Despite government responses to parliamentary committee reports being required within three months we now have a government response to the July 2023 Parliamentary Joint Committee Report on Corporate Insolvency after three years.
Apart from the delay, some will find the response unsatisfactory in that the government response merely adopts the recommendations in the 2023 PJC Report in principle but says we should await the outcome of the current Productivity Commission inquiry into business dynamism, its report being due in May 2027.
Some sense in waiting
There is in fact some sense in that. We were never going to get a full comprehensive report from a joint parliamentary committee with all due respect to the quality of those on the committee and their final report. They served the useful purpose of identifying threshold issues that needed attention before any detailed law reform could occur. Importantly, the PJC recommended that the purposes of insolvency law be redetermined. It is obvious that we need to decide what purposes we are seeking to achieve through insolvency law before we then proceed to implement reforms.
That might seem routine but I suggest the purposes have changed. Creditors virtually get nothing out of insolvencies so why do we give them such attention in insolvency law? Investigations are skewed much towards insolvent companies, and too little, if at all, towards purportedly solvent businesses in the market.
Also, there must be financial and other capacity to attend to those purposes. The financial capacity of the system has been questioned by the PJC, evidenced, for example, by practitioners pursuing preference or other such claims, not to benefit creditors, but to recoup their unpaid remuneration.
We in fact need some financial assessment of “Australia’s Insolvency Regime Limited” – in terms of its inputs and outputs. That may well confirm the suggestion that there is simply not enough money going around to fund the system. This is because of the changing nature of business assets, increased security being taken, the use of trusts and other protective mechanisms and the high costs of recoveries.
An economics perspective would also look at the system as a whole, consistent with a PJC recommendations to take a holistic systems view of the pathways in insolvency. Given economics’ need for ready entry and exit of businesses in the economy, the Commission might look rather unfavourably upon the disorganised pathways of exit, let alone the complicated processes of entry.
And then there is the lack of any pathways between personal and corporate insolvency in small business distress, a particular focus of the submission of Dr Amanda Bull and myself, and one now raised in other submissions.
Economics might also look at insolvency in the broader context of the market rather than the narrow legal confines of the debtor and its creditors. The impact of a restructure on the debtor’s competitors is one issue.
Another is whether the criteria for restructure – there being mere “chances of continuing in business” – are high enough.
Next?
While this outcome comes 3 years after the PJC Report, we should be able to assume that the industry and others have in that time gathered and extracted data to show more clearly how the system operates, or does not do so, and made some preliminary reassessment of the objectives of the regime, and how they are to be achieved.
Submissions to the Productivity Commission indicate real thinking and effort about these issues, including those of the industry bodies, academics and individuals.
The Commission is to issue an interim report in November 2026.
