermore, these systems also play a pivotal role in times of crisis to enable a country and stakeholders to promptly respond to and resolve matters of corporate financial distress on systemic scales.[79]

6.65The Principles for Effective Insolvency and Creditor/debtor Regimes (ThePrinciples) highlight the relationship between the cost and flow of credit (including secured credit) and the laws and institutions that recognize and enforce credit agreements (Part A). The Principles also outline key features and policy choices relating to the legal framework for risk management and informal corporate workout systems (Part B), formal commercial insolvency law frameworks (Part C), and the implementation of these systems through sound institutional and regulatory frameworks (Part D).[80] In 2021, new principles were added to address the needs of insolvent micro and small enterprises (MSEs). MSEs often struggle to navigate an ordinary insolvency process and typically lack the resources to cover the costs and fees of the proceedings.[81]

6.66Murrays Legal noted that the World Bank recently established a new corporate flagship called Business Ready (B-READY) which aims to improve on and replace the Doing Business report. B-READY is intended to address the scarcity of large-scale comparable data on business entry, business location, utility services, labour, financial services, international trade, taxation, dispute resolution, market competition, and business insolvency. B-READY does not appear to cover personal insolvency, the government role, or underfunded and assetless insolvencies. Murrays Legal notes the areas B-READY is intended to cover for corporate insolvency:

The Business Insolvency topic measures key features of insolvency systems at a regulatory level. It also assesses the institutional and operational infrastructure associated with insolvency proceedings (judicial services), as well as the efficiency of insolvency proceedings in practice across three different dimensions, referred to as pillars. The first pillar assesses the effectiveness of regulation of insolvency proceedings, the second measures the quality of institutional and operational infrastructure for insolvency processes; and the third pillar measures the time and cost required to resolve in-court liquidation and reorganization proceedings. Each pillar is divided into categories and then subcategories.[82]

Committee view

6.67The committee acknowledges that the lack of quality data available for analysis to support insolvency policy and legislative decisions has been a long-standing issue. While some improvements have been made over the years, evidence to this inquiry suggests that significant challenges remain, and submitters and witnesses have identified a range of general and specific requirements for better data.

6.68The existing data that ASIC provides on corporate insolvency enables an overview, albeit one with some gaps, of the state of insolvency (as shown in Chapter 2). However, even existing data could be improved to better inform policy decisions. An example of this is causes of company failure, which is currently included in Series 3 reports (see paragraph 2.39).

6.69It is likely that the aggregate level of corporate insolvency across the economy is affected by the business cycle. The impacts of an economic downturn (or period of growth) may not be evenly spread across all sectors, as economic shocks (both positive and negative) will often affect some sectors more than others.

6.70Another cause of insolvency could be higher rates of risk taking, for example if a sector is undergoing significant change due to innovation. In this context, temporarily elevated rates of insolvency might, in aggregate, reflect a positive overall economic outcome, particularly if new and potentially more productive technologies or business practices are emerging.

6.71However, the available data does not allow for these propositions to be tested in the Australian context. Policy makers could benefit from higher quality and more granular data in relation to the trends in and causes of insolvency.

6.72The committee did not, as part of this inquiry, undertake a detailed audit of the available data and data requirements. However, the committee has summarised the suggestions for better data it has received in Box 6.2 to provide a jumping-off point for the proposed comprehensive review.

6.73The committee also draws attention to the analysis frameworks developed by the IMF, the World Bank, and the United Nations. The committee draws particular attention to the IMF’s observation that measuring the effectiveness and efficiency of insolvency procedures begins with establishing the desired objectives, or outcomes of an insolvency system. The committee commends such an approach to the proposed comprehensive review.

6.74Given the long-standing difficulties with obtaining the data required to inform insolvency policy and legislation, the committee makes the following recommendation to assist the proposed comprehensive review.

6.75The committee recommends that the Australian Securities and Investments Commission collect high quality, granular data in relation to insolvency and provide this data in a timely way to relevant government agencies and regulators.

6.76The committee recommends that the proposed comprehensive review of insolvency consult data holders, researchers, industry participants, and public sector organisations to progress the access to and analysis of insolvency data.

Footnotes

[1]Australian Law Reform Commission (ALRC), General Insolvency Inquiry, Report No 45, Vol 1, 1988, p. 20.

[2]Parliamentary Joint Committee on Corporations and Financial Services. Corporate Insolvency Laws: a Stocktake, 30 June 2004, pp. xxxiii, xxxvi and 225.

[3]Australian Government, Government Response to the Report of the Parliamentary Joint Committee on Corporations and Financial Services: Corporate insolvency laws: A stocktake, [p. 23].

[4]Senate Economic References Committee, The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework, 14 September 2010, p. 117.

[5]Senate Economic References Committee, The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework, 14 September 2010, p. 148.

[6]Productivity Commission, Business Set-up, Transfer and Closure, No. 75, 30 September 2015, p. 52.

[7]Professor Jason Harris, Promoting an optimal corporate rescue culture in Australia: the role and efficacy of the voluntary administration regime, PhD Thesis, Adelaide Law School, April 2022, p. 32.

[8]Attorney-General’s Department, answers to questions on notice, 22 December 2022 (received 7February 2023)

[9]Department of the Treasury (Treasury), answers to questions on notice, (two separate sets) 22December 2022 (received 10February 2023).

[10]Australian Securities and Investments Commission (ASIC), How to interpret ASIC’s corporate insolvency statistics, https://asic.gov.au/regulatory-resources/find-a-document/statistics/insolvency-statistics/how-to-interpret-asic-s-corporate-insolvency-statistics/ (accessed 12 April 2023). See also ASIC, Submission 29, pp. 40–47.

[11]ASIC, How to interpret ASIC’s corporate insolvency statistics.

[12]ASIC, How to interpret ASIC’s corporate insolvency statistics.

[13]ASIC, How to interpret ASIC’s corporate insolvency statistics.

[14]ASIC, How to interpret ASIC’s corporate insolvency statistics.

[15]ASIC, How to interpret ASIC’s corporate insolvency statistics.

[16]ASIC, How to interpret ASIC’s corporate insolvency statistics.

[17]ASIC, How to interpret ASIC’s corporate insolvency statistics, https://asic.gov.au/regulatory-resources/find-a-document/statistics/insolvency-statistics/how-to-interpret-asic-s-corporate-insolvency-statistics/ (accessed 14 June 2023).

[18]Australian Financial Security Authority (AFSA), Supplementary Submission 7.1, p. 24.

[19]AFSA, Supplementary Submission 7.1, pp. 24–25.

[20]AFSA, Supplementary Submission 7.1, pp. 24–25.

[21]AFSA, Supplementary Submission 7.1, p. 25. Historical and discontinued releases of aggregated data by AFSA are available on data.gov.au.

[22]AFSA, Supplementary Submission 7.1, p. 25.

[23]Ms Catherine Robinson, Private capacity, Committee Hansard, 1 March 2023, p. 11.

[24]Mr Michael Murray, Private capacity, Committee Hansard, 1 March 2023, p. 24.

[25]Associate Professor Anil Hargovan, Executive Member, Society of Corporate Law Academics (SCoLA), Committee Hansard, 1 March 2023, p. 18.

[26]Mr Warren Day, Chief Operating Officer, ASIC, Committee Hansard, 1March 2023, p. 33.

[27]Ms Jillian Kitto, Assistant Commissioner, Lodge and Pay Enforcement, Australian Taxation Office (ATO), Committee Hansard, 1 March 2023, p. 33.

[28]Mr Tom Dickson, Assistant Secretary, Corporations, Treasury, Committee Hansard, 13December2022, p. 11.

[29]Association of Independent Insolvency Practitioners (AIIP), answers to questions on notice, 23December 2022 (received 23 February 2023).

[30]Section 533 of the Corporations Act requires the liquidator to lodge a report with ASIC where they suspect an officer or employee of a company in liquidation, or a member or contributory, ‘may have been guilty of an offence in relation to that company’.

[31]Mr Ben Sewell, Private capacity, Committee Hansard, 28 February 2023, p. 61.

[32]Associate Professor David Brown, Adelaide Law School; Professor Jenny Buchan, School of Taxation and Business Law, University of New South Wales (UNSW); Professor Ellie Chapple, School of Accountancy, Queensland University of Technology (QUT); DrJennifer Dickfos, SeniorLecturer, Griffiths Business School; Associate Professor Timothy Fisher, School of Economics, The University of Sydney; Professor Jason Harris, Sydney Law School; ProfessorSuzanne Le Mire, Adelaide Law School; Dr Sulette Lombard, Senior Lecturer, FlindersUniversity Law School; Associate Professor David Morrison, TC Beirne School of Law, University of Queensland; Michael Murray, Adjunct Professor, QUT Faculty of Law; DrRobNicholls, Senior Lecturer, School of Taxation and Business Law, UNSW; DrBethNosworthy, Senior Lecturer, Adelaide Law School; Professor Ian Ramsay, Melbourne Law School; Catherine Robinson, Lecturer, University of Technology Sydney (UTS) Faculty of Law; DrAllison Silink, Senior Lecturer, UTS Faculty of Law; Mark Wellard, Senior Lecturer, UTS Faculty of Law.

[33]Mr Michael Murray and Professor Jason Harris, answers to questions on notice [Various], 22December 2022 (received 10 February 2023), p. 16, Attachment B: Academics letter to Office of the National Data Commissioner, Response to Discussion Paper and Privacy Impact Assessment about Data Sharing and Release reforms, October 2019, p. 1.

[34]Academics letter to Office of the National Data Commissioner, Response to Discussion Paper and Privacy Impact Assessment about Data Sharing and Release reforms, October 2019, pp. 1–2.

[35]Academics letter to Office of the National Data Commissioner, Response to Discussion Paper and Privacy Impact Assessment about Data Sharing and Release reforms, October 2019, p. 2.

[36]Business Law Section, Law Council of Australia (BLS LCA), answers to question on notice, 23December2022 (received 14 February 2023).

[37]Mr Murray and Professor Harris, Submission 18, p. 2. The substantive question of the public purposes of the insolvency regime, and who should do that work (that is, insolvency practitioners or otherwise), is considered further in chapters 8 and 9.

[38]Salman Shah, ‘Centring debt justice in insolvency reform’, Insolvency Law Bulletin, February 2023, p.64; see Mr Michael Murray and Professor Jason Harris, answers to questions on notice, 22December 2022 (received 10 February 2023).

[39]BLS LCA, answers to question on notice, 23December 2022 (received 14 February 2023), p. 22.

[40]AIIP, answers to questions on notice, 23December 2022 (received 23 February 2023).

[41]Academics letter to Office of the National Data Commissioner, Response to Discussion Paper and Privacy Impact Assessment about Data Sharing and Release reforms, October 2019, p. 1.

[42]Mr Murray and Professor Harris, answers to questions on notice, 22 December 2022 (received 10February 2023); Attachment B: Academics letter to Office of the National Data Commissioner, Response to Discussion Paper and Privacy Impact Assessment about Data Sharing and Release reforms, October 2019, p. 1.

[43]Professor Lynne Taylor, Private capacity, 1 March 2023, p. 24.

[44]Mr Murray and Professor Harris, answers to questions on notice, 22December2022 (received 10February 2023), p. 23.

[45]BLS LCA, answers to question on notice, 23December2022 (received 14 February 2023).

[46]Barrett Walker, Submission 64, pp. 1–2.

[47]Kroll, Submission 47, pp. 2–3.

[48]Australian Council of Trade Unions (ACTU), answers to question on notice [Fair Entitlements Guarantee], 1 March 2023 (received 8 March 2023).

[49]AIIP, answers to questions on notice, 23December2022 (received 23 February 2023). The substantive issue of deregistration is addressed in Chapter 7.

[50]Mr Michael Brennan, Liquidator and Bankruptcy Trustee, Offermans, Committee Hansard, 21February 2023, p. 45.

[51]Treasury, Review of the Insolvent Trading Safe Harbour, 23 November 2021, pp. 71–72.

[52]KPMG, Submission 55, p. 7; See also, Institute of Public Accountants, Submission 62, p. 6.

[53]Catherine Robinson, ‘Regulation of Insolvency Practitioners in a Pandemic’, Insolvency Law Journal, 2020, Volume 28, No. 4, pp. 195 and 202; see Submission 41.

[54]BLS LCA, answers to question on notice, 23December2022 (received 14 February 2023), p. 28.

[55]ASIC, answers to questions on notice, 23December2022 (received 8 February 2023).

[56]ASIC, answers to questions on notice, 23December2022 (received 8 February 2023).

[57]Australian Small Business and Family Enterprise Ombudsman (ASBFEO), answers to questions on notice, 22December2022 (received 9 February 2023).

[58]Salman Shah, ‘Centring debt justice in insolvency reform’, Insolvency Law Bulletin, February 2023, p.64; see Mr Michael Murray and Professor Jason Harris, answers to questions on notice, 22December 2022 (received 10 February 2023).

[59]ASBFEO, answers to questions on notice, 22December2022 (received 9 February 2023).

[60]Mr Murray and Professor Harris, answers to questions on notice, 22December2022 (received 10February 2023), p. 23.

[61]Academics letter to Office of the National Data Commissioner, Response to Discussion Paper and Privacy Impact Assessment about Data Sharing and Release reforms, October 2019, p. 1.

[62]Barrett Walker, Submission 64, pp. 1–2.

[63]Mr Murray and Professor Harris, answers to questions on notice, 22December2022 (received 10February 2023), p. 23.

[64]BLS LCA, answers to question on notice, 23December2022 (received 14 February 2023).

[65]BLS LCA, answers to question on notice, 23December2022 (received 14 February 2023).

[66]Kroll, Submission 47, pp. 2–3.

[67]ACTU, answers to question on notice, 1March2023 (received 8 March 2023).

[68]Mr Michael Brennan, Offermans, Committee Hansard, 21 February 2023, p. 45.

[69]Treasury, Review of the Insolvent trading Safe Harbour, 23 November 2021, p. 90.

[70]International Monetary Fund (IMF), The Use of Data in Assessing and Designing Insolvency Systems, (IMF.org) WP/19/27, prepared by José Garrido (dir.), Wolfgang Bergthaler, Chanda DeLong, Juliet Johnson, Amira Rasekh, Anjum Rosha, and Natalia Stetsenko, February 2019, pp. 1 and 3.

[71]IMF, The Use of Data in Assessing and Designing Insolvency Systems, (IMF.org) WP/19/27, prepared by José Garrido (dir.), Wolfgang Bergthaler, Chanda DeLong, Juliet Johnson, Amira Rasekh, Anjum Rosha, and Natalia Stetsenko, February 2019, p. 3.

[72]IMF, The Use of Data in Assessing and Designing Insolvency Systems, (IMF.org) WP/19/27, prepared by José Garrido (dir.), Wolfgang Bergthaler, Chanda DeLong, Juliet Johnson, Amira Rasekh, Anjum Rosha, and Natalia Stetsenko, February 2019, p. 1.

[73]IMF, The Use of Data in Assessing and Designing Insolvency Systems, (IMF.org) WP/19/27, prepared by José Garrido (dir.), Wolfgang Bergthaler, Chanda DeLong, Juliet Johnson, Amira Rasekh, Anjum Rosha, and Natalia Stetsenko, February 2019, p. 5.

[74]United Nations Commission on International Trade Law (UNCITRAL), Legislative Guide on Insolvency Law, uncitral.un.org/en/texts/insolvency/legislativeguides/insolvency_law (accessed 23April2023).

[75]For more information on enterprise group insolvency, see Kathlene Burke, ‘UNCITRAL Adopts the Model Law on Enterprise Group Insolvency’, International Corporate Rescue, Editorial, Volume 16, Issue 5, pp. 263–264.

[76]BLS LCA, answers to questions on notice, 23December2022 (received 14 February 2023).

[77]BLS LCA, answers to questions on notice, 23December2022 (received 14 February 2023), p. 25.

[78]United Nations National Coordination Committee for Australia, Working Group V (Insolvency) Expert Advisory Committee, Analysis of the alignment of Australia’s insolvency laws with each of the 377 recommendations contained in the UNCITRAL’s Legislative Guide on Insolvency Law, submitted with LCA, answers to questions on notice, 23December2022 (15 February 2023).

[79]World Bank, Principles for Effective Insolvency and Creditor/debtor Regimes, 2021 Edition, Washington DC, 22 April 2021, pp. 2–3.

[80]World Bank, Principles for Effective Insolvency and Creditor/debtor Regimes, 2021 Edition, Washington DC, 22 April 2021, p. 3.

[81]World Bank, Principles for Effective Insolvency and Creditor/debtor Regimes, 2021 Edition, Washington DC, 22 April 2021, p. iv.

[82]Murrays Legal, World Bank’s B-Ready Report On Country Business Systems, Including On The Efficiency Of Corporate Insolvency Systems, 5 May 2023, murrayslegal.com.au/blog/2023/05/05/world-banks-b-ready-report-on-country-business-systems-including-on-the-efficiency-of-corporate-insolvency-systems/ (accessed 22 May 2023); World Bank, Business Ready (B-READY), www.worldbank.org/en/businessready (accessed 7May 2023).