The Assistant Treasury Minister Dr Andrew Leigh has given support for the need to have good data to inform and direct policy and law reform.
Speech – Using Data to Improve Productivity – 30 July 2025
Data to support insolvency law reform
The need for data to support insolvency reform came up recently in international discussions. See José M. Garrido, Jason Kilborn, and Anjum Rosha. “Personal Insolvency and Data Collection Systems”, IMF Working Papers 2025, 124 (2025), accessed June 24, 2025, https://doi.org/10.5089/9798229013703.001
On one particular issue [among many] about the need for data I queried why or whether the profession/industry did not itself assist in that process. That is, and as I have raised before, it is the practitioners who hold the source records of how insolvency law operates from which data can be drawn.
In particular, I have asked why we do not know more about the effectiveness, and efficiency, of asset and fund recoveries, an inherent feature of insolvency law’s attempt to enforce pari passu distribution of available funds.
What we seem to know is that many such actions taken by IPs, if “successful”, do not lead to payments to creditors, but rather serve to repay the IP for unmet remuneration, and the litigation funder and lawyers.
That outcome need not be the subject of criticism, as most IPs assume when I ask the question, but may be a factor of the costs of litigation, the impediments allowed by the law to protect assets, and the inherent difficulties for an IP trying to balance present funds against possible recoveries.
But we just need to know.
The Australian 2023 PJC Report [13.11] said that the objective of preference recovery action, for one, is
“rarely achieved. Complexity is the most significant reason for the ineffectiveness of unfair preference laws. … much of the recovered money is absorbed by the liquidator’s costs and fees, with limited returns to creditors”.
The courts accept this, although it raises the question whether such actions go to support pari passu or simply to shore up the lack of funds in the system.
As to the courts, Justice Black has said:
“even if the proceedings were pursued to seek to recover the liquidators’ costs or funding which had been devoted to the conduct of the proceedings, it seems to me that that is a proper purpose, where liquidators would less readily accept appointment, and litigation funders would less readily fund proper proceedings in liquidation, if liquidators could not recover their remuneration or litigation funders could not recover the funding which they provided”: In the matter of Cardinal Group Pty Limited (in liq) [2015] NSWSC 1761 at [34].
Insolvency law’s elephants in the room – Murrays Legal
See also Keay’s Insolvency, 12th ed pending.
Options
In the absence of any assistance from the profession/industry, some options are for the regulators to require IPs to report what should be a ready financial analysis; or for the courts to require comparable reporting from their so called “officers” following a positive litigation outcome.
The reason we need to know should be obvious, and shortly stated, is that without such information, any reform involves us continuing to “legislate in the dark”: Legislating in the dark – continued – IMF Report – Murrays Legal
If so, we should just understand that.
One Response
I agree Michael. For a liquidator or trustee to take any claim to court, they face what can be an unsurmountable amount of court and legal fees. I think you will find that simplifying such things as preference claims to eliminate reasons to challenge would better serve the objectives of the pari passu principle without the costs of having to litigate. That is, every lawyer worth their salt will tell their client to defend any claim in the hope the liquidator will walk away and if they don’t mediate/settle for a far lesser sum. The better approach would be to have simplified rules where any creditor receiving funds in the previous x months/days must surrender those funds up without exception. That way all legal costs are avoided, all unfair negotiating favouring those with deeper pockets and costs including liquidator fees are avoided/minimised. At the same time the principle is upheld and the courts freed up from the use of that precious resource that takes up to 18 months to hand down a decision.