The ugly duckling and the swan
Insolvency reform is unlikely to be front and centre of the electors’ minds when they go to the polls later this year. It is not an issue that will influence how a swinging voter in a key marginal electorate will cast their vote. Governments of all political persuasions have had little appetite to pursue an insolvency reform agenda with much vigour.
It seems clear that the government considers insolvency reform as an ugly duckling. In contrast, efforts to privatise government services and implement cost recovery proposals are treated as the swan.
The ugly duckling
The prolonged gestation of the Insolvency Law Reform Bill 2015 demonstrates the priority afforded to implement insolvency reform.
For those of you who don’t recall, this bill had its genesis in the September 2010 report of the Senate Economics Reference Committee titled The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework. This report called for greater supervision of insolvency practitioners and recommended the establishment of a single regulator of both personal and corporate insolvency practitioners.
The government then released a discussion paper in response to the senate report seeking public comment. The government rejected the reports calls for a single regulator.
The Australian Securities and Investments Commission (ASIC) argued in response to the report that they were adequately resourced to enable them to retain their supervisory role over corporate insolvency practitioners. An exposure draft of a bill to implement the government’s response to the senate report was issued for public consultation in December 2012. The bill did not make it through the parliament before the dissolution of the parliament for the 2013 general election. A new government circulated an exposure draft in November 2014 with minimal changes to that previously exposed. In December 2015 the bill was introduced to the parliament.
It is anyone’s guess if the bill will be passed before the dissolution of the parliament later this year for the 2016 general election. The prospects of the bill being passed depends as always on the competing priorities of the government. Over five years have passed since the senate report initiated this limited round of reform.
In July 2015 a table prepared by Michael Murray, writer of the Australian Insolvency Management Practice, CCH, was published on Wolters Kluwer Central blog.
The table shows 21 items of inquiry, reports or actual law reform in the area of insolvency at July 2015.
Michael has recently reported that this table has now expanded to 29 items after he reconsidered and culled the original list. The oldest report or inquiry referred to by Michael is over 15 years old. The majority originated between 2008 and 2015.
The ugly duckling continues to be ignored.
Contrast this with the government’s response to the Financial System Inquiry Report released in December 2014. The report made a number of recommendations to strengthen the transparency, accountability and capabilities of Australia's financial regulators.
In the case of ASIC, the Financial System Inquiry recommended that the government should move to adopt an industry funding model, similar to that already in place for other Australian regulators. The Financial System Inquiry found that an industry funding model for ASIC could provide more funding certainty and enhance the transparency of ASIC's costs and funding.
The government is presently exploring the sale of one of ASIC’s principal revenue sources, its registry business. The industry funding model is expected to increase substantially the costs associated with conducting a corporate insolvency practice.
Submissions from stakeholders were sought in August 2015 and closed in October 2015. The government is considering stakeholder submissions and other input and is expected to announce a response early in the new year.
Clearly government can move quickly if adequately motivated.
The beauty of the swan is recognised and rewarded.
It is time insolvency reform became the swan
Insolvency law and practice is an essential element of an efficient market based economy. Reform of insolvency law and practice should be afforded the same priority as other areas of business regulatory reform by government. Insolvency law and practice provides an essential mechanism to recirculate assets and capital of distressed businesses.
Piecemeal changes to placate noisy interest groups is not good enough. It is time insolvency reform was considered broadly with a view to putting in place a system that will provide a transparent, efficient and equitable system that is capable of meeting the demands of business in the 21st century.
It is time for the ugly duckling to become a swan.