This reports on a review by Dr Arthur Emmett, former Federal Court Judge, of a Sydney Law School seminar questioning whether aspects of the corporate rescue regime under the Corporations Act 2001 have “gone too far”, including Part 5.3A and Part 5.3B, in assisting struggling businesses.
The seminar was conducted through the Ross Parsons Centre for Commercial, Corporate and Taxation Law at Sydney Law School, on 30 April 2025. See Insolvency law – has corporate rescue gone too far? 30 April, Sydney Law School – Murrays Legal. The Seminar was chaired by Adjunct Professor Richard Fisher AM, with speakers being Mr John Martin, Ms Maria O’Brien and myself, Michael Murray, of the Ross Parsons Centre. The seminar traversed market competition and business rescue, including under Part 5.3A (voluntary administration) and Part 5.3B (small business restructuring), insolvent trading and safe harbour, and alternative turnaround processes.
Among the large number attending the seminar was Dr Arthur Emmett AO KC, former Federal Court judge. In his Quarterly Commentary of July 2025 in the Butterworths Corporation Law Bulletin, he has reviewed the seminar.
Market competition
As to the extent to which corporate rescue should be permitted to intrude upon market competition, Dr Emmett said it was arguable that insolvency law has moved from its original purpose of assisting in the removal of unfit businesses from the market towards rescuing and assisting in the survival of weaker or unfit enterprises.
“Rescuing inefficient enterprises, through mechanisms such as voluntary administration, thereby affording them advantages in the marketplace, can be seen as affording an unfair competitive advantage to inefficient enterprises. … One might fairly ask, however, why it would be in the interests of the business community generally to preserve inefficient enterprises”.
A significant object of Pt 5.3A appears to be avoiding a loss of jobs; however there is evidence that a high proportion of displaced employees are in fact re-employed and at their pre-insolvency earnings.
Dr Emmett said that while it would be impracticable to require an administrator to have regard to full market evidence before proposing a deed of company arrangement (DOCA), there may be a case for some such evidence to be considered in deciding whether a deed is appropriate, and to consult the competitors of the company as well as its unsecured creditors.
Safe harbour
He further considers the safe harbour regime, as to the argument that it, as well as voluntary administration, may be capable of abuse. For example, voluntary administration will obviate the investigation of directors’ conduct by a liquidator. Dr Emmett writes that there is nothing to prevent the directors of a company that has been through a DOCA
“from establishing, phoenix-like, another company that may have the same destiny”.
With low dividend returns from DOCAs, while they may be better than nothing, they are still derisory and it is arguable that the possible disadvantage of directors’ avoiding scrutiny is an unacceptable price to pay for so little dividend returns.
Law reform
His Commentary then considers the 2023 report of the Parliamentary Joint Committee on Corporations and Financial Services on Corporate Insolvency, noting its findings that Australia’s corporate insolvency system is
“overly complex, difficult to access, and creates unnecessary cost and confusion for both debtors and creditors…”.
Unsecured creditors are frustrated by low returns, smaller businesses lack restructuring options, system costs are excessive, and insolvency practitioners consider that the system is not appropriately resourced to achieve its purposes.
He noted the PJC’s recommendation for a comprehensive review of both corporate and personal insolvency and one that reports on the appropriate principles and objectives of insolvency law.
Conclusion
In his conclusion, while issues of concern may be raised, Dr Emmett comments that it was his experience as a judge of the Federal Court hearing applications in relation to voluntary administrations that
“significant numbers of cases did not involve mismanagement” and that in those cases, voluntary administration “worked well”.
It would be unfortunate to abandon a system that has worked but
“the time now seems ripe for the comprehensive review recommended by the PJ Committee, not to throw out working mechanisms but to consider whether they are in need of tweaking”.
—————————————-
See Butterworths Corporation Law Bulletin, Quarterly Commentary, July 2025, [521] Does the regime for corporate rescue currently in force go too far? The Hon Arthur Emmett AO KC.
