A silver lining in the insolvency law reform delay

The unfortunate delay in the commencement of the substance of the insolvency law reforms for one year, to 1 September 2017, and the reasons given for this may in fact reveal a silver lining, an opportunity to bring insolvency processes on-line and into the 21st century.

The government has acceded to the need for practitioners to have extra time to update their software systems and business processes.  

This one year period provides a real opportunity for the profession and its regulators, to work towards having all insolvencies administered through cloud or on-line portal access.  This would go a long way to meet the government’s, and the profession’s concerns about the time and cost of administering insolvent estates.

Insolvencies should be administered as efficiently as possible, with minimum processing cost, thus allowing as much return for creditors as is achievable, a fundamental objective going back to the Harmer Report [33] and beyond. While the government claims that the reforms will reduce costs, improve timeliness of administrations and improve returns to creditors, one could confidently say that attention to technology based administrations would produce more savings, and returns for creditors, than any reform in the ILRA. This would allow reallocation of practitioners’ and regulators’ focus to issues of substance – restructuring of failing businesses, regulation of unlawful phoenix activity, recovering hidden assets, being some – rather than form. 

Government’s technology focus

The government has a major focus on the efficiency dividends of the internet, explained in its 2015 Innovation Agenda.  This has followed the recommendations of the major 2014 Financial System Inquiry Report for, among many reforms, greater government and regulator use of data, and of cloud based financial recording and reporting. The present 2016 inquiry by the Productivity Commission into use of data flows from that FSI Report. Commercial use of ASIC’s data is under review. Various Senate reports have recommended better access to and analysis of data, in the context of tax evasion, phoenix misconduct, money laundering and related criminal activity. The ATO is moving towards its single touch payroll and other initiatives.  The courts are using on-line access in the conduct of litigation proceedings and in case management and tracking. 

Insolvency

Insolvency is not immune from these changes, in particular given that the businesses its practitioners are called upon to attend to are themselves internet based.  Insolvency is an area much in need of modern approaches to the prompt gathering of information and its analysis and real time reporting, in contrast to the present ‘form lodgment’ processes in corporate law dating from the 19th century.  Conduct deficiencies of practitioners nowadays appear to relate more to process issues than the substantive work involved.  If those tasks were taken from them, or eased, by way of on-line files on a portal, to which regulators and creditors could have access to varying degrees, in real time, the economic and legal benefits would be considerable.

Much is already happening in personal insolvency, with AFSA’s increased focus on and use of cloud technology. Its AER Online (Administration Estate Return) processes, and its desktop “eInspections” regulatory mechanisms are examples.  A major benefit is the quality of statistics for personal insolvency, allowing focused policy development and law reform.  The UK Insolvency Service is pursuing similar initiatives.

What a 21st century insolvency regime should have was raised with the FSI Inquiry, and these ideas will no doubt be flowing through to the current PC Inquiry, and in the government’s insistence on the need for its own technology advances.  The Minister herself wants to “ensure that our insolvency processes are modern and efficient – reducing costs, improving timeliness and improving returns”.

The insolvency profession, with its wide ranging accounting expertise and capacity, should take the opportunity of this hiatus before the new law commences in 12 months time, to assist the government in its objective. Others of us can focus on bringing the insolvency laws themselves, often a real impediment to innovative practice, into this century.