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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Insolvency law reform – some harsh words

Murrays Legal recently reported a comment that our new insolvency law arriving in 2017 was the worst insolvency law reform we have seen. This prompts me to repeat my view that, if this is the case, it is largely the result of the unhappy domination of insolvency reform by corporate law over the years. But, perhaps contradictorally, I repeat my own views that personal insolvency reform should be moved to Treasury, away from the Attorney-General’s Department.  

I recently reported unfortunately, that much of the new 2017 insolvency law is increasingly seen as unsatisfactory, with a distinguished member of the Insolvency Academics Network (IAN) saying it was the worst insolvency law reform we have seen, with that view now published. 

This prompts me to make two points in this commentary.  

First, as I have explained earlier, the new law is largely the result of the domination of insolvency reform by corporate lawyers and practitioners over the years, at the expense of those in personal insolvency.

But, secondly, and with some apparent contradiction, I repeat a view I offered in an article 7 years ago, that personal insolvency reform should be moved to Treasury’ corporate insolvency reform section, from the Attorney-General’s Department.  

Perhaps one of the worst attempts at insolvency law reform …

The IAN comment was that of Dr Colin Anderson of QUT, who has now expressed his view more strongly, in his editorial in the latest Insolvency Law Journal – (2016) 24 Insolv LJ 163.

Dr Anderson refers to the new law as

“perhaps one of the worst attempts at ‘law reform’ that [he has] seen in almost 30 years of scholarship in respect of insolvency law despite the fact that it has taken almost six years to get here.”

Given Dr Anderson’s reputation for his extensive and valuable scholarship and teaching in insolvency law and its reform over many years, it is indeed distressing to have that view expressed by such an authoritative source. Others, including senior practitioners, have also been critical.  It says little that politicians speak of the new law as a most welcome reform. 

Alignment

My own view goes back many years, to articles written pseudonymically as the Eye.

Seven years ago, in “The alignment of the laws of personal and corporate insolvency” ((2009) 9(5) INSLB 80), I emphasized the need to align personal and corporate insolvency laws, given the unnecessary differences between them. For example, a creditor in a both company liquidation and in the bankruptcy of the director, has 14 days and 21 days respectively to challenge a rejection of its proof of debt. 

Corporate law has become the voice of insolvency law generally

More broadly, I bemoaned the fact that corporate law had become the voice for insolvency law generally. I was highly critical of CAMAC’s 2008 report – Issues in External Administration, for its narrow corporate insolvency focus. 

As I then wrote, the 1988 Harmer Report anticipated all this. While the report did not see the need for a unified personal and corporate insolvency law regime, it did suggest that:

“… 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) … corresponding reforms should be made to both sets of laws”.

The report said that this approach should happen because of the comfort that at least “one government” – the Commonwealth – would cover both areas of law. 

As I went on to explain, that joint approach was never taken. Each of the personal and corporate insolvency silos – Attorney-General’s and Treasury – has steadfastly looked inwardly rather than around. Rather than acting on insolvency reform as one government, the departments and agencies operated, and continue to do so, (with some recent improvement), as if they are separate state governments.

Where does bankruptcy belong?

Bankruptcy law reform and AFSA itself come within the Attorney-General’s Department.  AGD is a law focused agency, responsible for a wide range of issues – national security and law enforcement, the AFP, ASIO, the DPP, AUSTRAC, the various courts and tribunals, the ALRC, and the disciplines of copyright, private international law, international treaties, trademarks, and more.  It also has bankruptcy. 

The government has announced that it is proceeding to reduce the period of bankruptcy to one year, for economic and social reasons, and with a view to reducing the stigma of bankruptcy as a breach of the law. Bankruptcy remains beleaguered by a community perception of debtor wrongdoing that the government is trying to reverse.   

That being the case, the law enforcement focused AGD is an odd department from which to develop and promote that economic and social aim. Rather, the retention of bankruptcy by AGD will continue to categorise it as a serious legal and moral status.

In my 2009 article, I suggested that bankruptcy reform be transferred to Treasury, as being the more appropriate department of the two, and along with AFSA.  That transfer of experience, knowledge and culture might result in a focus on ‘insolvency’ reform. 

The future

The new law is nearly with us, and it will be dealt with, and it has some good features, many taken from personal insolvency law. 

If and when bankruptcy moves to Treasury, there might then be a major review of ‘insolvency’ law. With nearly 30 years having passed since the Harmer Report, society and culture and the business and credit world have changed.

As my colleague Associate Professor Jason Harris and I have said, we need another Harmer review and a fresh start on our regime.  murray-harris

 

 

 


 

A copy of this article is being sent to the relevant ministers.  I will relay any responses.

Note that I am a Visiting Fellow at the Queensland University of Technology, and work with Colin Anderson. I am also a member of the Editorial Board of the Insolvency Law Journal.  

Also note that nothing said here is intended to be critical of the individual and very capable officers of AGD and Treasury with whom I have associated over the years.

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