Mar 052015

A set of “policy positions” on insolvency law and practice has just been issued by Australia’s insolvency practitioners association – the Australian Restructuring Insolvency and Turnaround Association (ARITA).

The policies are titled:

  • Policy 15-01: ARITA Law Reform Objectives (Corporate)
  • Policy 15-02: Aims of insolvency law
  • Policy 15-03: Current Australian corporate restructuring, insolvency and turnaround regime and the need for change
  • Policy 15-04: Creation of a Restructuring Moratorium (Safe Harbour)
  • Policy 15-05: Stronger regulation of directors and creation of a director identification number
  • Policy 15-06: Advocate for Informal Restructuring
  • Policy 15-07: Reworked Schemes/Voluntary Administration regimes to aid in the rehabilitation of large enterprises in financial distress
  • Policy 15-08: Extension of moratorium to ipso facto clauses
  • Policy 15-09: Streamlined Liquidation for Micro Companies
  • Policy 15-10: Micro Restructuring
  • Policy 15-11: Pre-positioned sales

ARITA’s 17-page paper – named Policy Positions of the Australian Restructuring Insolvency and Turnaround Association – is the final version of its discussion paper, A Platform for Recovery 2014.  It is attached to its submission on 2 March 2015 to the Productivity Commission’s public inquiry into ” barriers to setting up, transferring and closing a business”.

It seems ARITA’s policy positions paper is not yet (mid-day 5/3/15) published as a separate document on ARITA’s website.  However, I have created a copy, which is available on my website now.

ARITA’S full 59-page submission to the Productivity Commission is available on its site, as is its useful summary of the key points made in the submission. ARITA says that the policies in the Policy Positions paper form the key basis of ARITA’s submission to the Productivity Commission.


Other link: To the website of the Productivity Commission’s  Business Set-up, Transfer and Closure inquiry.

Sep 032014

The Australian Restructuring Insolvency and Turnaround Association (ARITA) has released its second-round submission (26/8/2014) to the government’s Financial System Inquiry (FSI). ARITA has more than 2,200 members practising in, or interested in, the insolvency and restructuring industry. It’s full 32 page submission can be seen HERE. The Executive Summary from the submission appears below:

ARITA submission Part 1




Aug 292014


In the brief External Administration section of its Interim Report in July 2014 the Financial Systems Inquiry (FSI) aired criticisms of Australia’s external administration regime as it applies to small and medium companies (SMEs), and sought views from interested parties. (See my previous blog on this subject.) Specifically it asked for views on “the costs, benefits and trade-offs of the following policy options or other alternatives: 1. No change to current arrangements. 2. Implement the 2012 proposals to reduce the complexity and cost of external administration for SMEs.” Also, the FSI sought more information in response to the question, “Is there evidence that Australia’s external administration regime causes otherwise viable businesses to fail and, if so, what could be done to address this?” The following is ASIC’s response to these questions, taken from it’s second submission to the FSI  on 26/8/2014:

ASIC logo

 Response by Australian Securities and Investments Commission (ASIC)

(Note: Headings added by author)

CLICK HERE to see copy of full ASIC second-round submission

The anticipated benefits of the 2012 insolvency law reform proposals

(Author’s note: These proposal are in the Insolvency Law Reform Bill 2013 )

Para.468     ASIC welcomes the anticipated benefits of the Australian Government’s 2012 insolvency law reform proposals, which largely aim to harmonise and align the systems of corporate and personal insolvency by introducing: (a) a streamlined model for winding up or restructuring small- and medium-sized enterprises; and (b) a review of current external administration options for restructuring large and complex, financially distressed companies to consider whether Australia could adopt attributes of external administration processes in other jurisdictions to achieve better outcomes.

Para.469     However, we note that these proposals do not fully address the issue of perceived complexity in Australia’s insolvency regime, or the issue of the costs of the regime. The law reform proposals arose out of the 2010 Senate inquiry into the conduct of insolvency practitioners and ASIC’s involvement. The 2010 Senate Inquiry’s terms of reference reflected concerns about registered liquidator conduct and ASIC’s supervision of registered liquidators, rather than more fundamental policy issues.

Para.470      The vast majority of external administrations occur in the small- and medium-sized enterprise market. For these companies, the opportunity exists to consider how the winding up and restructuring processes might be further streamlined to reduce complexity and costs. Initiatives to reduce costs while appropriately remunerating registered liquidators for their work, increasing competition and ensuring consistency in external administration processes would also help maximise the potential return to creditors and help build confidence in the insolvency regime.

Alternative funding models and professional standards

Para.471     ASIC suggests that in considering how the external administration process can be streamlined for small- and medium-sized enterprises, consideration should be given to: (a) alternative funding models, as discussed in ASIC’s main submission to this inquiry and which are the subject of recommendations made by the Senate inquiry into the performance of the Australian Securities and Investments Commission. The funding model affects, among other things, the supervision of registered liquidators and, potentially, their remuneration; and (b) professional standards and regulation, including those relating to investigation and reporting to creditors and to ASIC.

External administration regime and business failure

Para.472     ASIC is not aware of empirical evidence supporting the view that Australia’s external administration regime causes otherwise viable businesses to fail. If empirical evidence supporting the contention that viable companies unnecessarily enter external administration does exist, ASIC believes the Australian Government could consider legislative change that would address this, and that would achieve better outcomes for creditors.

Damage to entity value

Para.473     We are aware, however, of concerns in the market that unnecessary external administrations, which destroy entity value and result in significant cost, are the result of: (a) a lack of a ‘safe harbour’ from what are said to be stringent insolvent trading laws (which can make a director personally liable for a company’s debts); and (b) the positive obligation/duty on directors to appoint an external administrator if their company is insolvent, or might become insolvent.

Para.474     We acknowledge the possibility that the formal appointment of an external administrator can also reduce the value of a company’s business, and note that there is anecdotal evidence to support this view.

Voluntary administration as a ‘quasi liquidation’

Para.475     ASIC’s statistics on voluntary administration and deeds of company arrangement suggest that, for small companies, there is often not a viable business worth saving as many companies that enter voluntary administration end up in liquidation. This is supported by a recent review of 72 sample deeds of company arrangement (85% of which related to what might be described as small company insolvencies). The review found that 72% of these deeds were compromises akin to liquidation and involved no, or very limited, trading on of the business under the deed (although the dividend return paid to creditors was greater than that estimated if an immediate winding up of the company had occurred). In other words, the statistics show that companies often use the restructuring option of voluntary administration as a ‘quasi liquidation’.

Continuation of viable businesses

Para.476      The current insolvency legislation provides for the continuation of a viable business. Where there is a viable business of a company in liquidation, the liquidator has the ability to sell that business. Alternatively, the liquidator can appoint a voluntary administrator to facilitate the company’s restructuring with a view to its continued operation.

Reasons often cited as inhibiting corporate restructuring

Para.477     We note that four main reasons are often cited as inhibiting corporate restructuring in Australia: (a) the perceived stringency of our insolvent trading laws; (b) destruction of value by ipso facto clauses in contracts, which enable creditors to pursue enforcement action or enforce their contractual rights. This issue impacts on the extent of any moratorium on creditor claims during the period of a company’s restructuring; (c) a lack of formal ‘pre-pack sale’ regulation, which allows a sale of the business, or some company assets, to be negotiated prior to the appointment of an external administrator; and (d) the inability to bind third parties.

Para.478      In principle, we consider these matters worthy of further discussion and consultation noting they have proved contentious in the past.

US Chapter 11 style regime

Para.479     In terms of any legislative change, ASIC does not advocate a wholesale adoption of a US Chapter 11 style regime or other processes. However, we note that the US Chapter 11 regime, along with the administration regimes in the United Kingdom and Canada, might be worth examining to identify elements that could address the issues claimed to inhibit effective corporate restructuring in Australia.

Consider different laws for large and small companies

Para.480      We consider that a ‘one size fits all’ approach to the external administration or reorganisation of failed and distressed entities may not be appropriate. The framework for external administration needs to take account of the fact that issues affecting large proprietary and public companies differ from those affecting small- and medium-sized enterprises.

Para.481     Legislative changes to facilitate corporate rehabilitation might therefore consider the different characteristics of large and small companies, and policy settings may need to be specifically tailored for these sectors, in order to promote deregulation, facilitate efficient reallocation of resources and improve competition.

Feb 192014

In today’s opening statement to the Senate inquiry into the performance of the Australian Securities and Investments Commission (ASIC), the Chairman of ASIC, Mr Greg Metcalf, has called for greater penalties for breaches of corporate law and has strongly defended ASIC staff.

Greg Metcalf

Greg Metcalf, ASIC Chairman

On Penalties

“On the topic of penalties, I would like to say a little more.

There is an expectation among the public that we will take strong action against wrongdoers – and doing this will send a message that shapes future behaviour. However, one of the barriers we face to achieving this is the inadequacy of penalties.

We have outlined some of these inadequacies in our main submission. They include the fact that:

  • some comparable criminal offences currently attract inconsistent penalties
  • civil penalties:
    • are currently set too low
    • are not available for a sufficiently wide range of misconduct
  • lastly, we require a more graduated set of penalties to provide an effective enforcement response in a wider range of cases.

We consider that this includes the greater availability of infringement notice powers.

It is frustrating – both for us and the public – when the penalty available to respond to misconduct is much less than the profit someone made in the process.  If this is so, then rational players in the market will routinely take that risk.  If the thinking of law-breakers is a tussle between fear versus greed, then we need penalties that amplify the fear and smother the greed.

We need penalties that create a fear that overcomes any desire to take risks and break the law.”;

On ASIC staff

“Chairman, one disappointing thing about some of the submissions was the inflammatory tone of criticisms made – particularly about ASIC staff.

ASIC has exceptional employees. They are men and women who work at ASIC for good reason. This is because they believe in the public interest. They are skilled and committed to their work. Considering the difficult job they do, they should receive appropriate respect.

Our people have diverse backgrounds – they have experience in law, accounting and financial services. Many have invaluable industry or consumer advocacy experience. This means they understand how markets work and the issues facing investors, consumers and the wider industry.

ASIC employees also undertake ongoing internal training and have access to industry secondment programs, which further develop their skills.

All of these things make our people highly sought after by the private sector and internationally by other regulators.”

ASIC logo
 SOURCE: These are extracts from an ASIC document dated 19 February published on the ASIC website.  The subtitle is “Speaking notes from Greg Metcalf, Chairman, ASIC”.  To see CLICK HERE.
Aug 102011

The Insolvency Practitioners Association of Australia (IPA) has suggested that solvent companies pay a fee to fund the liquidation of small assetless companies.  The proposal is that this new pool of funds be used to pay a set fee to liquidators who are willing to do the work.

The IPA’s proposal is made in its July 2011 submission to the Treasury, in response to an Options Paper on regulation of insolvency practitioners. 

This fund would be in addition to the existing Assetless Administrations Fund (AAF).  The problem with the AAF is that it is not open to liquidators of assetless companies unless and until they have conducted preliminary investigations and made preliminary reports to the Australian Securities and Investments commission (ASIC), and then only for the purpose of paying for additional investigations and reports by liquidators where it appears that directors ought to be banned or prosecuted.

 The IPA is the professional body covering over 85% of registered insolvency practitioners in Australia.  In its submission, forwarded this week to members, it says:

 “Currently there is no process for an assetless insolvent corporation to be wound up in the absence of a director or creditor able and prepared to indemnify the practitioner’s remuneration. In the case of a court liquidation, practitioners are required to conduct the administration with no prospect of remuneration.

 We recommend the establishment of a fund to have practitioners wind up small assetless corporations, on the basis of a set fee available either to all providers, or to a panel of willing providers **, and with the ability for the practitioner to apply to the current assetless administration fund if their work identifies the likelihood of offences. (** As an example, under the regime operating in Hong Kong, practitioners bid for work of this kind quoting a fixed fee for the administrations they would undertake.)

 This scheme could be funded via a levy imposed at the time of initial company registration, or by a small annual fee charged on every corporation. The large number of corporations at any  time means that the annual fee could be very low and still provide adequate funds for the operation of the scheme.

 There are very low barriers to the formation of a corporation inAustralia, and every corporation in the economy benefits from the health and reliability of the insolvency regime. While the frequency of insolvent administration is very low, any corporation has the potential to enter the insolvency regime at some future point. It is therefore reasonable that the costs of administering assetless insolvent corporations be born equally by corporations across the economy.   

 An alternative approach would be for ASIC to administratively deregister such companies without a formal insolvency process. (But) In our opinion, this option would encourage poor corporate behaviour.  By ensuring that a company is left with no assets in the event of insolvency, a director might seek to avoid any investigation into the failure of the company and any possible breach of duties.

 The recommended approach ensures that a minimum level of investigation is done which can lead to further applications for funding in the event that offences or recoverable transactions are identified. 

 Such initial funding to wind up these companies would also:

 •   Ensure protection of employees’ rights by allowing employees to access the GEERS scheme (or any such replacement arrangement); (GEERS is the General Employee Entitlements and Redundancy Scheme, administered by the Department of Education, Employment and Workplace Relations)

 •   Provide a deterrent to poor corporate behaviour by directors, though this needs to be supported by a proactive corporate regulator; and

 •   Assist ASIC to identify directors who should be banned from continuing in such a role. “


The IPA submission – which is 36 pages long and seems to respond to all the issues and questions raised in the Options Paper – will be published, along with all other public submissions, in a few weeks. 


Jul 292011


Want to make a submission regarding the Government’s important options paper on insolvency reform, titled “A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”?  Use my free template, available for download HERE.

This  simple table template, written with MS Office Word, lists the 135 discussion questions being raised in the options paper and provides space beside each question for your comments/opinions.  Just save the document to your computer,  fill it in and email it to the Treasury Department at date for submissions is 29 July 2011, but submissions soon after that date are likely to be accepted.

NOTE: submissions will be made public unless marked Confidential or Not for Publication.

The options paper in available at the Treasury website.