In introducing new insolvency reforms – what will be the Insolvency Law Reform Act 2016 – the government has claimed that “probably 95 per cent—or even 99 per cent—of liquidators” comply with their legal obligations in administering Australia’s insolvency regime: Senator J Williams, Second Reading. On the other hand, figures show that those involved in corporate collapse are upwards of 80% non-compliant, if reports made by liquidators to ASIC are any guide.
The Act represents an obvious aim of the government making that liquidator compliance figure 100%. That is a remarkable achievement, with Senator Williams’ severe 2010 Senate Committee recommendations for high standards yet to be implemented, in particular requiring closed book exams for liquidator entrants: recommendation 8.
If all this is true, it means that the Australian insolvency profession is the most compliant in the world, despite administering what many see as a dysfunctional regime, still bound up in 19th century red tape.
In fact, despite Senator Williams’ praise, the Insolvency Law Reform Act ignores much of the need for modernising the law.
The sad reality is we got a camel, at a time when we needed a racehorse.
For one thing, or really two, Australia still divided between two laws, two ministers, two departments and sadly, two regulators – AFSA and ASIC. The fact that the new Act requires those two regulators to “co-operate with each other”, brings a wry but sad smile. The costs of this division must be, as Senator Williams suggests, outrageous. The costs of the regime itself are also outrageous, with so much red tape and antiquated process required of liquidators that there is often little hope of anything being left for creditors. The new Act is an example of more red tape.
As to the substance, despite numerous insolvency reports and inquiries over the last 15 years, upwards of 30, governments have ignored major insolvency reforms. High cost and limited or no returns for creditors are the outcome.
Directors leave the company to drift such that there is often nothing left.
Should they then want to put their company into liquidation, they have to pay for the privilege, upwards of $10,000. No wonder that few bother. In contrast, their bankruptcy is free, government policy thereby promoting personal bankruptcy over corporate.
Further commentary on this major (sic) new law will follow soon.