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Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related policy and law reform, in Australia and internationally. No legal advice is offered or given.

Who should pay for the costs of the administration of an insolvency?

A debtor in Australia pays no fee to have themselves made voluntarily bankrupt. If that does not seem odd, then it should be further explained that we are one of the only jurisdictions to impose no fee.

But the ‘fee’ to wind up the debtor’s company can be a few thousand dollars.

Individual debtors

In relation to individuals, the Australian position compares with, for example, the £680 fee in the UK.

The background to bankruptcy being ‘free’ in Australia goes back to 2013, when the government’s 2013 Mid-Year Economic and Fiscal Outlook in fact directed the Australian Financial Security Authority (AFSA) to recover its own costs by introducing a new $120 fee for people who apply for a debtor’s petition.

In a Senate hearing in 2014, the then Inspector-General in Bankruptcy was strongly questioned as to the fairness or sense of having such a fee. Among many responses, she said that the fee would address the

‘anomaly that [Australia is] one of the only major common law jurisdictions, if not the only one, that does not charge a fee for applications for bankruptcy’.[1]

Despite her evidence, the proposed fee was later rejected by the Senate which in the end the government did not oppose. But the government said this would

‘mean that the cost of administering insolvent estates must be recovered from elsewhere in the insolvency system’ with ‘even more of the burden [being] passed on to creditors through an increase in the asset realisation charge’; creditors ‘already bear heavy burdens in the insolvency system’.[2]

‘Fee’ to wind up a company

However, neither the Senators nor the government compared the $120 with the ‘fee’ or cost of a company entering voluntary liquidation.

Unless the company has realisable assets or the directors or others front up with a few thousand dollars to cover the liquidator’s fees, the required insolvency of the company will not proceed. And liquidators will note that taking a matter for too low a fee – for example from the ATO – might be a cause for regulatory inquiry.[3]

In that respect, creditors do ‘bear heavy burdens in the insolvency system’ – apart from not receiving dividends, they are, the government tells us, also expected to fund liquidations of their debtors.

There are some inconsistent policy [?] approaches here that might well be highlighted when the COVID-19 impact arrives, but which could be addressed by useful root and branch thinking and well directed law reform.

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[1] Legal and Constitutional Affairs Legislation Committee, 24 February 2014, Estimates.

[2] Senator Boyce, Hansard, 23 June 2014.

 

[3] Disciplinary decision of Mitchell Ball, given by Croft, Brereton and Zwier, 22 November 2019.

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