The Bathla Group insolvencies has prompted ARITA to highlight what it says is
“a longstanding issue for Australia’s insolvency system: significant external administrations involve substantial creditor, employee and broader stakeholder interests while lacking the funding needed to preserve value and properly assess available restructuring or realisation options”.
ARITA refers to its submission to the Productivity Commission’s current inquiry into reducing barriers to business dynamism, as to the need for a “Public Interest Administration Fund” to address structural funding deficiencies in insolvency appointments, Bathla being a current illustration of what ARITA says is a broader funding problem.
An Official Receiver
This is an issue Professor Jason Harris and I have raised for some years, in particular in our submission to the 2023 PJC inquiry into corporate insolvency and in Rebuilding the structure of the Australian insolvency system (2022) 22(1&2) INSLB 14.
We say there is a need for a greater role of the state in insolvency, where, obviously, funds for the proper administration of estates are limited. There are simply not enough funds remaining in insolvent estates to properly fund the system.
We propose an Official Receiver role as originally intended at federation.
That would address what we see is another problem, that much public interest work is done by IPs at the cost of creditors. Rather, as a matter of insolvency law reform guidance, it is said that
“private functions should be performed by the private sector and paid out of funds otherwise available for distribution among creditors, while public functions should be performed by public officials and paid for out of public funds . . .”: Insolvency Law Reform: The Role of the State (1999) NZLRev 569, Paul Heath.
For that reason we suggest there is a need for a public role in the nature of an official receiver comparable with that in bankruptcy. We say there is at present an unsatisfactory and unclear delineation between public and private tasks that need to be corrected. Even if the end result is that the private profession is required to pursue public interest tasks, that should be more clearly explained in the law and as necessary funding arrangements be made.
Our lawyers’ calculation of the numbers should necessarily be verified; insolvency practitioners would not ask for any funding reform without that financial analysis of the insolvency system being conducted.
Bathla and an Official Receiver role
As to Bathla, without knowing or commenting upon its difficulties, the approach in the UK is to have the Official Receiver handle large public interest insolvencies – either because of environmental and other hazards: British Steel; or the size and extent of public disruption: Thomas Cook; or the importance of public infrastructure: Carillion Constructions.
In each case, private firms were appointed as special managers to conduct the administrations, answerable to the OR.
That may be an option here. The government says it supports in principle the PJC’s recommendation 18 for the creation of a public liquidator for corporate insolvency. The Productivity Commission is to consider that. Based on past experience, the idea of the government providing a fund which the private sector can access may not be wise.
