House of Representatives

Corporations Amendment (Insolvency) Bill 2007

Explanatory Memorandum

(Circulated by the authority of the Parliamentary Secretary to the Treasurer, the Hon Chris Pearce, MP)

2 - Outline

2.1 The Corporations Amendment (Insolvency) Bill (the Bill) includes a range of measures intended to modernise Australia's insolvency laws. These measures were announced by the Hon Chris Pearce MP, Parliamentary Secretary to the Treasurer, on 12 October 2005.

2.2 The reforms have been developed having regard to the recommendations of a number of recent reviews into the corporate insolvency framework. Specifically, the reforms are based on the findings of the following reviews and inquiries into the corporate insolvency framework: the 1997 Review of the Regulation of Corporate Insolvency Practitioners; the 1998 Corporations and Markets Advisory Committee (CAMAC) Report Corporate Voluntary Administration; the 2000 CAMAC Report Corporate Groups; the 2004 CAMAC Report Rehabilitation of Large and Complex Enterprises and the 2004 Parliamentary Joint Committee on Corporations and Financial Services (PJC) Report Corporate Insolvency Laws: A Stocktake .

2.3 The issues arising out of these reviews fall into four broad themes.

2.4 The first theme relates to improving outcomes for creditors, through enhanced protections for employee entitlements, improved information to creditors, removal of unnecessary procedural requirements, and by introducing a statutory pooling process to facilitate the winding up of related companies.

2.5 The second theme relates to deterring misconduct by company officers, primarily through the establishment of an assetless administration fund to improve the quality of information forwarded to the Australian Securities and Investments Commission (ASIC) by insolvency practitioners, and a new ASIC enforcement programme targeted at phoenix company behaviour. In support of this initiative, reforms are proposed to restore the longstanding interpretation of the non-applicability of penalty privilege in proceedings for disqualification or banning orders. ASIC will also be provided with enhanced powers to investigate the conduct of registered liquidators.

2.6 The third theme relates to improving the regulation of insolvency practitioners, primarily through enhancements to the registration regime administered by ASIC, but also through the introduction of more flexible disciplinary procedures.

2.7 The fourth theme relates to fine-tuning voluntary administration, comprising a package of technical amendments to enhance the efficiency and cost effectiveness of that process. These amendments recognise market developments and opportunities for improvement that have been identified since the procedure was introduced in 1993.

2.8 While the individual reforms are generally minor in nature, it is anticipated that the cumulative impact of this package will include significantly reduced compliance costs, improved commercial certainty, and improved integrity in the insolvency regime. A well functioning insolvency regime is essential for maintaining the ready availability of capital at a low cost for Australian businesses, and for expediting the allocation of capital to its highest valued uses in the economy.

2.9 The Government has announced that it will adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on cross-border insolvency. The Model Law will provide effective and efficient mechanisms for dealing with cases of cross-border insolvency. These reforms will be enacted through separate legislation, and will adopt the approach detailed in the CLERP 8 Discussion Paper.

Financial impact statement

2.10 There is no financial impact.


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