My recent article in the Insolvency Law Bulletin concerns what has been described as the clash between market competition policy and insolvency restructuring or ‘rescue’ law, such as under Parts 5.3A or 5.3B of the Corporations Act. See The interaction of insolvency law and competition policy (2025) 23(9&10) INSLB 75.
I think I can safely say that this article is the first in Australia on this particular topic in light of my research over the last several months. In contrast, the issue is the subject of some debate in the UK and the EU and academic literature from those jurisdictions, cited in my article, has much assisted my thinking.
The argument is that fair competition between businesses drives a productive market whereby the more efficient, innovative and legally compliant businesses succeed and those less adorned with those qualities either struggle or expire.
Market competition produces much of the high standard of living that we enjoy today. It is described by the law in strong terms, “ruthless and demanding” (HCA), operating in a manner indifferent to the fate of the individual competitors (G Samuel), whom competition may damage or eliminate (HCA). Interference with it is protected under the law. Legislative interference, such as state aid, or deferred payment of tax, is permitted only in particular circumstances.
Rescue law therefore comes under scrutiny, in that it intrudes upon the competitive market process in favour of protecting and elevating, and saving, those businesses which competition would otherwise damage or eliminate as being less than efficient, innovative or compliant. That focus and worth of rescue law is itself significant, to prevent the loss of value and disruption when a business fails, if the fortunes of what might well be a viable business can be restored by rescue law processes. This also brings in the potential for the liquidation process to be improved and refined.
Both competition and rescue have economic merit. A balance is therefore required between the harsher consequences of competition and the more accommodating approach of rescue law. However, so far, it seems that the balance may be too much in favour of rescue law and that its objectives, based on legal, social and economic criteria, need review.
This is also raised in the context of the productivity – the efficiency and effectiveness – of the insolvency system.
This article was prepared in advance of my presentation at the INSOL Academics Colloquium in Barcelona in May 2025 and further debate and comment from international and Australian academic colleagues has been very useful.
Insolvency law has too little regard for the economics and context of its processes and outcomes. There is much economic analysis to explain the merits of continual business entries and exits in the market as indicating a healthy competitive economy. Undue restrictions on exits can be counterproductive. Insolvency reform is pursued too much from a legal and accounting perspective without regard to the economics.
The balancing exercise puts under scrutiny the confines and criteria by which rescue law operates – a low entry threshold, restricted process input, and limited accountability, arguably, being some. Commentary in the EU and UK offers reform ideas on each. Further research is being undertaken.
In a debate held on 30 April 2025, Insolvency law – has corporate rescue gone too far? 30 April, Sydney Law School – Murrays Legal – Professor Richard Fisher posed the question whether
“insolvency law and insolvency professionals have become too focussed on restructuring businesses which, as it were, are no longer able to pay their way?”
Many have sought a root and branch or comprehensive review of insolvency. If they mean that, then questioning some of the assumptions of insolvency law is necessary, and in this context, how far insolvency rescue law should go in its competition with competition policy.
