International insolvency – impact of the Model Law, and more – UNCCA seminar on 27 May 2022

In a recent article on Australian insolvency law reform,[1] Justice Sarah Derrington, as chair of the Australian Law Reform Commission, usefully referred also to cross-border insolvency reform, noting the adoption of the UNCITRAL Model Law on Cross-border Insolvency in 2008, and likening its objectives to those of the 1988 Harmer Report.[2] 

International perspectives – UNCITRAL, World Bank etc

The reference to international perspectives is welcome given the state of Australian insolvency law. The work of UNCITRAL in developing international insolvency law principles in its UNCITRAL Legislative Guide on Insolvency Law  shows much useful thinking about the approaches needed in insolvency in this century, and in particular as impacted by the economic and social impacts of the Coronavirus, and in the context of micro to small enterprise (MSE) business debt. The World Bank’s Principles for Effective Insolvency and Creditor and Debtor Regimes, and contributions from academics[3] also offer significant insights.

UNCITRAL’s recently issued guidance on MSE insolvency law (2021) has been added to the Legislative Guide and is particularly relevant given the predominance of MSEs in Australia and in all jurisdictions.  Much of its thinking does not yet appear in Australian law reform debate but would necessarily need to be.

Back in 2015 the Productivity Commission called for a better insolvency regime for small business and there has been little progress since.  Part 5.3B, in support of limited small business insolvency has been the subject of at least two academic reviews, the titles of which say enough:

  • “Part 5.3B: Move along Folks, Not Much to See Here”[4] and
  • “The chimera of restructuring reform: An opportunity missed for MSMEs in Pt 5.3B”.[5]   

Holistic approach to small business insolvency

One suggestion is the need for a holistic approach to business insolvency as opposed to the separate focus on personal debts and corporate debts, with their attendant different laws, regulators and courts, in Australia at least.  Connection or co-ordination of business debts is recommended.  Others have commented on the blurred lines between corporate and personal debt and assets in small business through personal guarantees and use of personal finances, and tax liabilities, such “personal insolvency regimes are often more relevant for entrepreneurs and small businesses”.  While the government announced an intention to reform personal insolvency in 2015, nothing has eventuated. 

Greater access to insolvency

Another suggestion from UNCITRAL is to address the issue of the inaccessibility to the insolvency system by assetless corporate businesses burdened with debt, including that owed to employees. The type of default disposal of such businesses under Australian law is seen as harmful to the integrity of the insolvency law system, and unsupportive of genuine attempts at rehabilitation.    

Australian insolvency law reform

 Given Australia’s membership of UNCITRAL, extended this year for another 5 years, we should be able to rely on the filtering of international developments into Australian insolvency law reform, although there has been nothing to indicate that in recent debates.  Any inquiry by the ALRC or other body would need to review some period of international deliberations, as a necessary precursor to examining Australian law and practice.   

The particular relevance of this is that my perspective on the extent to which Australia’s insolvency law reform has or should consider settled international principles  is on the agenda for a seminar hosted by UNCCA on Friday 27 May 2022 in Sydney to mark the 25th anniversary of the UNCITRAL Model Law on Cross-Border Insolvency.

See UNCCA May Seminar 2022 | UNCCA

The application of the Model Law since Australia’s adoption of it in 2008 will be the subject of a panel discussion, including in relation to the joint Australia-New Zealand hearing in Halifax Investment.  Other issues on the agenda include overseas asset tracing, enforcement of judgments, and choice of law issues, and Australian insolvency law reform.    

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[1] The Changing Face of Law Reform in Australia: Commentary on the ALRC’s Inquiry into Insolvency, its contribution to the current legal framework and the need for a new review given the passage of over 30 Years. ARITA Expert Series: Insolvency | ALRC

[2]   ALRC 45

[3] In particular, see Aurelio Gurrea-Martinez, ‘Implementing an Insolvency Framework for Micro and Small Firms’ (2021) 30 International Insolvency Review, pp. 46-66.

[4] David Morrison, (2021) 29(4) Insolvency Law Journal 197.

[5] Harris and Symes, (2021) 36 Australian Journal of Corporate Law 1.

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