Second Reading SpeechMr PEARCE (Aston-Parliamentary Secretary to the Treasurer)
That this bill be now read a second time.
The bill contains an integrated package of reforms to improve the operation of Australia's insolvency laws.
Australia's corporate insolvency regime is a critical part of our economic infrastructure. Insolvency law underpins the system of financial and contractual relationships that enable trade and commerce to take place.
A modern credit-based economy requires predictable, transparent and affordable means for enforcing secured and unsecured credit claims. A well-designed insolvency system helps business obtain finance more easily, and at a lower cost.
The reforms aim to improve the efficiency and the cost-effectiveness of insolvency processes, strengthen the rights of creditors, enhance their capacity to participate in the insolvency process and maximise their returns.
They aim to minimise the economic and social costs resulting from corporate failure. Such costs can include the disruption of trade and commerce, the loss of employment, loss of capital, damage to suppliers and customers, and the expenses of the insolvency process itself.
The reforms also seek to ensure that the corporate insolvency regime contributes to an efficient and informed market without imposing costly new regulatory requirements on company directors, creditors or practitioners.
This is the first time that this area of law has been comprehensively updated since 1992. Australia's insolvency framework is still well-regarded internationally, with jurisdictions such as the United Kingdom using our laws as a model for reform. However a number of public inquiries into the corporate insolvency framework, in particular by the Corporations and Markets Advisory Committee, otherwise known as CAMAC, and by the Parliamentary Joint Committee on Corporations and Financial Services, have identified opportunities to update and fine-tune the framework.
The government has considered these recommendations and, after consulting with industry through the Insolvency Law Advisory Group and subsequently through the public release of exposure draft amendments in November 2006, has responded by introducing this bill to parliament today.
The reforms in the bill have been developed around four themes: strengthening creditor protections; deterring misconduct by company officers; enhancing the regulation of insolvency practitioners; and fine-tuning the voluntary administration procedure.
Strengthening Creditor Protections
The bill includes a number of measures that have the specific aim of strengthening the protection of employee entitlements. It will make it mandatory for a deed of company arrangement to preserve the priority available to employee creditors in a winding up, unless the employees agree to waive this priority or the court makes an order.
It will clarify the treatment of the Superannuation Guarantee Charge (SGC) in insolvency. Under the Corporations Act, employee entitlements already rank highly in the distribution of the property of an insolvent company. However, under the current law there is some uncertainty about the standing of the SGC in different forms of insolvency proceedings. The proposed measures will therefore clarify the status and priority of the SGC in insolvency. They will give SGC the highest priority, along with wages and superannuation, that employee entitlements enjoy under the law.
These measures will significantly improve the prospect of recovering outstanding superannuation entitlements if an employer becomes insolvent. They will address a source of cost and uncertainty for practitioners in many proceedings.
The bill also includes measures to ensure that creditors are in a position to make an informed decision about key proposals, such as whom to appoint as an administrator and what they will be paid. Administrators will be required to disclose certain relationships before taking an appointment. Insolvency practitioners will be required to explain the basis for their remuneration proposals when seeking approval. These reforms will address some of the most common public criticisms of our insolvency framework.
The bill includes a number of measures intended to increase the efficiency and reduce the cost of insolvency processes. Amendments in the bill remove redundant meeting requirements, allow greater use of modern communication technology for communication with creditors, and reduce costly advertising requirements.
The reforms facilitate the winding up of companies in corporate groups. Pooling will permit creditors to agree, or a court to make an order, that the liquidation of related companies should be combined and managed as if they were one company. This facility will allow scope for significant cost reductions in these circumstances, for example through more streamlined administration, consolidated accounts, and removing unnecessary duplication such as for meetings and minutes.
Deterring misconduct by company officers
The government has already implemented some enhancements to its insolvency law program. Most notably, the government has allocated $23 million over four years for the assetless administration fund and complementary enforcement programmes. The assetless administration fund finances preliminary investigations by expert liquidators of companies selected by ASIC that have been left insolvent with little or no assets when it appears to ASIC that it may be able to take enforcement action as a result of the investigation and reports.
In support of ASIC's important enforcement work in this area, the government will legislate to restore the longstanding position that the privilege against exposure to a penalty does not apply in proceedings where ASIC is seeking disqualification or banning orders and no other penalty.
Banning and disqualification orders, and orders to cancel or suspend a licence under the Corporations Act, are important tools for deterring corporate misconduct. They serve a protective function, by allowing the removal of unwanted participants from the market. One of their main benefits is that they allow for an expeditious response to corporate misconduct.
This reform will provide significant assistance to ASIC's work in discouraging company misconduct, including unlawful 'phoenix company' activity.
Enhancing the regulation of insolvency practitioners
To enhance the regulation of insolvency practitioners, the current prohibition on inducements for the referral of work will be extended to directors and other persons.
Creditors will be provided the power to appoint a new person as liquidator if the company proceeds to liquidation after an administration or deed of administration ceases. This will allow creditors to appoint a new practitioner to investigate the conduct of the previous directors and administrator, if they are concerned about the performance or independence of the administrator.
The registration regime for liquidators will be updated, by introducing more regular reporting requirements and a requirement to hold adequate insurance.
The reforms will also introduce greater flexibility into the processes of the Companies Auditors and Liquidators Disciplinary Board, or CALDB, expediting disciplinary matters in this area. I note that the High Court has recently dismissed appeals which argued that the CALDB powers to suspend a liquidator were unconstitutional.
Fine-tuning the voluntary administration procedure
After more than 10 years experience with voluntary administration, a number of amendments are included to improve and finetune this procedure. The reforms will enhance efficiency and clarify the operation of the administration provisions.
The most important changes concern the timing of meetings, the quality of reporting to creditors, and the facilitation of fundraising in administration.
The bill also grants administrators new powers to sell property subject to a retention-of-title clause, pledge or lien, in the ordinary course of business. These new powers will assist in the rescue of viable companies, for the benefit of creditors and other stakeholders.
Response to PJC Inquiry into the Exposure Draft Bill
As I mentioned earlier, this bill also reflects the adoption by the government of many of the PJC's 2004 recommendations. A small number of recommendations have not been adopted, on the basis that a strong case has not been made at this time.
The PJC initiated an inquiry into the exposure draft bill, and tabled its report on 29 March 2007. To the extent that these recommendations mirrored those made by the PJC in 2004 that the government did not earlier accept, the bill has not been amended.
In relation to the prospect for future law reform in the area of corporate insolvency, I note that a number of new issues were identified by stakeholders in drafting this bill. Some of these have been referred to CAMAC for further advice. In addition, CAMAC is currently considering the implications of the Sons of Gwalia decision and the issue of long tail liabilities.
In conclusion, I note that the current bill has been developed after extensive consultation. The government appreciates the assistance of members of the Insolvency Law Advisory Group, and the Insolvency Practitioners Association of Australia, in the preparation of the bill. The bill was exposed for public comment. Under the Corporations Agreement between the Commonwealth and the states and territories, the bill needed to be approved by the Ministerial Council for Corporations. The ministerial council has approved the bill. I commend the bill to the House.
Debate (on motion by Mr Edwards) adjourned.