An interesting article appears in (2025) International Insolvency Review 1 of INSOL International concerning how different jurisdictions deal with assetless insolvent estates – A comparative study on the compensation of bankruptcy trustees in insolvent estates by R D Vriesendorp and J M W Pool.
It seems that one approach in other jurisdictions is to deny assetless debtors liquidation or personal bankruptcy, as there are no remaining moneys to fund their winding up. The perverse incentive thus provided would be that the debtor would dispose of their assets before entering insolvency. Many companies in Australia are said to adopt this approach. The lack of a government official receiver in Australian corporate insolvency compounds this problem.
These and many other factors are addressed in UNCITRAL’s guide to MSE insolvencies.
Australia does have a government official receiver in personal bankruptcy, which administers the bulk of consumer and assetless estates, and where the problems in corporate insolvency are mostly avoided.
The policy options of addressing the reality that insolvency inherently involves limited funds was the subject of a presentation to a wide audience by Professor Jason Harris and myself at the INSOL Academics Colloquium in San Diego USA in May 2024.
It is also the subject of our article Rebuilding the structure of the Australian insolvency system (2022) 22(1&2) INSLB 14, Murray & Harris.
It is also discussed in our textbook – Keay’s Insolvency, 11th ed, chapter 1.
The issue is covered extensively at www.murrayslegal.com.au.
And, based on ours and others’ submissions, the 2023 PJC Report on Corporate Insolvency covered the issues extensively in Chapter 9 – Assetless administrations and the role of the state.
We agree with Mr Paul Heath KC, that the approach to clarifying the respective responsibilities in insolvency is that
“private functions should be performed by the private sector and paid out of funds otherwise available for distribution among creditors, while public functions should be per formed by public officials and paid for out of public funds . . .”: P Heath, Insolvency Law Reform: The Role of the State (1999) NZLRev 569.
In their conclusion, the two authors describe the issue of inadequate funding for the administration of insolvent estates as a significant challenge that affects legal systems worldwide. While approaches addressing the problem vary, a common thread is the reliance on alternative funding mechanisms, often involving government intervention or contributions from creditors. That government intervention may extend to the adoption of a government trustee to administer assetless estates, as in Australian personal insolvency, or estates involving significant matters of public interest or risk.
As Professor Harris and I conclude, the state has a necessary role both to attend to the many public interest tasks in an insolvency, and to assume a role where funds are inadequate. This goes not only to the need for estate administration, but also, as the authors say “for the broader integrity and effectiveness of insolvency systems”.
