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Personal and corporate insolvency regimes should merge to reduce cost and complexity, says ARITA.
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Insolvency body welcomes ‘overdue’ review of bankruptcy laws
04 October 2022
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Insolvency specialists have welcomed a review of insolvency and bankruptcy laws announced last week by senator Deb O'Neill, chair of the parliamentary joint committee on corporations and financial services.
The Australian Restructuring Insolvency & Turnaround Association (ARITA) said existing rules were outdated and overly complex.
“ARITA has been seeking a root and branch review of our personal and corporate insolvency regimes for more than half a decade,” ARITA chief executive John Winter said.
“There has not been a proper consideration of Australia’s insolvency laws since the Harmer Inquiry of the 1980s despite an economy that has fundamentally changed.”
He said the Albanese government had picked up the issue and while Australia led the way in some areas, revision of the rules was long overdue.
“Australia’s insolvency and restructuring regime has some world leading features — like our Voluntary Administration and Safe Harbour regimes which are far more effective than, say, Chapter 11 in the US,” he said.
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“As the Productivity Commission found in 2015, by not being court-driven, our regime is also cheaper than in many other jurisdictions.”
But he said Australia’s laws were “ridiculously complex”.
“They are so difficult for directors to understand that five times as many businesses are wound up by ASIC than are properly closed down,” he said.
“They make the process unnecessarily expensive, with registered liquidators forced to do work which is not needed and they often have to do this work without getting paid.
“No one wins from this — not investors, not creditors, not workers and not the community.”
Mr Winter said redrafted laws should aim to be simple, effective and efficient, and merge the separate regimes for personal and corporate insolvency.
“This makes no sense when so many of SME insolvencies also end up with the personal bankruptcy of directors. The regimes need to come together to deal with this reality under the guidance of a single, dedicated regulator,” he said.
“The simplified small business restructuring and liquidation frameworks enacted by the previous government are in urgent need of reform. These are far too complex and expensive for practical use and in these uncertain economic times urgently need to be replaced by efficient and effective small business frameworks.”
Another issue was company trusts in insolvency, which was first raised by the Harmer inquiry and was still awaiting a fix, “despite every second small business having a trust structure”.
ARITA would work with Senator O'Neill and other participants in the inquiry on recommendations for an insolvency and restructuring regime that led to more viable businesses being saved and bankrupt individuals being given a chance to rebuild their lives, he said.
ARITA represents more than 2,200 accountants, lawyers and other professionals with an interest in insolvency and restructuring.
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