The Australian government’s consultation paper – Modernising Business Communications – Improving the Technology Neutrality[1] of Treasury Portfolio Laws, of December 2020 – offers, as an example of what it is about, the new “package of reforms to streamline insolvency procedures”, allowing “businesses to use technology to conduct meetings relating to the external administration of a company”. That paper came out soon after my review of the use technology in insolvency law, and its potential, in three overseas jurisdictions.
Australia’s consultation is worthwhile but limited and should be seen in context.
Insolvency law and practice of its nature is ripe for the adoption and assistance of information technology – two reasons stand out: insolvency’s collective focus, and its premium on cost effective and proportionate service delivery.
IAN
I explained this in a presentation at the 4 December 2020 annual meeting of the Insolvency Academics Network (IAN) in Brisbane.[2] While I covered many areas of reality and potential for the use of IT in insolvency practice – including insolvency assessments and investigations – my comments here focus only on the merits of a platform/cloud/portal (“platform”) for holding and managing and communicating all insolvency matters by practitioners. Such a platform is used in the three jurisdictions I offer as examples.
Treasury’s Modernising Business Communications
But before explaining the platform, and since my talk, on 22 December 2020, Treasury has set up an inquiry into ‘modernising business communications’, as part of the government’s Deregulation Agenda. Given that such modernisation would be a significant legislative undertaking, the inquiry needs to ‘scope, prioritise and plan a sequence of improvements’.[3]
Treasury’s discussion paper gives latest examples of what can be achieved including through the 2020 laws for modernising government business registers, including the new director identity number; and the “package of reforms to streamline insolvency procedures”, allowing “businesses to use technology to conduct meetings relating to the external administration of a company”. It could have mentioned more advanced reforms in personal insolvency as well.
The categories of business communication in focus include written communications or transfers of information among stakeholders and communicating with regulators such as ASIC – with examples given of lodging documents and attending hearings, along with record-keeping, and payments. The paper refers to notifications by text, or generic online content and email and the use of public registers to replace requirements to publish in newspapers.
As a starting point, the government says it is proposing to adopt technology neutrality in how businesses meet legal requirements to communicate unless policy objectives are best achieved by limiting technology choice. That is, where a default method is not specified in the law, it is intended that any technology may be used to communicate in writing provided that the recipient can maintain access to the stored information.
All that is interesting but …
All this is interesting and useful but what I am raising goes well be beyond what is contemplated by Treasury.
Paraphrasing some of my IAN presentation, there needs to be a platform to hold all insolvency matters, maintained by the government – I have called this TIP, The Insolvency Platform. It draws on platforms of three other jurisdictions:
1. Finland’s Kosti – the Bankruptcy and Company Reorganization Information Management System
KOSTI is the platform maintained by the Bankruptcy Ombudsman holding data on all bankruptcy and company insolvencies and reorganizations. Each insolvent entity’s profile is updated automatically with data received from the insolvency practitioner (IP) and the Ombudsman.
Creditors register on the system online thereby allowing communications between them and the IP, and the filing of proofs of debt and distributing and managing other notifications and documents. IPs practitioners are required to save documents and distribute information via Kosti.[4]
The Ombudsman conducts its regulatory work by direct access to Kosti.
Kosti also provides valuable information and statistics on insolvency in the broader context of the Finnish economy.
2. China’s National Corporate Bankruptcy Information Disclosure Platform[5]
This is an online platform created by the Chinese Supreme People’s Court which allows debtors and creditors to monitor the progress of bankruptcy cases. The platform provides access to a digitized court documents accompanying each case.
IPs are required to upload relevant information for the creditors and judges must also upload their bankruptcy/liquidation rulings to the platform. The platform enables all parties to access current information on the status of their cases and upload documents to submit to the court or the IP.[6]
3. Colombia’s Insolvency Module
Launched in August 2020, this integrates a public access cloud platform, with electronic forms, biometric identity validations, and artificial intelligence components to manage each insolvency proceeding.[7] In common with other Latin American jurisdictions, creditors’ meetings can now be held through virtual platforms, although in Colombia virtual procedures were already operating prior to the COVID-19 pandemic, mainly for procedures carried out by the Superintendent of Companies.[8]
TIP
My consolidation of these platforms is that at a micro level each insolvent entity (company and individual) would have its own folder within TIP, accessible by its liquidator or trustee, and ASIC and AFSA, relevantly accessible by creditors, and the public, and connected with the courts. At a macro level there will be thousands of such folders on TIP.
The benefits of this address at least three fundamental issues in insolvency practice, one, the engagement of creditors; two, the regulation of the system; and three, access to data.
i. Engagement of creditors
As to the first, without limiting the responsibility of the IP to keep creditors informed, it would be a matter for each creditor as to whether they access TIP for that information or to otherwise engage with the process. Put positively, it has been accurately said that creditors’ access to such processes should
“provide a far greater level of creditor empowerment and engagement than the ILRA reforms around creditors’ reasonable requests for information from an external administrator …”.[9]
Likewise, the tentative extensions of those under the 2020 corporate reforms. In comparison, such existing provisions seem rather 20th century and before.
ii. Regulation transformed
The second point is that such a platform would transform regulation of IPs and generally. ‘Desk-top’ regulation has been adopted by AFSA for some time, with efficiencies for both sides. This is reported as a feature of Kosti.
iii. Insolvency data
The third point is that any such platform would provide access to data. After noting that “the use of AI in the insolvency industry is obvious”, Senatore writes that
“No doubt ASIC produces useful reports in its quarterly insolvency statistic updates. Imagine however how much of the data maintained by ASIC could be mined to provide even more useful information. Correlations on the length of external administrations with specific reference to asset types or creditor class and size or correlations between types of recoveries or litigation types, timing, costs and returns or perhaps dividend returns, adjusted for time value of money, rate of return on time invested”.[10]
His focus on statistics is important, in particular given the continued lack of statistics over decades, and the perfunctory figures produced by Treasury for the government for the SME reforms.
The reality
The progress of those three jurisdictions, and no doubt others, puts the Australian insolvency “streamlining” reforms in perspective, and also the current inquiry of Australian Treasury.
That reality is acknowledged and Treasury’s paper reveals that. And while government needs to take the lead, progress on the adoption of IT by IPs in Australia is slow.
It was reviewed in 2018 by Streten[11] who examined insolvency in the broader context of ‘disruptive technology’ generally, ‘with digitalisation posing challenges for business models, customer relationships, pricing strategies and almost all facets of enterprise’.
In her survey of IPs, while some saw great business advantage in adapting quickly to digitalisation – placing themselves ‘light years ahead of the competition’ because of the increased speed and efficiencies, and costs minimisation – many IPs were “hesitant to embrace new technologies”. Their reference points were focused on ‘client management, risk management and conflict checking software’ such as MYOB and Core, systems which, as Streten says, “have been available since the 1980s and 1990s”.
Jennifer Dickfos adds to those findings,[12] as does a ‘health’ survey by Macquarie Bank.[13]
Treasury’s limited focus
And from an insolvency perspective, there is a deficiency with Treasury’s inquiry. The breadth of its focus extends to ‘other Treasury portfolio laws, where appropriate’. In the context of insolvency (and no doubt other fields), what of other related laws? The 2020 insolvency reforms continued the usual silo approach, with Treasury appearing to rely only on its own information and rejecting or in ignorance of insolvency data in AGD and Small Business. And AGD and AFSA have always been the more advanced in adopting IT in personal insolvency; and there is the need for the courts to be included.
If Treasury is concerned about different regulators wanting information in different formats, and the ‘regulatory burden imposed on businesses when multiple channels of communicating with regulators exist’, it should look more broadly, in insolvency, to ‘provide a more consistent and streamlined process for the regulated population’.
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[1] However, without defining that term. Submissions close on 28 February 2021.
[2] IT and privacy and data collection in insolvency law, with A/Prof Stacey Steele (Melbourne Uni), Dr Cath Brown (QUT) and Dr Jennifer Dickfos (Griffith), 4 December 2020, QUT.
[3] The inquiry also seeks to address relevant recommendations of the Senate Select Committee on Financial Technology and Regulatory Technology which has called for submissions by 11 April 2021.
[4] Finnish Bankruptcy Act 2.0, Eurofenix Autumn 2019, p 28, Robert Peldán
[5] How Technologies and Innovation Are Driving Chinese Insolvency Law Developments: New Supreme People’s Court Bankruptcy Information Platform, JIN Chun, Associate Professor, Doshisha University, Kyoto, Japan, and Stacey Steele, Associate Professor, Asian Law Centre, Melbourne Law School, Melbourne, Australia. See also Going bankrupt in China, Bo Li Jacopo Ponticelli Working Paper 27501 http://www.nber.org/papers/w27501 July 2020 where the authors refer to, for example, their extraction from the Platform of “recovery rates obtained by different classes of creditors”.
[6] Supreme Court People’s Monitor, 7 August 2016.
[7] Rendición de Cuentes, Superintendencia de Sociedades, 2020. Email to me from Susana Hidvegi Arango, Superintendente Delegada de Procedimientos de Insolvencia, 1 December 2020.
[8] As to other Latin American jurisdictions, see Necessary reforms: adaptation of insolvency regimes in Latin America due to the crisis Carla Cervantes, INSOL International, 2020
[9] The impact of artificial intelligence on the insolvency profession (2017) INSLB, Dickfos, Brown and Smith referring to Treasury’s Insolvency Law Reform Act 2016. See also Insolvency in the digital age Myles Bayliss (2020) 20(7) INSLB 135.
[10] Artificial intelligence, a no brainer for the insolvency industry, Eddie Senatore, 17 January 2018.
[11] Practitioners’ perspectives: experiences adhering to legal and ethical regulatory standards, Dr E J Streten, PhD thesis, QUT.
[12] AI and the Insolvency Profession: The State of Play (2018) 26 Insolv LJ 172.
[13] Positioning your firm for future growth 2020, Macquarie Bank Insolvency Industry Pulse Check.
