Insolvency Law Reform
Thanks to some recent developments, proposed changes and discussion papers it is clear that insolvency law reform is back on the political agenda.
Draft insolvency legislation
We are pleased to see that earlier this month, the Government released draft insolvency legislation containing proposals to amend, align and modernise the provisions of the Bankruptcy Act and the Corporations Act.
The Government estimates these changes will translate to compliance cost savings of more than $55 million a year. These kinds of savings would have a positive flow on effect for creditors and other stakeholders in the industry. The industry's professional body, ARITA, is advocating for further innovative changes for even better improvements.
What are the main areas for reform?
- The registration, supervision, regulation and discipline of insolvency practitioners;
- The remuneration of trustees and liquidators; and
- The provision of information to stakeholders, including notices and procedures at meetings.
The draft Bill does not provide for the creation of a single insolvency regulator as was expected. Instead it is currently proposed to retain the regulatory function of both the Inspector-General in Bankruptcy and the Australian Securities and Investments Commission ('ASIC'), who will be required to 'work cooperatively'.
Submissions on the draft Bill will close later this year and it is anticipated that the commencement date for the reforms will be 1 February 2016. Watch this space for updates on the progress of the Bill.
Employee entitlements protection
Changes to the Commonwealth's employee entitlements protection scheme which were flagged in the May Budget have now been introduced to Parliament.
The Fair Entitlements Guarantee Amendment Bill 2014 caps the redundancy entitlements on insolvency to the equivalent of 16 weeks of the eligible employee's pay. This cap will not affect most claimants under the scheme who have less than 16 weeks of unpaid entitlements.
The Bill is currently before the Senate. The Budget proposed a commencement date of 1 January 2015 but, given the current make up of the Senate, and the nature of the legislation, there is likely to be considerable debate and compromise required before the legislation can be passed, and possibly with significant amendments.
ARITA discussion paper
Last month also saw the release by ARITA - the professional body representing the majority of insolvency practitioners - of its own discussion paper on policy development in a number of areas of insolvency law.
The paper, A Platform for Recovery 2014, identifies certain key areas where the existing insolvency regime can be improved - mainly in relation to restructuring outcomes.
ARITA proposes an alternative insolvency regime to address 'the financial decline and potential termination of businesses'. The paper distinguishes the different framework approaches required for large enterprises, small to medium enterprises and micro-companies.
ARITA is of the view that the current 'one size fits all' approach in dealing with financially distressed companies is flawed and the debate fostered by the discussion paper will inform ARITA's final policy position on the matters raised.
It is clear from these developments that insolvency law reform is back on the political agenda. The last major overhaul of corporate insolvency regulation was conducted in the early 1990's and it has been 7 years since the introduction of significant legislative change in the area of corporate insolvency.
PKF Australia will continue to monitor changes in this area and keep clients up to date with the latest developments.
For specialist advice on all insolvency matters contact:
Simon Thorn and Trudy Hickey in Newcastle on (02) 4962 2688
John Vouris, Brad Tonks and Mark Roufeil in Sydney on (02) 8346 6000, or any of our Insolvency specialists around Australia.