Moving in together – personal and corporate insolvency law and policy

Mr Christian Porter, as the new federal Attorney-General, might like to consider transferring responsibility for personal insolvency from his law enforcement focused department, to Treasury, which already has corporate insolvency and which has the necessary economic focus to handle bankruptcy reform in the 21st century, moving it away from what was its criminal and moral focus of earlier times. 

A recent UK article opened with these words.

“Attitudes both of the law and of members of society towards personal insolvency and to bankrupts have evolved considerably in England and Wales. A movement, starting with the abolition of imprisonment for bankruptcy in 1869, has taken personal insolvency from the realm of crime and moral outrage and into the commercial sphere where it more properly belongs”.[1]

The Australian government’s view of bankruptcy as an option for an insolvent entrepreneur focuses on the commercial sphere aspects of bankruptcy, the ability of a person to expunge their debts (and lose their assets), in order to start afresh, albeit with nothing beyond the personal effects allowed by bankruptcy law.[2]

The government could have also mentioned the economic and social benefits of consumers being released from bankruptcy sooner, an issue acknowledged and assessed in some of the more substantial overseas debates than we see in Australia.[3]

Move bankruptcy law and policy to Treasury

There is a need for bankruptcy law to be moved from its present justice and crime environs, in the Attorney-General’s Department (AGD), to Treasury, with its economic focus.  As Mr Turnbull says, we need to change the culture associated with failure.

Bankruptcy still retains the stigma of moral and even criminal failure. Consistent with that, bankruptcy mixes in AGD with national security, law enforcement, criminal intelligence, human rights, privacy and freedom of information.  Treasury is concerned with economic policy, the promotion of business conduct and enterprise, tax policy, and financial governance.

Treasury itself would benefit. Most of the innovative changes in insolvency law over the past years have come from AGD and AFSA. While their resolve was lacking in seeing through many unsatisfactory and populist aspects of the new laws, there are some good provisions that have come from bankruptcy which  are now part of our harmonised corporate and personal insolvency law regime.

Harmer

The legal benefits of a transfer of personal insolvency to Treasury would be, as the Harmer Report suggested back in 1988, “uniformity of the substance of the provisions relating to individual and corporate insolvency”.[5]

The Report continued:

“Moreover, to the extent that future reforms proposed for the law relating to either individual or corporate insolvency touch matters which are common to both (particularly where those reforms affect procedural matters), it is the Commission’s view that corresponding reforms should be made to both sets of laws”.

At least, as the Report noted, “one government” was responsible for national insolvency law.

One government means nothing while there are two regulators, two departments and two ministers involved. The need for the large harmonisation task of the 2016 reforms indicates that; to the extent that the new law requires Australia’s two national insolvency regulators – ASIC in Treasury and AFSA in AGD – to “work co-operatively” with each other (but only in limited circumstances)).[4])

And even then, the outcome of the law reform shows that each side has worked to preserve its own pet provisions.

My views on this are not new,[6] but the Attorney, and Treasurer, might like to think about the question.

————————————————-

[1] Insolvency Intelligence 2016, “Indefinite suspension of discharge from bankruptcy – a worrying trend?” Phillip Patterson.

[2] National Innovation and Science Agenda

[3] In particular, the writings of Dr Joseph Spooner, LSE; Professor Iain Ramsay, University of Kent; Professor Jason Kilborn, John Marshall Law School, USA; and in Australia, Professor Rosalind Mason and Nicola Howell, of QUT.

[4] Sections 10-5, Schedules.

[5] ALRC 45

[6] See for example The alignment of the laws of personal and corporate insolvency, (2009) 9(5) INSLB 78, Murray.

Posted by admin