Define “insolvency” – legislative drafting continued

In bills before the new 2022 parliament, our legislative drafters have continued with their consistent approach in relying upon 19th century colonial bankruptcy law to define personal insolvency.

Section 501K of the Federal Environment Watchdog Bill 2021 allows the Governor-General to terminate the appointment of the CEO if the CEO  …..

becomes bankrupt; or applies to take the benefit of any law for the relief of bankrupt or insolvent debtors; or compounds with her or his creditors; or makes an assignment of her or his remuneration for the benefit of creditors.

As previously explained – – this is how personal insolvency was defined in the Audit Act 1901, enacted when there was no federal bankruptcy law, rather a wide range of bankruptcy laws among the former colonies, based on English law, but with local variations.  It took quite some negotiations from the Bankruptcy Bill 1908 to reach the Bankruptcy Act 1924.  Even since then, legislative drafting has stuck to its original 1901 wording; and among many of the states.

But in the end, s 501K may be enough to include 21st century bankruptcy law concepts. Compounding debts and making an assignment of remuneration probably come somewhere within any of bankruptcy, debt agreements or personal insolvency assignments, with “law for the relief of bankrupt or insolvent debtors” a comprehensive catch-all.

At the same time, the term “insolvent under administration” could be used instead, as set out in s 9 of the Commonwealth Corporations Act and referenced in s 2B of the Acts Interpretation Act 1901 (Cth).  This is used in a number of state laws. 

But that would mean disrupting not only the hundreds of Commonwealth laws using these ancient words, but also each of the laws of those states which, properly following the lead of the Commonwealth, have themselves continued to use the old 1901 terms.


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