The government has asked that the Productivity Commission to undertake an inquiry into opportunities to improve the efficiency and value of non-financial business reporting requirements in Australia.
It asks this from the perspective of reducing unnecessary regulatory costs for businesses including by way of improving the efficiency of existing regulation and reporting requirements.
As the PC explains, business reporting provides a strong foundation for a competitive economy, providing transparency around performance, risks and opportunities. Non-financial reporting is designed to make information about the operations of businesses available to stakeholders including on matters such as environmental, social and governance performance. Providing visibility of these non-financial matters enables investment to be directed towards businesses that align with the interests of stakeholders and are managing risks holistically.
The findings from this inquiry will inform further work to improve the utility of non-financial reporting and streamline reporting requirements where possible.
https://www.pc.gov.au/inquiries-and-research/business-reporting/terms-of-reference/
The Commissioners are Barry Sterland and Dr Angela Jackson.
Comment
This aligns with the Commission’s “business dynamism” inquiry and its insolvency related focus. As explained in our* submission to that inquiry, insolvency law requires data in order to properly direct its reform. Lack of data leads to legislating in the dark and that can lead to either misdirected or counterproductive law. Much of the data in insolvency is collected and supplied by the practitioners handling numerous insolvencies each year. They report according to statutory requirements. That reporting might be seen as demanding although for a profession that is experienced in financial analysis one would think that it’s not significant issue.
This inquiry has more of a focus on non-financial reporting. That is particularly relevant in relation to the SME reforms we are seeking, in particular, as to insolvencies involving the intersection of personal and corporate assets and liabilities. At present, each of the siloes of ASIC and AFSA report separately, and differently, even though the one practitioner is often reporting to both.
The 2010 Senate Committee Report gave significant attention to the need for data saying that the lack of it had been the subject of comment going back to the 1988 Harmer Report.
Its recommendation was that there be a new Insolvency Practitioners Authority, and within that there should be
“a unit established that is responsible for gathering, collating and analysing data on a range of corporate and personal insolvency matters”.
Academics reported that
“the independent collection of data associated with business failure and the operation of the insolvency regime [was] the one positive outcome—above all others—that this inquiry could achieve”: [9.19]
Nothing was ever implemented, nor was any other effort made to coordinate personal and corporate insolvency data.
Our recommendation
Our own recommendation [3] to the current PC inquiry is that
“the Commission should recommend improved collection, integration and evaluation of data concerning the relationship between small business failure, corporate insolvency, personal insolvency and tax-related liabilities”.
As we said, at present, we have data on corporate and personal insolvency appointments but those datasets do not readily show how often they arise from the same underlying small business failure. Nor is there sufficient integrated data on the incidence and enforcement of personal guarantees, the use of personal assets to support business finance, director exposure to tax liabilities, the costs and duration of parallel processes, or outcomes for creditors and owner-directors.
We say that better data is necessary to support proportionate reform by which we mean that this would assist in identifying the scale of the problem, evaluating the effectiveness of procedural coordination, assessing the treatment of creditors, and determining whether longer-term harmonisation or unification of corporate and personal insolvency law is warranted.
We also need a consistent definition of small business for insolvency data purposes, mechanisms for linking corporate and personal insolvency events where appropriate, and longitudinal evaluation of restructuring, exit and re-entry outcomes.
Practitioners to provide data showing asset recoveries, remuneration and creditor returns
As to one point, as to the efficiency and effectiveness of litigation claims by practitioners, the 2010 report said that ASIC would “obtain data from practitioners to allow an assessment of the relationship between asset recoveries, remuneration charged and returns to creditors”.
That data would be very useful, but it is not available.
The cost – the PJC recommendations
An overarching issue is the cost of a practitioner gathering and reporting the data required and this reference asks the Commission to consider less costly means of reporting.
It will often be the case that a practitioner is required to lodge reports even though there is no funding to cover the cost. Even if there are remaining funds that reporting cost depletes monies otherwise payable to creditors.
One answer might lie in the use of AI to assist in reporting.
The current option is for charge out rates to reflect the work done on assetless estates but overall the law should be careful in imposing too much on insolvency practitioners. Recommendation 19 of the PJC Report goes to the statutory reporting obligations of insolvency practitioners and their integrity, efficiency, and efficacy.
The PJC Report’s other recommendations must be considered – see 4 and 5, as to ASIC gathering and analysing data.
The 2023 PJC’s recommendation 10, as to extracting data on de-registrations, goes back some years. The PJC inquiry heard that many companies are deregistered by default, without any form being lodged with ASIC, creditors or not. This often happens in small companies “where the creditors are unwilling to spend money on a liquidator to chase possibly non-existent corporate assets”. Such companies may often be phoenixed: see “Illegal Phoenix Activity” by Helen Anderson.
That concern was raised as early as 1995, when ASIC’s predecessor estimated that over 90% of phoenix companies at the time were being deregistered by default …assisting Phoenix offenders to escape prosecution … and closing off the trail’”.
No rush though.
Final report
The Commission is to provide a final report to government by 24 February 2027. A date for lodging submissions has yet to be set.
*Dr Amanda Bull and Michael Murray
