Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Move bankruptcy from the Attorney-General to Treasury?

In light of the Attorney-General’s need to transfer some matters of his responsibility, a worthy area to transfer is the law and policy of personal insolvency, or ‘bankruptcy’ to most. 

A matter of economics

At the moment, corporate insolvency – company liquidations and the like – is handled broadly as a matter of economic policy by the Treasurer; personal insolvency – bankruptcy of individuals – is handled by the Attorney.  Whatever its distant origins, personal insolvency is likewise largely a matter of economics in particular in light of COVID-19, and personal and corporate insolvency law is much interlinked. This is even more so after the Treasurer and Attorney went to some trouble to harmonise the legal processes between the two fields in 2016.

Small business’ perspective

From a business perspective, most small businesses operate as individuals or, if as companies, often with personal liabilities intertwined.  Recent statistics have emphasised the connection between business failure and personal insolvency.[1]  To have their respective business insolvency systems handled by different departments and agencies creates difficulties and inefficiencies for all involved.

Insolvency practitioners

Those inefficiencies are more evident when we look at the system under which the practitioners who administer insolvencies in Australia operate. The one individual insolvency practitioner – IP, who works both as a company liquidator and as a bankruptcy trustee, is registered and regulated separately by ASIC and AFSA, with those regulators themselves coming under separate government ministers – the Treasurer and the Attorney – and their agencies but both regulators administering federal laws largely harmonised as to process.

The regulators

While the law might be harmonised, each of ASIC and AFSA as regulators has separate unaligned regulatory aims and approaches in dealing with IPs.[2]  Each also has separate funding arrangements, with AFSA being broadly funded by a charge imposed on asset sales by trustees,[3] while the regulation of an IP as a liquidator by ASIC is funded by a levy imposed on the IP and other liquidators themselves, and in a significant amount.[4] And while the bulk of non-paying assetless estates is handled by the government Official Trustee in Bankruptcy, there is no equivalent government role in corporate insolvency, impacting both access to insolvency services by assetless debtors and IP remuneration and creditor dividends.

Law reform

Then there is law reform.  Treasury recently introduced changes to “Australia’s insolvency framework to better serve small businesses, their creditors and their employees”, which provide businesses impacted by COVID-19 streamlined restructuring and liquidation processes and allow a prompt restart in a COVID-19 free economy – but only if the SMEs are companies.[5] For what is the majority of SMEs, sole traders,[6] the Attorney’s option is their bankruptcy, for 3 years, whatever the economic consequences.  And Treasury is now looking at allowing more modern communication arrangements for its agencies, including liquidators; but not for trustees, that’s for the Attorney.[7]  The harmonised processes of 2016 that added something to an IP’s efficiency are likely to fracture.

Where is personal insolvency now anyway? Notlisted under the Attorney-General’s Department; nor is it listed under the Treasury”

In any event, it seems from a recent parliamentary transcript that bankruptcy’s location in the Attorney’s portfolio is little known    [8] – hidden among money laundering, terrorism, the courts, and copyright.  Its move to Treasury might hardly be noticed.

A transfer

A transfer of personal insolvency and AFSA to Treasury would align many issues in insolvency law and practice and allow the Attorney and his department to focus on their relevant matters of law and policy.

 

[1] Changes to business and non-business statistics | Australian Financial Security Authority (afsa.gov.au)

[2] For example, as to trustees, Inspector-General Practice Statement 1 – IGPS 1 – Regulatory framework; for liquidators, see RG 258 Registered liquidators: Registration, disciplinary actions and insurance requirements.

[3] Bankruptcy (Estate Charges) Act 1997

[4] ASIC Supervisory Cost Recovery Levy Act 2017.

[5] Simplified debt restructuring | Treasury.gov.au

[6] Does small business count? | Murrays Legal Commentary

[7] Modernising Business Communications | Treasury.gov.au

[8]  “Corporate insolvency is the Treasury’s responsibility. With personal insolvency, I can’t find it listed under the Attorney-General’s Department; nor is it listed under the Treasury. We will need to clarify that ...”: Where’s personal insolvency nowadays? Australian parliamentary confusion | Murrays Legal Commentary

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2 Responses

  1. Sweet Baby Jesus MM, I could think of nothing worse! If anything, I would argue that insolvency needs to be moved out of Treasury to AGD. At least AGD in my humble opinion listen and consult with people that are responsible for delivering the legislation they are responsible for. ASIC are so focused on losing high profile litigation than actually achieving lasting outcomes. AFSA by contrast are head and shoulders better in the space of engaging and then acting. I do have to give a shout out to the people at the coal face of ASIC. They are a great group of dedicated people, hamstrung by high level policy that is devoid of any connection with reality.

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