In the discussions about separating ASIC’s tasks following the July 2024 Senate Economics References Committee report – Australian Securities and Investments Commission – investigation and enforcement, there has been no mention of the same Senate Economics References Committee’s earlier separation recommendation about ASIC in its 2010 report The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework that the corporate insolvency arm of ASIC be transferred to a new agency to handle both personal and corporate insolvency.
The Senate Economics References Committee 2024 Report has simply recommended that the “government should strongly consider separating [ASIC’s] functions between a companies regulator and a separate financial conduct authority”.
Various commentators have supported that and have drawn parallels with Britain’s 2013 split of its regulator into the Financial Conduct Authority and the Prudential Regulation Authority: The Australian, 13.8.24, p 13.
Back in 2010
Back in 2010, the same Committee was also critical of ASIC – in relation to its regulation of liquidators, though it was also critical of the legal and regulatory processes with which ASIC had to deal, in particular in comparison with those available to the personal insolvency regulator AFSA under the Bankruptcy Act. The Committee recommended that the corporate insolvency arm of ASIC be transferred to AFSA to form the Australian Insolvency Practitioners Authority (AIPA).
That would have aligned Australia with the UK, with the Insolvency Service and the Insolvency Act 1986 covering both corporate and personal insolvency.
The government rejected this 2010 recommendation and corporate insolvency regulation and personal insolvency regulation each continued on their separate ways. The government did work on a recommendation to harmonise Australia’s personal insolvency and corporate insolvency legislation, which would include adopting much of personal insolvency law. The outcome was the Insolvency Law Reform Act 2016. As a precaution, the Act required each of ASIC and AFSA to “work cooperatively” with each other on common matters: s 10-5.
Reporting requirements
That did little to harmonise offence reporting between AFSA and ASIC. While trustees are to report offences under s 19 of the Bankruptcy Act, the ridiculously expansive section 533 of the Corporations Act (and related sections) require liquidators to report breaches by all and sundry of all laws in relation to the company in liquidation.
See my Offence Reporting by Insolvency Practitioners (2019) 20 (4&5) INSLB 88, and the comparisons made with New Zealand law and bankruptcy.
Why private trustees and liquidators have these statutory roles, and at creditors’ expense, is another question.
Review and change the law first
Section 533 should be re-drafted. That redraft would require the purposes and aims of the section to be settled in the context of the purposes and aims of insolvency itself. That raises issues listed for any comprehensive review of insolvency recommended by the 2023 PJC Report on Corporate Insolvency. Reporting of offences, by whom, at whose cost, and for what purpose was a significant issue in that inquiry leading to its recommendation 19 as to whether the current statutory reporting obligations are satisfactory according to stated criteria including their regulatory value and the burden imposed on insolvency practitioners (and thereby on creditors).
In any review, the larger context of government legislative inactivity should be considered. I have suggested that the 2024 Senate Committee is “perhaps a little disingenuous in its criticism of ASIC, given the many regulatory mechanisms against corporate and related misconduct that are waiting to be adopted in Australia“: Senate report on ASIC’s investigation and enforcement roles – July 2024 – Murrays Legal
Getting back to the 2024 recommendation that ASIC be split, while criticism of ASIC in relation to its claimed inaction in relation to s 533 reports might require attention, this does not rank above the need for the offence reporting laws themselves to first be reviewed. The Senate Economics References Committee 2024 did not address that. Any comprehensive review of insolvency would conduct such a review, alongside many other issues in the insolvency system.
Any such review would usefully consider the British regulatory approach of separating out insolvency under the Insolvency Service from financial and prudential regulation.
