Those lawyers wanting a restoration of CAMAC to sort out the complexity of the Corporations Act can leave Chapter 5 – External Administration alone, it having recently had its own review by the PJC. In fact, the PJC’s drawing on disciplines beyond the law, and its readiness to see insolvency more broadly than its limited terms of reference, are features which any new CAMAC might usefully adopt.
A “group of professional associations, business groups and academics” has joined forces as the Corporate Law Reform Alliance (Alliance) to raise awareness of how, in its view, “Australia’s economy” is being held back by “the nation’s complex and unclear corporation law framework”.[1]
The Alliance refers to the Australian Law Reform Commission (ALRC) saying that the Corporations Act is no longer fit for purpose, shrouded in complexity, unclear and extremely difficult to navigate and administer.
The Alliance is asking the government to do something, calling on the Commonwealth to establish a standing expert body, similar to the former Corporations and Markets Advisory Committee (CAMAC), to work on streamlining and updating the law.[2]
The ALRC’s criticisms of the Corporations Act might be overstated, or to some degree, at least as a uniform assessment of the legislation. Chapter 5 – corporate insolvency – calls for separate consideration, as already mapped out in a 2023 PJC Report. While a government response would be good, there are other ways to proceed.
Chapter 5 – External Administration
That is, Chapter 5 might have its problems but these are less so in their complexity and the other deficiencies found by the ALRC in Ch 7.
In any event, Chapter 5 has been the subject of a review by a Joint Parliamentary Committee (PJC) and its report on corporate insolvency,[3] the “2023 PJC Report”, offers a useful law reform road map. Ch 5 might therefore be spared any separate attention.
The threshold issue with chapter 5 as the PJC identified is that in so far as it seeks to address the present day aims and purposes of insolvency, and restructuring, they are not clear, understandable given the last major thinking about these was in the 1988 Harmer Report, over 30 years ago.
The PJC said that before anything is done, those purposes of insolvency law need to be re-assessed, in light of the various responses it received from submissions; a review of Ch 5 can hardly proceed without that fresh assessment. And those purposes need to be substantiated by current data. There is little point in drafting laws aiming to increase the returns to unsecured creditors if in fact trading companies’ asset types are changing and values are reducing, as economic analyses show.
The PJC took note from an IMF paper that efficiency – producing results for less cost, and effectiveness – whether results are in fact achieved, should be the guiding principles for insolvency. But the broader purposes in the economy, financing and society need attention as well.
Need for a restructure
The issue with chapter 5 is more to do with its structure and its insolvency “pathways”, as termed by the PJC, are numerous and uncoordinated, compared with, as was advised to the PJC, New Zealand law.
Professor Lynne Taylor compared Australia’s structure critically. As she explained to the PJC, the New Zealand scheme provides for liquidation to commence voluntarily or compulsorily, once it commences the statutory scheme then converges into one process covering liquidators’ powers and duties, voidable transactions, creditors’ claims, and distribution of assets.
The Australian Bankruptcy Act adopts this structure.
Like NZ, the Australian scheme also recognises the voluntary and compulsory pathways to liquidation, but it then provides for four liquidation processes specific to the method of commencement. The law is then structured into parts which contain rules applying to insolvent or court-ordered winding ups, voluntary winding ups, and winding ups generally. There are separate grants of powers to liquidators appointed in insolvent or court-ordered winding ups and liquidators appointed in voluntary winding ups.
From her outsider’s perspective, Professor Taylor said that the Australian laws are more complex in their structure and are likely to be inaccessible for many SME stakeholders without professional assistance. The benefits of an accessible and navigable legislative framework have been well acknowledged. She suggested that the New Zealand liquidation scheme provides Australia with a useful example of what an accessible and easily navigable legislative framework might look like.
Those pathways lie in English legal history and its separate laws for official and voluntary liquidators and their respective powers and duties. The long separation of corporate and personal insolvency in Australia has meant that the much simpler structure under the Bankruptcy Act has not been adopted in corporate.
Also, insolvency itself can be said to be a special case. The role of the liquidator is unique, the serious impact of insolvency on both the debtor and creditors is significant and the need for transparency and fairness prevails. “The liquidation of an insolvent company can affect many thousands, even tens of thousands, of innocent people. … An insolvent liquidation cannot be dismissed as ‘just a case about money’”.[4] This all the more reason for a much simplified structure.
Insolvency law has to juggle the interests of the debtor, and the various creditors and their different standings, the public perception of the process. Liquidators are gatekeepers in their public role of examining conduct, pursuing proceedings and referring misconduct, while also attending to private interests, although this may need review in the context of the proper role of the state in insolvency.
There is then the significant task as recommended by the PJC of aligning personal insolvency with corporate. This is particularly necessary in the case of small business where personal and corporate debts and assets are invariably intermingled, including through personal guarantees.
A systems review
Given all this, it is noteworthy that the PJC recommended a holistic systems-based approach to any review of Ch 5. Without going too far into this, systems thinking is a holistic approach to working on a problem across all fields that examines the problem as a system of numerous constituent parts, each requiring attention to ensure they interrelate to form a unified whole. That system might then itself need to be assessed as a constituent part of a larger system. Its antithesis is to review and reform each of the constituent parts without regard to the whole, the usual approach to insolvency law reform.
The PJC Report refers to an IMF paper[5] in which the use of the general systems theory in determining the effectiveness and efficiency of an insolvency system, and its law reform needs, is discussed. The theory of complex systems was considered by the ALRC 141 in its report on the financial services system.[6] In a related context, a systems approach is adopted in a research paper on the complex issues in residential construction insolvencies.[7]
Economics
An economics perspective is also required. Insolvency law may well be operating blindly in the face of economic realities and needs.
The PJC noted evidence that insolvency and business exit play an important part in maintaining the dynamism of the economy, ensuring it is innovative and constantly changing. Insolvency is an important process to assist in economic growth through innovation and different business models. Laws affecting the way failing firms can exit markets or be restructured are important in assisting that process.
In so far as the economy needs an exit process through insolvency law, a ‘well-functioning exit margin, which sorts successful market activities from unsuccessful ones, is vital to aggregate productivity growth’. Whether our insolvency laws provide that well functioning margin is open to question.
Small companies
Attention to Chapter 5 need not distract the Alliance’s call for action. While over 95% of businesses are small proprietary companies, which are the main source of insolvencies, the Alliance’s focus is on the law concerning larger companies, the Alliance referring to “boards being tied up with complex compliance and reporting obligations [risking] making organisations less competitive and productive.”
Given its large corporate focus, the Alliance will probably avoid any attention being given to that sector, where tax, employee and legal compliance are often seen as optional and through which over 95% of Australian businesses operate. It is arguable that the deficiencies in those companies’ law and regulation only serve to feed the number of insolvencies.
As Professor Taylor asks, in relation to New Zealand’s comparable economy,
“if SME companies (and their directors, shareholders, and creditors) are the greatest users of corporate insolvency frameworks, should the starting point be to design a framework that responds appropriately to their needs?”
A way forward?
While a response from the government to the 2023 PJC recommendations concerning Ch 5 would be desirable, there may be other ways to proceed.
Consideration could be given to preparing a response to it, based upon the content of the report itself, and the submissions, and other developments since. While the 2023 PJC Report left much to be determined by a comprehensive inquiry, without government resources that would not be feasible to the extent needed. Nevertheless, a committee comprising lawyers, economists, IT and related disciplines might be convened, or input from those disciplines might otherwise be sought to prepare a response.
The Alliance
The Alliance comprises several non-law bodies. It is signed off by its senior law academics. This suggests a law reform focus, through a law reform committee. Its aims may be achieved in due course and its efforts may be of interest to any Ch 5 review that proceeds.
Comments?
00000000000000000000000
[1] Australia’s Corporate Law Reform Alliance calls for action to support economic growth & productivity
[2] I was a member of CAMAC from 2011 to 2014. I was involved with the Alliance until recently.
[3] 12 July 2023
[4] In re Barlow Clowes Ltd [1992] Ch 208, Millett J.
[5] José Garrido et al, IMF Working Paper, 2019
[6] Chapter 10.
[7] Why are Insolvencies so High in the Residential Construction Industry and what can be done about it?, Queensland University of Technology on behalf of Building 4.0 CRC, 21 October 2025.
One Response
Good synopsis, as always. Thanks MM.
The PJC’s “low hanging fruit” which was to be addressed in the “short term” has withered on the vine.
When one compares the intellectual and professional capabilities and qualifications of the members of the Harmer Committee with those on this 2023 PJC, one can readily appreciate the current political intransigence to law reform in this area.
It was disturbing to witness Commitee members being “educated” by participating, practitioners on the essential and practical differences between corporate and personal insolvency.
You need to take a hold of this, by both hands my friend!
And sing out if you need any assistance. I have draft legislation on some of the trickiest areas ready to go.