Chapter 7Pathways for insolvency, restructuring, liquidation, and deregistration

Introduction

2.1This chapter discusses the evidence and suggestions for reform that the committee received on insolvency, restructuring, liquidation, and deregistration pathways. The chapter provides an overview of existing pathways, and considers potential reforms in relation to:

informal workout with safe harbour or pre-packs;

small business restructuring;

voluntary administration;

simplified liquidation; and

deregistration.

2.2Suggestions for reforming the liquidation pathways are covered in more detail in other chapters. As the committee received limited evidence on the other pathways (informal workout without safe harbour, schemes of arrangement, and receivership), they are only mentioned briefly in the overview section below.

Overview of pathways

2.3Since the implementation of the Harmer Report recommendations, there have been significant changes to existing pathways and the addition of new pathways. Figure 7.1 identifies 11 pathways that may be available when a company enters financial difficulty, is no longer required by the members, or is dormant:

receiver/controller;

informal workout (including with the option of the safe harbour defence);

small business restructuring;

schemes of arrangement;

voluntary administration;

court liquidation;

creditor's voluntary liquidation;

simplified liquidation;

members voluntary liquidation;

voluntary deregistration; and

Australian Securities and Investments Commission (ASIC) deregistration.

2.4The colours in Figure 7.1 indicate the company's insolvency status and the business's ability to trade in each of the pathways. For the orange pathways, the solvency status and ability to trade depend on the circumstances, whereas in the red insolvent pathways, companies may not trade. In the yellow boxes, the company is solvent, and the business may trade.

2.5Four of the 11 pathways (informal workout with optional safe harbour defence, small business restructuring, schemes of arrangement, and voluntary administration) provide options that may enable the company to restructure. Those pathways allow the debtors to remain in possession, except for the voluntary administration pathway for which creditors take possession. The five pathways shown with dashed boxes in Figure7.1[1] use a creditor-in-possession model (receiver/controller, court appointed liquidation, creditors voluntary liquidation, simplified liquidation, and voluntary administration). The pathways are not all mutually exclusive. For example, a company might simultaneously use the safe harbour defence and a scheme of arrangement.

2.6The three categories of arrow thickness indicate (not directly proportional) how often the pathways are used relative to each other. The usage levels of the more common pathways are:

voluntary deregistration (around 80 000 per year);

ASIC deregistration (around 47 000 per year);

creditors voluntary liquidation (around 2000–4000 per year);

court liquidation around 1600–2300 per year prior to COVID, lower since;

members voluntary deregistrations (1500 per year);

voluntary administrations 700–1200 per year (the higher end prior to COVID), with 35percent progressing to a deed of company arrangement (DOCA) and most of the remainder to liquidation); and

receiver controller appointments (around 200–400 per year).[2]

2.7Figure 7.1 enables consideration of a big-picture view of the system of pathways for insolvency, restructuring, liquidation, and deregistration. The different usage levels of pathways draw out questions about the balance of outcomes and economic incentives between the pathways (without expecting the numbers to be shared equally). For example, during this inquiry, questions have been raised about the number of companies proceeding to deregistration (either voluntarily or by ASIC deregistration) versus the much lower use of pathways that provide opportunities for restructuring.

Description of the individual pathways

2.8The following text provides a brief description of each of the pathways.

2.9Receivership (controllership) is a process that entitles a secured creditor to appoint a registered liquidator as a receiver to a company. The receiver's role is to take control of the secured assets to repay the secured debt. The loan agreement gives the creditor a right to appoint a receiver under certain conditions.[3] If there are any assets or money left over when the receivership is complete, they are returned to the company (and the control of the company's directors) unless a liquidator or another external administrator is appointed.[4]

2.10Informal workouts occur outside the formal frameworks of the law and rely on the law of contract. In this case, a creditor (or small group of creditors such as financial institutions) will work with a business to restructure the business's liabilities to allow it to continue trading.[5]

Safe harbour defence is an option under an informal workout that sits outside the formal insolvency process but within the Corporations Act 2001 (Corporations Act). The safe harbour provides a defence for insolvent trading if a director suspects that insolvent trading may occur, and the director ensures the company's books and affairs are in good order and develops a restructuring plan with a qualified professional.[6]

2.11A small business restructureallows eligible businesses to compromise their debts with their creditors' agreement. It also enables business owners to remain in control during the restructuring period it restrictions on eligibility are met. Directors are assisted through the restructuring process by a restructuring practitioner, who must be a registered liquidator.[7]

2.12A scheme of arrangementis a restructuring tool that can be used for either solvent or insolvent companies. It is a proposal to restructure the company that includes a compromise of the rights of one or all stakeholders—creditors, shareholders, or both. The courts oversee the process and require the agreement of all classes affected. Schemes of arrangement are becoming more common, especially for complex restructurings that involve debt-for-equity swaps.[8]

2.13During August and September 2021, under the Morrison Government, the Department of the Treasury (Treasury) consulted on improving schemes of arrangement to better support businesses. Subsequently, reforms were announced to:

establish an opt-in automatic moratorium on creditor enforcement;

enable courts to prevent a class of creditors from inappropriately leveraging a scheme process to force an alternative arrangement; and

enhance creditor notification requirements.[9]

2.14However, the reforms in relation to creditors' schemes of arrangement were not implemented prior to the 2022 Federal election.[10]

2.15Voluntary administration aims to rescue a company that is in financial difficulty. A voluntary administrator (registered liquidator) is appointed to take control of the company and manage its affairs until the creditors decide the company's fate. A Deed of Company Arrangement (DOCA) may document an agreement between the administrators and the creditors to settle the firm's debts in a way that allows part or all of the business to be returned to the control of the directors. Voluntary administration can involve a change in ownership.[11]

2.16Liquidation (or winding-up) results in a company being shut down. All the company's assets are sold, and the money raised is used to repay the company's debts. There are three main types of liquidation:

Creditors' voluntary liquidation—is initiated by the company's directors when they are concerned the company cannot pay its debts.

Simplified liquidation—(a sub pathway under creditor's voluntary liquidation) can be used by a liquidator if the company in a creditor's voluntary liquidation is eligible and not more than 25percent of creditors object.[12] A simplified liquidation pathway is a streamlined creditors' voluntary winding up for companies that have liabilities less than $1 million.[13]

Court liquidation—starts as a result of a court order, usually made after an application by a creditor of the company.

Member voluntary liquidations (MVLs)—are used to wind up a solvent company voluntarily under the control of a liquidator. The liquidator realises the company's assets, pays all creditors in full, and distributes the surplus amongst the shareholders according to their entitlement, following which the company ceases to exist.[14]

2.17Deregistration—this usually means that a company ceases to exist as a legal entity. Deregistration of a company can be:

voluntary by agreement of the members if the company meets conditions; or

by ASIC if the company has ceased trading or has not fees and penalties; or

a final step following the end of an external administration for liquidation.[15]

Financial distress lifecycle

2.18The Australian Restructuring and Insolvency and Turnaround Association (ARITA) drew attention to where some pathways sit in the financial distress lifecycle in Figure 7.2. There is a relationship between viability, insolvency, and asset values. Restructuring and turnaround are feasible paths when the realisable asset value is above zero, and the company is solvent. Pathways such as informal workouts, small business restructuring and voluntary administration provide opportunities to avoid the transaction costs and intellectual property destruction that occur with business liquidation. Other benefits potentially include maintaining employment, continuity of service to customers, and greater returns to creditors.[16]

2.19Where the realisable assets value falls below zero, but the company remains solvent, schemes of arrangement and voluntary administration may be viable. In summary, if a business is to be rescued, or where that is not possible, more money returned to creditors in a liquidation, the directors need to act earlier when net asset values are higher and provide more opportunities for restructuring.[17]

2.20Liquidation occurs at the end of the financial distress lifecycle, where:

the realisable value of assets, if any remain, has diminished;

the opportunities for restructure, turnaround, or rehabilitation through a voluntary administration or small business restructuring no longer exist;

the company is likely to be insolvent; and

the appointment of a liquidator is required.[18]

Source: ARITA, Supplementary Submission 36.1, p. 4.

Informal workouts, safe harbour, and prepacks

2.21Informal workouts generally occur outside the regulated corporate insolvency processes and use a range of methods to bring companies back to a viable status. While the committee has not inquired into informal workout methods in detail, the committee did receive evidence on two aspects of informal workouts which are discussed in this section: the regulated safe harbour pathway and the unregulated pre-pack restructuring.

Safe harbour

2.22Safe harbour, as an option under the informal workout pathway, sits outside the formal insolvency process but within the Corporations Act. It provides a defence for insolvent trading if a director, suspecting that insolvent trading may occur, takes a range of prudent steps to ensure the company's books and affairs are in good order and develops a restructuring plan with the support of an appropriately qualified professional.[19] This section summarises the recent review of the safe harbour provisions and views from inquiry participants.

The safe harbour review

2.23The safe harbour provisions contained in sections 588GA and 588GB of theCorporations Act commenced in September 2017. Section 588HA of the Corporations Act provided for an independent review to examine and report on the impact of the availability of the safe harbour to directors of companies on the conduct of directors and the interests of creditors and employees of those companies. The Treasury Safe Harbour Review was completed in November2021.[20]

2.24Safe harbour uses confidential board decisions and, in most cases, only becomes public if the company enters a formal insolvency process (and even then, there is little public data available). There are good reasons for this: publicising a company's financial distress during a safe harbour can have dire consequences for its liquidity and ongoing ability to trade. As a result, the Safe Harbour Review relied on input received from advisers, directors and other stakeholders as to their experiences of the safe harbour provisions.[21] The Safe Harbour Review:

noted that there was no ASIC or industry-endorsed best practice guide on how the safe harbour provisions operate in practice;

considered that the safe harbour protections offer considerable assistance in encouraging an active turnaround market for larger companies; and

held concerns as to the applicability of the safe harbour for small and medium enterprises (SMEs).[22]

2.25The Safe Harbour Review made 14 recommendations, aimed at:

clarifying and simplifying provisions;

improving the safe harbour protections and thresholds for the protections;

providing easy to understand guidance and definitions;

clarifying references to advisers, tax and employee entitlement safeguards;

improving the collection of data on the use of safe harbour from administrators; and

establishing a holistic in-depth review of Australia's insolvency laws.[23]

2.26In March 2022, the Morrison Government responded to the Safe Harbour Review, agreeing to nine recommendations, and noting others (recommendations 2, 10 and 12–14), some of which it indicated it might consider further. The March 2022–23 Federal Budget provided $0.8 million to implement the recommendations. The funding was reversed as part of the spending audit in the October 2022–23 Federal Budget pending the outcome of this corporate insolvency inquiry by the committee.[24]

2.27The Safe Harbour Review also suggested updating Regulatory Guide217 (Duty to prevent insolvent trading: Guide for directors; RG 217). ASIC indicated that it is currently reviewing RG 217 and anticipated consulting on revised guidance in the first half of 2023.[25]

Safe harbour views from submitters and witnesses

2.28Many inquiry participants considered that the safe harbour was a beneficial reform and supported the implementation of the recommendations of the SafeHarbour Review.[26] Other submitters were in favour of most recommendations or suggested adjusting others.[27] ARITA suggested the recommendations could be implemented soon and did not need to wait for a comprehensive review.[28]

2.29The following paragraphs identify further safe harbour issues and suggestions raised by submitters and witnesses, including relaxing the criteria of access, SME access, the interaction with unfair preference claims, the costs relative to phoenixing, and the potential for creditors to be exploited.

2.30Relaxing criteria: To access the safe harbour defence, companies must pay the entitlements of employees by the time they fall due; and give returns, notices, statements, applications, or other documents as required by taxation laws. Some inquiry participants suggested that the criteria should be relaxed. Other submitters, such as the Australian Council of Trade Unions (ACTU), argued against any loosening of the criteria, suggesting this would encourage sharp practices and increase the likelihood of additional costs of insolvency being externalised on workers, unsecured creditors, and the wider community.[29]

2.31SMEs: Some submitters observed that the cost and other aspects of the safe harbour scheme meant that it was not accessible to many SMEs.[30] The SafeHarbour Review noted that there had been limited utilisation of the safe harbour by SMEs due to the relatively high cost of advice and the intertwining of SME liabilities with personal guarantees provided by directors over other assets, including family property.[31] Mr Allan Eskdale noted that SMEs with minimal capital, poor management, and inadequate systems struggle to meet and maintain compliance with the safe harbour eligibility criteria.[32]

2.32Interaction with unfair preferences: The Safe Harbour Review observed that creditors who assist a debtor during a safe harbour may still be subject to unfair preference claims. Some submitters and witnesses proposed that such creditors should have some protections against unfair preference claims.[33] Chapter 13, discusses those issues in further detail.

2.33Incentives for phoenixing: The Institute of Public Accounts indicated that its members advise that the safe harbour is potentially cost-prohibitive to financially distressed organisations. This makes it less attractive than phoenixing, which is less expensive, expedient, and is often not scrutinised to the same level as the informal workout with safe harbour pathway.[34]

2.34Exploitation ofcreditors: Some witnesses raised concerns about the potential for the safe harbour to exploit some creditor groups.[35] The Electrical Trades Union (ETU) noted that safe harbour rules prevent entities from enforcing contractual rights to terminate agreements against companies. The ETU argued that obliging contractors to continue carrying out work for which they may not be paid is a crude and risky tool.[36] The Australian Manufacturing Workers' Union (AMWU) raised concerns about the use of the safe harbour printing and marketing firm Ovato (this case is discussed in Chapter 11). The AMWU made several suggestions to protect employees, including in relation to disclosure, regulatory oversight and appointment of administrators, mechanisms for government intervention, and prohibiting restructures that rely on the Fair Entitlements Guarantee (FEG).[37]

Pre-pack sales and restructuring

2.35Pre-pack sales and pre-pack restructuring are debtor-in-possession approaches to facilitate continued trading. Creditor-in-possession restructuring through voluntary administration is a public process that can impact business relationships, making it difficult to retain the business's value. An alternative is a pre-pack sale, where an insolvent company sells its business and assets to a buyer before appointing administrators.[38]

2.36The Business Law Section of the Law Council of Australia (BLS LCA) noted that questions persist over legal issues surrounding pre-pack processes, and in Australia the process remains relatively unregulated. Risks include that a later-appointed administrator or liquidator must investigate and possibly unwind the sale. To comply with independence requirements, the ultimately appointed administrators may not be involved in the sale process before the appointment, which leads to duplication of effort and increased costs. In the United Kingdom (UK), pre-pack administration processes have been regulated to ensure those concerns can be adequately addressed. The BLS LCA recommended that consideration should be given to whether a better-regulated scheme for pre-pack administrations is required as part of the Australian restructuring regime.[39]

2.37Narrow Road Capital suggested that where a reasonable sale process has been run before insolvency, and the majority of creditors which are likely to receive a recovery have provided their consent, pre-pack insolvencies should be encouraged. Pre-pack insolvencies allow over-indebted but sustainable businesses to transition to a more appropriate capital structure quickly. NarrowRoad Capital observed that care must be taken that pre-packs are not used to phoenix business assets and that directors are still held accountable to creditors.[40]

2.38The Turnaround Management Association Australia (TMA) suggested that there needs to be consideration of pre-packaged sales and pre‑packaged creditors' schemes of arrangement (similar to that introduced in Singapore). The TMA also noted that there are two main types of pre-packs:

Pre-pack sales are common in the UK, where a business sale is negotiated with a buyer before the appointment of administrators. The administrators sign the agreed form of sale documents immediately upon their appointment.

Pre-pack restructurings involve the majority of creditors voting in favour of a restructuring plan before its launch.[41]

2.39The TMA summarised its view on how pre-packs work:

In broad terms, a pre-pack is a strategy employed to preserve value through an insolvency or restructuring process by conducting a significant amount of the sale or restructuring work and obtaining the agreement of the required parties to implement the sale or restructuring, before the formal insolvency or restructuring process commences. This allows the formal process to be conducted rapidly with certainty of outcome, reducing broader uncertainty for suppliers and customers who may not realise the company is in significant financial difficulty until after the transaction has been completed and a solution has been implemented.[42]

2.40Several other inquiry participants suggested pre-pack reforms and adjusting insolvency practitioner independence requirements could be worth exploring.[43]

2.41ARITA was not in favour of a pre-pack regime, commenting that:

Reforms in 2003 effectively removed receivership as an option in the UK. Hence, receivership appointments in the UK are now rare. Pre-pack sales via the UK's administration process effectively replaced receivership appointments. It can leave unsecured creditors without a return, and no say in the process.

ARITA preferred pre-positioned sales, which directors of a financially distressed business can use to prepare a business for orderly wind-down and present potential sale options to an incoming administrator.[44]

2.42ARITA indicated that it continued to concur with the recommendations on pre-packs and pre-positioned sales by the Productivity Commission's 2015 Report, which included recommendation 14.3 on making provisions in the Corporations Act for pre-positioned sales. That recommendation has not been implemented.[45]

2.43Kroll suggested that the tension between the benefits and risks of pre-packs could be managed by using a system like the Takeovers Panel to adjudicate disputes in a commercial manner that is cheaper and faster than court‑supervised systems.[46]

Small business restructuring

2.44From 1 January 2021, a new pathway called Small Business Restructuring (SBR) became available. These changes included a new simplified debt restructuring process for eligible small businesses and a new type of registered liquidator. The SBR pathway leaves the control of the insolvent company in the hands of the directors, rather than the appointed registered liquidator—that is, it uses a debtor-in-possession approach. SBR allows eligible businesses to compromise their debts with their creditors' agreement. Directors are assisted through the restructuring process by a restructuring practitioner.[47]

2.45To be eligible for the SBR pathway:

the total liabilities of the company must not exceed $1 million;

directors must meet restrictions on directors who have previously been involved in insolvency; and

the company must not have undergone restructuring or been the subject of a simplified liquidation process within the preceding seven years.[48]

2.46Small business restructurings occur in two phases:

(a)appointing a registered liquidator as the restructuring practitioner:

(i)directors of a company appoint a restructuring practitioner; and

(ii)a restructuring proposal period of 20 business days commences where the company proposes a restructuring plan; and

(b)entering into a restructuring plan (if creditors approve one).[49]

2.47The SBR safe harbour provisions differ from the informal workout safe harbour provisions as follows:

a registered liquidator must be appointed as a restructuring practitioner;

non-lodgement of taxes and non-payment of employee entitlements do not preclude the appointment of an SBR practitioner, nor the operation of the SBR safe harbour provisions (provided they are paid, in each case, by the time a restructuring plan is proposed to creditors);

creditors are notified, and ipso facto protections apply to impose a moratorium during the planning period; and

the only consideration in relation to the debts incurred is, as noted above, that the company is restructuring, and that the debt was incurred in the ordinary course of the company's business (or otherwise with the consent of the restructuring practitioner or the court).[50]

ASIC Review

2.48In January 2023, ASIC completed a review of the SBR pathway, covering 82appointments. ASIC made the following findings:

Creditors approved 92 per cent of proposed restructuring plans.

65 per cent of accepted restructuring plans were effectuated and 33 per cent were ongoing at the end of the period reviewed.

66 per cent of companies with an effectuated restructuring plan appeared to be continuing to operate their business.

The Australian Taxation Office (ATO) was a creditor in 89 per cent of companies that entered a restructuring plan and was a major creditor (50–100 per cent of the debt) in 79 per cent of those companies.

The average dividend to creditors was 15.2 cents per dollar.[51]

Concerns about SBR implementation

2.49The SBR pathway was intended to be a cost-efficient way to manage the expected wave of insolvencies following the COVID-19 pandemic. Some concerns have arisen about the low take-up of the SBR pathway.[52] In the first 18months from the beginning of 2021 to mid–2022, 82 small business restructuring appointments were made.[53] However, usage of the SBR pathway has increased in recent months, with 71 restructuring plans registered in the last quarter of 2022 and a further 70 in the first quarter of 2023.[54]

2.50Several inquiry participants raised concerns that the SBR legislation was introduced in a rush without adequate consultations, or parliamentary committee consideration.[55] ARITA noted that the SBR legislation was a modified version of the voluntary administration legislation, contributing to the SBR process being too expensive and complex.[56] Mr John Winter, ARITA, suggested the complexity of the SBR pathway was counterproductive to its purpose of being more accessible to SMEs. When it was drafted, he contended:

… they took [Part] 5.3A of the Corporations Act, which is what looks after voluntary administration, cut and pasted that and called it [Part] 5.3B, added some more and said, 'That's a simplified structure for small business rescue.' Clearly that's not. What you need is four pages of legislation to make it super streamlined and cheap.[57]

2.51The ATO suggested that 'there were some things that were implemented in the small business restructuring laws that perhaps could be offered as improvements for the broader insolvency regime'. The ATO added:[58]

We are a creditor in most of those, so we do have first-hand experience of the work that the practitioners do and the plans that are put forward by the directors. We have seen, at this stage anyway, that most of those plans have been accepted by creditors, including the ATO, and it has provided a relatively straightforward mechanism for approval that provides probably greater certainty about outcomes than, for example, a deed of voluntary administration and a deed of company arrangement might do.[59]

2.52Generally, the concept of the SBR pathway was well received. However, there were many concerns about how it was implemented. ASIC's stakeholder engagement and inquiry participants identified areas for reform, including:

Many businesses have debts that exceed the threshold of $1 million.

Some businesses are unable to meet the required:

substantial compliance with taxation obligations; and

compliance with employee entitlements, including superannuation.

The SBR pathway is too complex and expensive for some businesses.

The appointment of a restructuring practitioner may void a company's existing business insurance, and the insurance cover maintained by the registered liquidator does not apply as the directors remain in control.

In some states, appointing a restructuring practitioner to a company may void licences required to operate a business, such as a builder's licence.

Banks may cut off facilities for businesses that undertake an SBR process.

ASIC records show that a company going through an SBR is 'under external administration', which may create confusion about the company's viability.

High investigative burdens to satisfy the ATO.

ATO time frames for processing matters do not align with SBR time frames.

Practitioner hesitancy to implement SBR due to their liabilities and protections afforded to directors.[60]

2.53While recommending that steps be taken to address the cost and complexity of the SBR pathway, ARITA raised some concerns about raising the SBR debt threshold:

Great care should be taken in raising the threshold … with increased debt comes increased complexity that should not be dealt with in this simplified format. It will also significantly increase the risk of SBRs being used to facilitate illegal phoenixing. We have instead suggested excluding related party creditors from the threshold.[61]

2.54ARITA provided several other reform suggestions for the SBR pathway:

Excluding secured creditor debt from the SBR process and preventing secured creditors from enforcing security during the SBR process.

Recognising the restructuring practitioner as a company advisor and their independence.

An automatic stay on winding up applications during the SBR process.

Modifying the SBR process to determine creditor claims before the proposed plan is issued, thereby reducing plan variations.

Allowing SBR plans to treat related and arm's length creditors differently.

Limiting plans to the payment of cash by the restructuring practitioner so the restructuring practitioner simply distributes funds as agreed under the plan to reduce complexity and cost.

Allowing creditors to vote on a plan variation rather than requiring court consideration.[62]

2.55Commenting on operation of the SBR pathway, Professor Anil Hargovan raised the possibility of a more efficient pathway where the ATO is the main creditor:

… the ATO in the majority of cases. If that trend were to continue, then there's a case to revisit. Do you really want to put in an external administrator and incur all those expenditures when you are dealing with the ATO most, if not all, of the time. So there's got to be a better way there.[63]

2.56Asked about criticisms from ARITA regarding SBR and simplified liquidation, and statistics suggesting low uptake of both, Treasury noted:

It's not intended to replace the insolvency system; it's meant to only cater to a very particular subset of cases. There are eligibility criteria that have been established for those two simplified systems, and those eligibility criteria are important because they're trying to, first of all, enable only simple affairs to be considered because we are stripping out quite a lot of the typical regulatory processes you would go through, and you don't want to end up in a scenario where you are inviting people to misuse and abuse those simplified processes.[64]

Simplified liquidation

2.57The simplified liquidation pathway came into effect in January 2021. The simplified liquidation pathway was intended to reduce regulation for small businesses and aims to allow faster and lower-cost liquidation, and thereby increase returns for creditors and employees. The pathway is available to eligible companies in a creditors' voluntary winding up.[65] To be eligible for simplified liquidation:

the company must be in a creditors' voluntary winding up;

liabilities must not exceed $1 million;

the company will not be able to pay its debts in full within 12 months;

the directors must, within five business days, give to the liquidator a report on the company's business affairs and a declaration the company meets the eligibility criteria for the simplified liquidation pathway;

directors meet requirements about involvement in previous insolvencies;

the company has not undergone restructuring or been the subject of a simplified liquidation process in the preceding seven years; and

the company has given returns, notices, statements, applications and other documents required under the Income Tax Assessment Act 1997.[66]

Issues identified by inquiry participants

2.58From January 2021 to the end of September 2022, the simplified liquidation pathway was used in 59 liquidations, indicating a relatively low usage level compared to liquidations and deregistrations.[67] Many inquiry participants acknowledged the value of the simplified liquidation concept. However, they also argued that uptake of the simplified liquidation pathway was low because the complexity, cost, and efficiency were not much different from the standard liquidation pathway, and the timeframes were much tighter. As a result, there were few incentives for insolvency practitioners or creditors to use simplified liquidation. Hence, many participants suggested the need for further reductions in complexity and cost.[68] Others noted that it might be too early to judge the success of the reforms.[69] Like the SBR reforms, some inquiry participants considered that the rush to implement the simplified liquidation reforms had contributed to ineffective policy settings.[70]

2.59Mr Michael Murray and Professor Jason Harris suggested that there is a need for a streamlined insolvency procedure for low/no asset companies. However, simplified liquidation can't effectively fulfil that role. Mr Murray and Professor Harris recommend that the simplified liquidation pathway be replaced by an administrative procedure conducted by, or under the supervision and funding of an Official Receiver's office.[71] Professor Harris argued that simplified liquidation is:

… not simplified enough. It's almost exactly what you have to do in a full creditor's voluntary liquidation, but the time frames are very tight. There's not enough benefit to using the simplified restructuring.[72]

2.60The Society of Corporate Law Academics (SCoLA) recommended further streamlining of simplified liquidation by removing reporting obligations, shortening the timeframes for completion and making the entry criteria easier.[73]

2.61ASIC noted that the decision to adopt the simplified liquidation process is made by the registered liquidator, not the directors, in a creditor's voluntary winding up. ASIC suggested that consideration might be given to the directors electing whether the appointment should commence using the simplified liquidation process with the appointed liquidator, then converting it to a full liquidation, if the directors' judgement that the company satisfies the eligibility criteria for simplified liquidation is incorrect.[74]

2.62Professor Lynn Taylor observed that New Zealand's standard liquidation process is simpler than the Australian simplified liquidation process. ProfessorTaylor suggested that a streamlined New Zealand liquidation process may be a better option for all low-value Australian liquidations (or even all Australian liquidations). Professor Taylor also noted that there are trade-offs, as simpler systems reduce fees and incentives for liquidators.[75]

2.63The Australian Banking Association (ABA) told the committee that looking at the threshold for access to the pathway might be worthwhile. The ABA suggested a threshold more consistent with the small business definition in the Banking Code of Practice is currently $3 million.[76]

2.64Treasury, when asked about the low uptake of the simplified liquidation pathway and criticisms from witnesses about the conduct of the design and implementation of the reform, responded:

We are acknowledging that there is feedback we are receiving in relation to that, and we understand that, for instance, the $1 million threshold is one of the sticking points people often raise. The question is whether that $1 million threshold is appropriate, particularly in relation to the liquidation pathway. Another anecdote we've received is that, from the point of view of the liquidator, there's very little incentive for a liquidator to go through the simplified system because the remuneration possibilities in there are low ...[77]

2.65ARITA proposed the following reforms to bring the simplified liquidation pathway closer to its policy intent:

The ability to litigate within a simplified liquidation is, by its nature, counterintuitive and should be removed.

A maximum statutory remuneration of $10 000 is set, removing the need for liquidators to report and obtain approval for remuneration.

Streamlined reporting obligations, clarifying liquidator investigation requirements and removing the right of creditors to make requests.

Enable multiple dividends to be paid to priority employee creditors.

Remove the requirements for ATO approval before a dividend is declared and for proof of debts to be lodged for claims of less than $10 000.

Offset the removal of creditors' right to request information with a right to seek termination of the simplified process.[78]

Voluntary administration

2.66This section:

describes the voluntary administration pathway in Australia;

covers reform suggestions by inquiry participants; and

notes views of inquiry participants on calls for a United States (US) Chapter11-style system.

2.67Part 5.3A of the Corporations Act, introduced in 1992 implements the recommendations made in the Harmer Report to establish the voluntary administration pathway designed to resolve a company's future.[79]

2.68An independent registered liquidator (the voluntary administrator) controls the company. This allows the director or a third-party time to find a way to save the company or its business. If it is not feasible for the director or a third party to come up with a plan to save the company or its business, the voluntary administrator aims to administer the company's affairs to obtain a better return to creditors than would result from an immediate liquidation of the company.[80]

2.69A company's director(s) usually appoints a voluntary administrator after they determine the company is insolvent or likely to become insolvent. Less commonly, a liquidator, provisional liquidator, or secured creditor may appoint a voluntary administrator. After taking control of the company, the voluntary administrator presents a report providing the following three options for a creditors' meeting (after five weeks) to decide the company's future:

end the voluntary administration and return the company to the directors;

approve a DOCA through which the company will pay all or part of its debts and then be free of those debts; or

wind up the company and appoint a liquidator.[81]

2.70A DOCA is a binding arrangement between a company and its creditors governing how its affairs will be dealt with. The DOCA is generally proposed by the director or any third party, usually in consultation with the voluntary administrator, and is administered by a deed administrator (usually the registered liquidator who was the voluntary administrator).[82] Approximately 35per cent of voluntary administrations progress to a DOCA.[83]

2.71The usage of voluntary administration has fallen gradually over the past two decades, as indicated in Figure 7.3.

Source: Treasury, Submission 34, p. 4; ASIC Insolvency Statistics Series 1.

Issues identified during the inquiry

Professor Harris's empirical study of voluntary administration

2.72In his recently completed PhD which provides a detailed empirical study of voluntary administration, Professor Jason Harris made the following observations about the voluntary administration pathway:

Part 5.3A has operated without major structural amendments for over 25years. During that time, it has been used to address the financial distress of thousands of MSMEs [micro, small and medium businesses], as well as restructure some of the largest and most complex businesses in Australia. The procedure can work well, and is working well in many instances, but that appears largely to be due to the ingenuity of practitioners and the flexibility of the courts.

Voluntary administration requires a range of tasks to be undertaken and imposes various obligations and potential liability risks for administrators that contribute to a cost structure that makes it unworkable for many (mostly smaller) businesses. These measures can hinder commercial restructuring efforts, but it is also clear that many businesses in financial distress are simply not viable candidates for corporate rescue.

The empirical research discussed in this thesis demonstrate that there are broad levels of support for Part 5.3A as a useful tool to deal with financial distress, but also show that the regime does not provide an optimal framework to facilitate corporate rescue in Australia.[84]

2.73Professor Harris made 24 recommendations (the Harris recommendations) to improve the voluntary administration regime so that it better facilitates corporate rescue, including, recommendations 1–6 on improving MSME corporate rescues:

extending stay against enforcement of related party guarantees;

greater flexibility on what a restructuring plan can include;

standard rules for restructuring practitioner remuneration;

greater flexibility to manage the business and sell some property;

improving transparency for creditors through information and recommendations from the restructuring practitioner; and

determine creditor debts and claims at the start of the restructuring period.[85]

2.74Some inquiry participants also identified areas for reform related to some of Professor Harris's recommendations,[86] for example:

the unsuitability of the current voluntary administration for SMEs;[87]

allowing creditors rather than courts to limit administrator liability;[88]

stand-alone DOCAs;[89]

transparency around costs;[90] and

allowing creditors to approve extensions to the convening period.[91]

Other issues identified by inquiry participants

2.75Other potential areas for reforms suggested by inquiry participants included:

reforming DOCAs to:

release claims against third parties; extinguishing securities or modifying, terminating, remedying or transferring contracts or leases as part of a broader reconstruction; and

have more prescriptive mandatory requirements on the priority treatment of administration costs; and;

improve creditor protections;[92]

relaxing independence requirements on voluntary administrators associated with pre-appointment work;[93]

a broader interpretation and application of the failing firm exception should be taken by the Australian Competition and Consumer Commission (ACCC);[94]

streamlining reporting requirements;

minimising the need for courts to approve borrowing agreements;

limiting the time to amend DOCA proposals;

improving the effectiveness of the ipso facto stay regime;

mechanisms to transfer contracts during restructure;[95]

conduct of voluntary administrations by ASIC appointed registered liquidators and report to ASIC in the same way they do for liquidations.[96]

2.76TMA argued that the voluntary administration regime has become procedurally more cumbersome and costly, and is no longer the 'quick, efficient and relatively inexpensive' process envisaged by its authors. TMA said it would be appropriate to empower a new committee of turnaround experts to report on reforms to promote restructuring and turnaround of enterprises capable of being saved without abrogating from the need to protect creditors and maintain insolvency regimes for those entities that cannot be sensibly rescued.[97]

2.77It was a common view amongst inquiry participants that voluntary administration worked better for larger corporates.[98] For example KordaMentha submitted that:

In our experience, the Voluntary Administration regime is a very powerful and useful tool. It is flexible and versatile and has been used in very large corporate failures in Australia. It is better suited to medium to large companies from a cost perspective.[99]

2.78In contrast, Mr Ben Sewell argued that voluntary administration is an expensive (around $50 000 per administration) and a largely unsuccessful restructuring mechanism (only around one per cent of insolvent companies use voluntary administrations to successfully restructure).[100]

US Chapter 11 system

2.79A US Chapter 11 debtor-in-possession system is often suggested alternative to Australia's voluntary administration system to promote more business rescues and restructuring. The first section of this chapter noted that Australia's corporate insolvency system already has several restructuring pathways, some of which use a debtor-in-possession model. This section briefly summarises views put to the committee by inquiry participants on the US Chapter 11 system.

2.80Ashurst noted that in a restructuring via a voluntary administration, the market tends to regard the appointment of administrators as an indication of failure and that the company's financial position is terminal. There is a significant risk that liquidation will follow. Ashurst suggested an alternate restructuring mechanism to promote a culture of corporate rehabilitation for businesses of all sizes in the appropriate cases. Ashurst suggested a new debtor‑in‑possession regime would promote this, and suggested there are numerous international regimes from which to draw useful precedents, such as those in the UK, Singapore and the US.[101]

2.81Mr Bruce Billson, Australian Small Business and Family Enterprise Ombudsman (ASBFEO), while making a case for an insolvency regime that was more sympathetic to honest failure and genuine prospects for recovery of the business or the business owner, indicated that Chapter 11 was likely not the best way of achieving this in Australia:

Chapter 11 does shift responsibility and onus, in my mind, a little too far away. It puts the debtor or the business a little too much in control; it's just a calibration. I'd be thinking about something chapter 11-esque without going all the way to chapter 11. The information is that if creditors felt we had a full-blown chapter 11 in Australia they might be less inclined to lend.[102]

2.82Professor Harris noted that the US Chapter 11 system is not just a set of provisions providing another insolvency pathway. Instead, it is a legal system, with its own federal bankruptcy court and expert judges, premised on it being a court-driven system. Hence, there would be significant challenges to adding such a system to Australia's insolvency system.[103]

2.83The BLS LCA preferred Australia's current voluntary administration system to Chapter 11, noting that the voluntary administration pathway is generally a better system in the Australian marketplace. It serves both large and SME businesses well, although the cost of the process is occasionally a prohibitive factor for micro-businesses. A small number of potential improvements could be made.[104]

2.84The BLS LCA noted that, in effect, Australia already has a debtor‑in‑possession model available for large enterprises in the form of schemes of arrangement. Similarly, the Small Business Restructuring pathway provides a debtor‑inpossession insolvency pathway for small businesses. However, in practice, schemes of arrangement are too expensive for medium enterprises to access, involving millions of dollars in professional expense across lawyers, accountants, and financial advisers. As such, there was merit in considering the introduction of a debtor-in-possession pathway accessible to medium-sized businesses.[105]

2.85Mr Michael Brennan, Productivity Commission, explained that when people raised the possibility of a Chapter 11 approach in Australia, often that was not so much about Chapter 11 itself but rather the idea that there'd be a greater focus on business recovery, as distinct from getting what you can for the creditors.[106]

2.86Mr Michael Brereton, ARITA, suggested that one of the strengths of Australia's system was having a skilled and trusted group of liquidators who could in most instances achieve the right outcomes. In contrast, the Chapter 11 process was conducted on the basis that the bankruptcy court supervises everything because they don't trust the debtor in possession.[107]

2.87Mr Warren Mundy, appearing on behalf of ARITA but able to speak to the Productivity Commission report (given he was a commissioner at the time of that report), noted that when the Productivity Commission did its work:

… there was significant pressure from within the government, both at an officials level and at an elected level, that the commission should recommend chapter 11 as a model for the future of the bankruptcy law in Australia. The commission examined that, and my discussion with the Department of Justice in Washington was basically: 'Do anything but chapter 11. Just don't go near it. It's big. It's expensive.' I think we all know the challenges that the federal and circuit courts face from time to time. We would need an entirely new court to administer that stuff.[108]

Members voluntary liquidation

2.88An MVL is not an insolvency administration. An MVL is a method provided for in the Corporations Act to wind up a solvent company voluntarily under the control of a liquidator. The liquidator realises the company's assets, pays all creditors in full, and distributes the surplus amongst the shareholders according to their entitlement. Following that the company ceases to exist. Solvent companies are usually wound up because they no longer have any commercial use or where the members perceive some benefits can be gained. If a company in MVL subsequently turns out to be insolvent, the liquidation converts to a creditors' voluntary liquidation.[109]

2.89Like a voluntary deregistration, a company in MVL needs to ensure all its debts have been paid, and all tax lodgements are up to date and payments remitted. Data provided by ASIC indicates that there were approximately 1500 MVL appointments each year over the four years to 2021–22.[110]

2.90ARITA noted that the Corporations Act acknowledges the different nature of an MVL by allowing unregistered individuals to be appointed as liquidators. This differential means unregistered individuals who undertake MVLs do not incur an ASIC industry funding levy, while registered liquidators incur a charge for undertaking the same functions. ARITA argued that the disparity gives unregistered individuals an unfair advantage and that the ASIC industry funding model should remove levies that relate to solvent liquidations.[111] ASIC data indicates that 75 to 78 per cent of liquidators appointed to MVLs were registered liquidators over the four years to 2021–22.[112] ARITA also noted that MVLs are not included in public reporting by ASIC of external administrations even though they are an external administration under the Corporations Act.[113]

2.91ARITA submitted that while MVLs provide an effective method to dissolve a company if it doesn't meet the requirements for voluntary deregistration, some inefficiencies and disparities could be addressed to make the process cheaper and timelier. This could reduce the time taken by several months. ARITA also suggested streamlining the MVL process to enable more companies not qualifying for voluntary deregistration to be correctly wound down more cheaply and quickly through the following MVL reforms:

Remove the requirement to obtain clearance from the ATO before a distribution is made.

Remove any provisions that give creditors rights in the members' voluntary liquidation process.

To ensure competitive neutrality, exclude members' voluntary administrations from any industry levies applied to registered practitioners.[114]

Deregistration

2.92Deregistrationof a company can be:

Voluntary by agreement of the company members, when the company is not conducting business, has assets worth less than $1000, is not involved in legal proceedings, has no outstanding liabilities, and has paid all fees and penalties payable to ASIC.[115]

Compulsory, if ASIC believes the company has ceased trading or has outstanding fees and penalties: including:

the company has not paid its annual review fee within 12 months;

the company has not responded to a company compliance notice; or

the company has not lodged any documents in 18 months, and ASIC believes the company is no longer in business.[116](If ASIC initiates deregistration for non-payment of the annual review fee, a significant period will have lapsed before the company is deregistered, during which no creditor has acted to wind up the company. This may indicate that if any creditors exist, the debts are minimal and/or they are aware there are little or no assets available to pay costs in a winding up.)[117]

ASIC initiated, following a liquidator lodging a deregistration request or end-of-administration return to signal that the winding up is complete.

By other means including automatic deregistration when the affairs of the company are fully wound up; the court orders the deregistration; the strike‑off from the register of a registered Australian body after it has ceased to carry on business interstate; or the removal from the register of a registered foreign company after it has ceased to carry on business.[118]

2.93Voluntary and compulsory deregistrations are more common than other deregistrations and external insolvency administrations, as shown in Table 7.1. Several submitters and witnesses raised concerns that deregistrations may include many insolvent companies, with some suggesting that more checks or investigations are needed to prevent companies using deregistrations to avoid appointing liquidators.[119] ASIC is not required to carry out investigations about a company before deregistering it, and ASIC indicated it may not have the resources to investigate every company's affairs before deregistration.[120] ASIC confirmed that if the ATO has concerns about a company, it has an opportunity to request that ASIC defer a deregistration process for 180 days.[121]

Source: ASIC, answers to questions on notice 001, 14 December 2022 (received 8 February 2023).; See also: Mr Russell Morgan, Submission 2, p. 4; Thea Eszenyi, 'Is ASIC deregistering more "abandoned companies"? What the data shows', ARITA Journal, July 2022, p. 40.

2.94Voluntary or compulsory deregistrations may occur for reasons other than financial difficulty or insolvency. At present, it is not possible to determine what portion of voluntary or compulsory deregistrations that may involve insolvent companies because the necessary data is not available.[122]

2.95The responsibility for the registration and deregistration of companies will be with the Registrar (of Australian Business Registry Services (ABRS)) in the future. ASIC also notes that since April 2021, ABRS has been operating the registry business (which includes the registration and deregistration of companies) as a delegate of ASIC. At a later stage, the Registrar will assume primary responsibility for these functions under law.[123]

Committee view

System of pathways

2.96In the first section of this chapter, the committee brought together a picture (Figure 7.1) of the system of 11 pathways for insolvency, restructuring, liquidation, and deregistration. The committee notes that the pathways include several pathways for restructuring and pathways using a debtor-in-possession approach. The committee suggests that it is unlikely that more pathways are needed. Rather, the existing pathways can be improved, and the committee discusses below some of the potential reforms put to this inquiry.

2.97However, before proceeding to work on the individual pathways, the proposed comprehensive review should consider including an early task or project on a 'big-picture' view of the system of pathways, including:

whether the system of pathways is meeting the purposes of the insolvency system and the economy; and

the appropriate balance of outcomes and economic incentives for the range of stakeholders using the pathways.

2.98The committee recommends that the proposed comprehensive review consider and report on the current system of corporate insolvency pathways from a holistic systems analysis perspective.

Safe harbour defence

2.99The committee notes that many inquiry participants supported the safe harbour pathway and implementation of the recommendations of the Safe Harbour Review sooner rather than later. Some inquiry participants were not in favour of the informal workout with safe harbour pathway generally and held concerns about transparency of the safe harbour process. The committee notes that significant practical difficulties would arise if the safe harbour process was public, including that wide knowledge of a safe harbour process may lead to stakeholders taking actions that quickly render the company insolvent and unable to be restructured.

2.100The committee also received evidence about other safe harbour issues, including relaxing criteria to access the protection, SME access, the interaction with unfair preference claims, the costs relative to phoenixing, and the potential exploitation of creditors. The committee has concluded that these issues require more forensic examination than was possible in this inquiry, and therefore highlights them as matters for consideration by the proposed comprehensive review. The committee considers that those issues should not prevent the near‑term implementation of the Safe Harbour Review recommendations.

2.101The committee recommends that the government implement recommendations from the SafeHarbour Review, independent and likely in advance of the further review, and consider referring the remainder of safe harbour reform issues identified in this report to a comprehensive review.

Small Business Restructuring (SBR)

2.102The committee notes that the concept of small business restructuring has been welcomed by many stakeholders. The committee acknowledges that in the context of the pandemic, it was important for the previous Government to progress the SBR reforms relatively quickly. However, stakeholders have identified issues, potentially arising from the rushed legislation and implementation with limited consultation. The committee considers that it should have been possible to improve the consultation process while still legislating in a timely way.

2.103The committee notes that stakeholders raised concerns that may be worthy of further reform, including too much complexity leading to higher costs, appropriate eligibility criteria, impact on access to insurance and industry licences, loss of access to banking facilities, ATO investigative burdens on practitioners, issues with personal guarantees and practitioners' liabilities.

Simplified liquidation

2.104The committee observes that while the simplified liquidation pathway has only been in place for a short time, the early indications are that the drafting and implementation were rushed, leading to a potentially ineffective pathway. The committee acknowledges that moving quickly was important during the pandemic. However, appropriate consultation and policy design should still be possible. The committee considers that the simplified liquidation pathway must be sufficiently simpler and cheaper than standard insolvency to incentivise its use.

Voluntary administration

2.105The committee notes that, on balance, most inquiry participants considered the voluntary administration pathway appropriate and effective. However, since the main provisions were put in place around 30 years ago, reforms have been limited, and in the most recent decade, usage of the pathway has declined. Inquiry participants have provided suggestions for reform that could be considered during the proposed comprehensive review. The committee observes that inquiry participants were generally not in favour of introducing the high complexity and high-cost US Chapter 11 system. The committee further notes that the Australian insolvency system already has several debtor-in-possession pathways.

Members voluntary liquidation

2.106The committee considers that if the comprehensive review or other reforms to pathways are pursued, it would be appropriate to review and consult on potential improvements to the members voluntary liquidation pathway.

2.107The committee recommends that as soon as practicable the government consider and consult on potential reforms to the:

small business restructuring pathway; and

simplified liquidation pathway.

2.108The committee recommends that the comprehensive review consider the:

voluntary administration pathway; and

members voluntary liquidation pathway.

Deregistration

2.109The committee notes that many companies are deregistered through voluntary or compulsory deregistration. The committee has heard concerns that some of those companies may be insolvent, even though deregistration is not a pathway properly available to an insolvent company. As no data is available, it is impossible to determine how many of those companies were, in fact, insolvent. The committee considers that it would be beneficial for the proposed comprehensive review to have some information on the solvency status of such companies. The committee suggests that, for this reason, ASIC should collect and analyse on an appropriately sized random sample of deregistrations. The committee suggests that the sample should be large enough to be statistically significant, without placing an undue burden on ASIC's resources.

2.110The committee recommends that the Australian Securities and Investments Commission collect and analyse data from an appropriately sized sample of voluntary and compulsory deregistrations, to provide greater visibility of the solvency status of deregistered companies.

Footnotes

[1]The other six pathways (informal workout, small business restructuring, scheme of arrangement, members voluntary liquidation, voluntary deregistration, ASIC deregistration) have various types of debtor-in-possession status. All other boxes should not be assumed to be debtor-in-possession, as not all boxes are pathways.

[2]ASIC, Submission 29, Table 11, p. 42; TheaEszenyi, 'IsASIC deregistering more ''abandoned companies"? What the data shows', ARITAJournal, July2022, pp. 40–41; ASIC Insolvency Statistics, Series 1, 3 April 2023 release, Chart1.1.2; Australian Restructuring Insolvency and Turnaround Association (ARITA) Submission36, pp. 83–84.

[3]ARITA, Submission 36, p. 31.

[4]Australian Securities and Investments Commission (ASIC), Receivership: A guide for creditors, asic.gov.au/regulatory-resources/insolvency/insolvency-for-creditors/receivership-a-guide-for-creditors/ (accessed 12 May 2023).

[5]ARITA, Submission 36, p. 31.

[6]ARITA, Submission 36, p. 31.

[7]ARITA, Submission 36, p. 31.

[8]ARITA, Submission 36, p. 31.

[9]King & Wood Mallesons, Submission 45, p. 2; Department of the Treasury (Treasury), Submission 34, pp. 13–14; Treasury, Improving schemes of arrangement to better support businesses, Consultation paper, 2 August 2021.

[10]King & Wood Mallesons, Submission 45, p. 2; Treasury, Submission 34, pp. 13–14; Treasury, Improving schemes of arrangement to better support businesses, Consultation paper, 2 August 2021.

[11]ARITA, Submission 36, p. 31.

[12]ARITA, Submission 36, p. 31; ARITA, The liquidation process, https://arita.com.au/ARITA/ARITA/Insolvency_help/The_liquidation_process.aspx (accessed 4May2023).

[13]ASIC, Simplified Liquidation, https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/simplified-liquidation/ (accessed 27April‑2023).

[14]ARITA, Submission 36, pp. 31, 59; ARITA, The liquidation process, https://arita.com.au/ARITA/ARITA/Insolvency_help/The_liquidation_process.aspx (accessed 4May2023).

[15]ASIC, Deregistration, https://asic.gov.au/for-business/closing-your-company/deregistration/(accessed 28April 2023); ASIC, Effects of deregistration,https://asic.gov.au/for-business/closing-your-company/effects-of-deregistration/ (accessed 24May2023).

[16]ARITA, Submission 36, p. 15; Supplementary Submission 36.1, pp. 4–5.

[17]ARITA, Supplementary Submission 36.1, pp. 4–5.

[18]ARITA, Supplementary Submission 36.1, pp. 4–5.

[19]ARITA, Submission 36, p. 31.

[20]Treasury, Review of the Insolvent Trading Safe Harbour, 23 November 2021, p. 2; Treasury, Submission34, p. 7.

[21]Treasury, Review of the Insolvent Trading Safe Harbour, 23 November 2021, p. 4; See also Turnaround Management Association Australia, Submission 38, p. 12; Institute of Public Accountants, Submission62, p. 6.

[22]Treasury, Review of the Insolvent Trading Safe Harbour, 23 November 2021, p. 5.

[23]Treasury, Review of the Insolvent Trading Safe Harbour, 23 November 2021, pp. 89–90; AustralianInstitute of Company Directors, Submission 44, p. 5.

[24]Australian Government, Government Response to the Review of the Insolvent Trading Safe Harbour, March 2022, pp. 3–6; KPMG, Submission 55, p. 23.

[25]ASIC, Submission 29, p. 57.

[26]Australian Institute of Credit Management, Submission 9, p. 6; KordaMentha, Submission 14, pp. 5 and6; Mr Michael Murray and Professor Jason Harris, Submission 18, p. 12; Housing Industry Association, Submission 21, p. 14; Business Law Section, Law Council of Australia (BLS LCA), Submission30, pp. 40–41; Deloitte, Submission 32, p. 7; ARITA, Supplementary Submission 36.1, p. 40; ARITA, Submission 36, p.7; Society of Corporate Law Academics (SCoLA), Submission 37, p. 4; Turnaround Management Association Australia, Submission 38, p. 22; Australian Institute of Company Directors, Submission 44, pp. 2 and 5; KPMG, Submission 55, pp. 6 and 23; McGrath Nicol, Submission 67, p. 5; Association of Independent Insolvency Practitioners, answers to questions on notice, 23December2022 (received 23February 2023).

[27]CPA Australia, Submission 11, p. 3; DyeCo Solvency and Turnaround, Submission 13, p. 7.

[28]ARITA, Supplementary Submission 36.1, p. 47; Submission 36, p. 7; See also Australian Institute of Company Directors, Submission 44, p. 2.

[29]Corporations Act 2001, Subsection 588GA(4); Mr Russell Morgan, Submission 2, pp. 4–5; Australian Banking Association, Submission 23, p. 6; MrMichael Brennan, Offermans, Submission 73, p. 8; Australian Council of Trade Unions, Submission 75, pp. 7 and 14.

[30]Australian Banking Association, Submission 23, p. 6; ARITA, Supplementary Submission 36.1, p. 6; ARITA, Submission 36, p. 43; Australian Institute of Company Directors, Submission 44, p. 6; MrAllan Eskdale, Submission 60, p. 13; Institute of Public Accounts, Submission 62, p. 6.

[31]Treasury, Review of the Insolvent Trading Safe Harbour, 23 November 2021, p. 23; see also Australian Institute of Company Directors, Submission 44, p. 6; BLS LCA, Submission 30, pp. 40–41; CPA Australia, Submission 39, p. 9; King & Wood Mallesons, Submission45, p. 7.

[32]Mr Allan Eskdale, Submission 60, p. 13.

[33]Australian Institute of Credit Management, Submission 9, p. 6; Southern Steel, Submission 27, p. 4; Subcontractor Alliance and Subbies United, Submission 56, p. 18; Scanlon Carroll, Submission 59, pp.2 and 5.

[34]Institute of Public Accountants, Submission 62, p. 7.

[35]Electrical Trades Union, Submission 49, p. 3; Australian Manufacturing Workers' Union, Submission69, pp. 1–2.

[36]Electrical Trades Union, Submission 49, p. 3.

[37]Australian Manufacturing Workers' Union, Submission 69, pp. 7–8.

[38]BLS LCA, Submission 30, pp. 46–47.

[39]BLS LCA, Submission 30, p. 47.

[40]Narrow Road Capital, Submission 15, p. 16.

[41]Turnaround Management Association Australia, Submission 38, pp. 7, 24.

[42]Turnaround Management Association Australia, Submission 38, pp. 7, 23–24.

[43]See, for example, SCoLA, Submission 37, p. 4; Turnaround Management Association Australia, Submission 38, p. 7 and 23–24; Mr Ben Sewell, Submission 12, p.29; BLS LCA, answers to questions on notice, 23December 2022 (received 14 February 2023), pp.8–9; Mr Murray and Professor Harris, answers to questions on notice, 22 December 2022 (received 10 February 2023), p. 9; Association of Independent Insolvency Practitioners, answers to questions on notice, 23December2022 (received 23 February 2023), p. 2.

[44]ARITA, Supplementary Submission 36.1, pp. 46–49.

[45]ARITA, Supplementary Submission 36.1, pp. 46–49; see also Productivity Commission, Business Set-up, transfer and Closure, No. 75, 30 September 2015, pp. 37 and 387–393.

[46]Kroll, Submission 47, p. 2.

[47]ASIC, Report 756: Review of small business restructuring process, January 2023, p. 4; ARITA, Submission36, p. 31.

[48]ASIC, Report 756: Review of small business restructuring process, January 2023, p. 35.

[49]ASIC, Report 756: Review of small business restructuring process, January 2023, p. 4.

[50]Treasury, Review of the Insolvent Trading Safe Harbour, 23 November 2021, p. 16.

[51]ASIC, Report 756: Review of small business restructuring process, January 2023, pp. 5–6 and 14.

[52]See, for example, BLS LCA, Submission 30, p. 24; Deloitte, Submission 32, p. 5; Turnaround Management Association Australia, Submission 38, p. 14; Mr Murray and Professor Harris, Submission 18, p. 9.

[53]ASIC, Report 756: Review of small business restructuring process, January 2023, p. 4.

[54]ASIC, Series 2 Insolvency Statistics, 3 April 2023 release, sheet 2.1.

[55]See, for example Association of Independent Insolvency Practitioners, Submission 20, pp. 3 and, 5; MrMichael Murray and Dr Rosalind Mason, Submission 17, p. 7; BLS LCA, Submission 30, p. 20; ARITA, Submission 36, p. 43; KPMG, Submission 55, p.20. Mr Michael Brennan, Offermans, Submission 73, pp. 26–27; Mr Bruce Billson, Ombudsman, Australian Small Business and Family Enterprise Ombudsman, CommitteeHansard, 13December2023, p. 27; Mr Ben Sewell, Private capacity, Committee Hansard, 28 February 2023, p.60; Associate Professor Mark Wellard, Committee Hansard. 1 March 2023, p. 17; Mr Murray, Committee Hansard, 1 March 2023, p. 30.

[56]ARITA, Submission 36, p. 44.

[57]Mr John Winter, Chief Executive Officer, Australian Restructuring Insolvency & Turnaround Association, Committee Hansard, 14 December 2022, p. 5.

[58]Ms Jillian Kitto, Assistant Commissioner, Lodge and Pay Enforcement, Australian Taxation Office, Committee Hansard, 1 March 2023, p. 34.

[59]Mr Gary Busby, Senior Insolvency Advisor, Lodge and Pay Enforcement, Australian Taxation Office, Committee Hansard, 1 March 2023, p. 34.

[60]See for example the following documents and submissions, not all issues are raised in every submission or document. ASIC, Report 756: Review of small business restructuring process, January 2023, pp. 4–5; Submission 29, p. 46; CPAAustralia, Submission 11, p. 2; BLS LCA, Submission 30, pp.11 and 25–26; BlueRock, Submission 8, pp. 1 and 5; Mr Ben Sewell, Submission 12, pp. 3 and 24–25; Association of Independent Insolvency Practitioners, Submission 20, pp. 4–5; Australia Credit Forum, Submission 22, pp. 2–3 and 7–8; Ashurst, Submission 26, pp. 4–5; Deloitte, Submission 32, p.5; Turnaround Management Association Australia, Submission 38, p. 14; AustralianInstitute of Company Directors, Submission 44, pp. 4 and 6; KPMG, Submission 55, pp.20–22; BLS LCA, answers to questions on notice, 23 December 2022 (received 14 February 2023), pp. 38–41; Professor Jason Harris, Private capacity, Committee Hansard, 13 December 2022, p. 44; Mr Steve Blinkhorn, Director of Legal Affairs, Australian Banking Association, Committee Hansard, 28 February 2023, p. 4; MsHelen Davis, General Manager, Small Business Debt Helpline, Committee Hansard, 28 February 2023, pp. 34–45.

[61]ARITA, Supplementary Submission 36.1, p. 46; Submission 36, p. 43.

[62]ARITA, Submission 36, pp. 44–45.

[63]Associate Professor Anil Hargovan, Executive Member, SCoLA, Committee Hansard, 1 March 2023, p. 16.

[64]Mr Tom Dickson, Assistant Secretary, Corporations, Treasury, Committee Hansard, 13December2022, p. 14.

[65]Treasury, Submission 34, pp. 10–11.

[66]ASIC, Simplified liquidation, https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/simplified-liquidation/ (accessed 8 May 2023).

[67]Treasury, Submission 34, p. 11; ASIC, Submission29, p.51.

[68]BlueRock, Submission 8, p. 2; Professor Harris, Committee Hansard, 13December 2022, p. 44; DyeCo Solvency and Turnaround, Submission 13, p. 3; Mr Murray and Professor Harris, Submission 18, p.9; Association on Independent Insolvency Practitioners, Submission 20, pp. 3, 6; Housing Industry Association, Submission 21, p. 14; BLS LCA, Submission 30, pp. 11 and 26–27; ARITA, Supplementary Submission 36.1, pp. 3 and 28; SCoLA, Submission 37, p. 3; MrNeilHannan, Submission 54, p. 2; KPMG, Submission 55, p. 22; Financial Counselling Australia and Small Business Debt Helpline, Submission 58, p. 2; Ms Vicki Stylianou, Group Executive, Advocacy and Policy, Institute of Public Accountants, Committee Hansard, 28 February 2023, pp. 40–41; Mr John Winter, Chief Executive Officer, ARITA, Committee Hansard, 14 December 2022, pp. 4–5.

[69]See for example, Barrett Walker, Submission 64, p. 2.

[70]See for example, Association of Independent Insolvency Practitioners, answers to questions on notice, 23December 2022 (received 23 February 2023); Associate Professor Mark Wellard, Privatecapacity, CommitteeHansard, 1 March 2023, p. 17; Mr Michael Brereton, President, Australian Restructuring Insolvency & Turnaround Association, Committee Hansard, 14December2022, p. 5.

[71]Mr Murray and Professor Harris, Submission 18, p. 9. Also see Chapter 9 on assetless administrations and the role of the state.

[72]Professor Harris, Committee Hansard, 13December 2022, p. 44.

[73]SCoLA, Submission 37, p. 3.

[74]Mr Warren Day, Chief Operating Officer, ASIC, Committee Hansard, 1 March 2023, p. 32.

[75]Professor Lynn Taylor, Submission 74, pp. 4–5.

[76]Mr Steve Blinkorn, Director of Legal Affairs, Australian Banking Association, Committee Hansard, 28 February 2023, p. 4.

[77]Mr Tom Dickson, Assistant Secretary, Corporations, Treasury, CommitteeHansard, 13December 2022, p. 15.

[78]ARITA, Submission 36, p. 47.

[79]Professor Jason Harris, Promoting an optimal corporate rescue culture in Australia: the role and efficiency of the voluntary administration regime, PhD Thesis, Adelaide Law School, 18 April 2022, pp. 64, 104.

[80]ASIC, Voluntary administration: A guide for creditors, https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-creditors/voluntary-administration-a-guide-for-creditors/(accessed 7 May 2023).

[81]ASIC, Voluntary administration: A guide for creditors.

[82]ASIC, Voluntary administration: A guide for creditors.

[83]ARITA, Submission 36, p. 84.

[84]Professor Jason Harris, Promoting an optimal corporate rescue culture in Australia: the role and efficiency of the voluntary administration regime, PhD Thesis, Adelaide Law School, 18 April 2022, p. 245.

[85]Professor Jason Harris, Promoting an optimal corporate rescue culture in Australia: the role and efficiency of the voluntary administration regime, PhD Thesis, Adelaide Law School, 18 April 2022, pp. 224–244.

[86]Professor Jason Harris, Promoting an optimal corporate rescue culture in Australia: the role and efficiency of the voluntary administration regime, PhD Thesis, Adelaide Law School, 18 April 2022, pp. 224–244.

[87]Mr Ben Sewell, Submission 12, pp. 3, 17, 22–24.

[88]KordaMentha, Submission 14, p. 10; BLS LCA, Submission30, pp. 23–24; Turnaround Management Association Australia, Submission 38, p. 30; McGrathNicol, Submission 67, p. 3.

[89]Turnaround Management Association Australia, Submission 38, p. 31.

[90]Mr Ben Sewell, Submission 12, p. 3.

[91]KordaMentha, Submission 14, p. 10; BLS LCA, Submission30, pp. 23–24; McGrathNicol, Submission67, p. 3.

[92]Turnaround Management Association Australia, Submission 38, p. 30.

[93]BLS LCA, Submission 30, pp. 23–24.

[94]KPMG, Submission 55, p. 29.

[95]KordaMentha, Submission 67, p. 3.

[96]Australia Council of Trade Unions, Submission 75, p. 10.

[97]Turnaround Management Association Australia, answers to questions on notice, 23 December 2022 (received 10 February 2023), pp. 10–11; See also Submission 38, pp. 29–30.

[98]See, for example, KordaMentha, Submission 14, pp. 1 and 6; Mr Ben Sewell, Submission 12, p. 3; ARITA, Supplementary Submission 36.1, p. 55; See also McGrathNicol, Submission 67, pp. 2–3; CrouchAmirbeaggi, Submission 70, p. 4.

[99]KordaMentha, Submission 14, p. 6.

[100]Mr Ben Sewell, Submission 12, p. 3.

[101]Ashurst, Submission 26, p. 2; See also Australian Small Business and Family Enterprise Ombudsman, Submission 31, p. 7; Mr Neil Hannan, Submission 54, p. 1.

[102]Mr Bruce Billson, Ombudsman, Australian Small Business and Family Enterprise Ombudsman, Committee Hansard, 13 December 2022, pp. 27, 33.

[103]Professor Jason Harris, 'Episode Thirteen: Insolvency – Over the Horizon', The BLS Report, Podcast BLS LCA; See also KPMG, Submission 55, pp. 12–13; MrAndrew Barnden, member, registered liquidator and trustee in bankruptcy, Chartered Accountants Australia and New Zealand, Committee Hansard, 28February 2023, p. 40.

[104]BLS LCA, Submission 30, p. 22.

[105]Mr David Walter, Member, Insolvency & Restructuring Committee, LCA, Committee Hansard, 14December 2022, p. 36; See also Mr Anthony Ryan, Deputy Chair, Insolvency & Restructuring Committee, BLS LCA, Committee Hansard, 14 December 2022, p. 35.

[106]Mr Michael Brennan, Chair, Productivity Commission, Committee Hansard, 13 December 2022, p.20.

[107]Mr Michael Brereton, President, Australian Restructuring Insolvency & Turnaround Association, Committee Hansard, 14 December 2022, p. 6.

[108]Mr Warren Mundy, Special Adviser, ARITA, Committee Hansard, 14 December 2022, p. 6.

[109]ARITA, Submission 36, p. 59.

[110]ARITA, Submission 36, p. 59; Thea Eszenyi, 'Is ASIC deregistering more ''abandoned companies"? What the data shows', ARITA Journal, July 2022, p. 40.

[111]ARITA, Submission 36, p. 60.

[112]Thea Eszenyi, 'Is ASIC deregistering more ''abandoned companies"? What the data shows', ARITAJournal, July 2022, p. 40.

[113]ARITA, Submission 36, p. 72.

[114]ARITA, Submission 36, pp. 59–60; See also KordaMentha, Submission 14, p. 3.

[115]ASIC, Voluntarily deregistering a company, https://asic.gov.au/for-business/closing-your-company/deregistration/voluntarily-deregistering-a-company/ (accessed 27 April 2023),

[116]Thea Eszenyi, 'Is ASIC deregistering more ''abandoned companies"? What the data shows', ARITAJournal, July 2022, p. 40; ASIC, Deregistration, asic.gov.au/for-business/closing-your-company/deregistration/ (accessed 28April2023).

[117]ASIC, answers to questions on notice 001, 14December 2022 (received 8 February 2023).

[118]ASIC, answers to questions on notice 001, 14December 2022 (received 8 February 2023).

[119]Discussed in Chapter 3. See, for example, Russell Morgan, Submission 2, pp. 1–4; CPA Australia, Submission 11, p. 4; Ben Sewell, Submission12, p. 13; DyeCo Solvency and Turnaround, Submission13, p. 7; Mr Murray and Professor Harris, Submission 18, pp. 3–4; SCoLA, Submission 37, p. 2; SV Partners, Submission 50, pp. 4–5; Financial Counselling Australia and Small Business Debt Helpline, Submission 58, pp. 2–3; MrJohn Winter, Chief Executive Officer, Australian Restructuring Insolvency & Turnaround Association, Committee Hansard, 14 December 2022, pp.10–11.

[120]ASIC, answers to questions on notice 001, 14December 2022 (received 8 February 2023).

[121]ASIC, answers to questions on notice 024, 1March 2023 (received 11 April 2023).

[122]For discussion of some of the issues see, for example, Mr Michael Brennan (Offermans), Submission73, pp. 8–10; Ben Sewell, Submission12, pp. 13–14; MrMurray and Professor Harris, Submission 18, pp. 3–4; ARITA, Submission 36, p. 72.

[123]ASIC, answers to questions on notice 001, 14December 2022 (received 8 February 2023).