Vol 12 (2015) - Issue 3

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Chapter 11 Again Mooted as an Option for Australia’s Insolvency Regime

According to the committee empowered with reviewing the performance of Australia’s corporate regulator, amendments to Australia’s corporate insolvency laws should be considered to encourage and facilitate corporate turnarounds. One suggestion was for the introduction of certain features of the Chapter 11 regime in the US into Australia’s insolvency laws.

The Report
On 20 June 2013, the Australian Federal Parliament requested that the Senate Economics References Committee (the 'Committee') inquire into and report on the performance of Australia’s corporate regulator (the Australian Securities and Investments Commission ('ASIC')).
ASIC’s role is to administer the Corporations Act 2001 (Cth) (the 'Corporations Act') which is the principal legislation governing the affairs of companies in Australia. In fulfilling this role, ASIC oversees the registration of companies and notifications made by companies, and is tasked with ensuring that companies, as well as directors, auditors, insolvency practitioners and other market participants, fulfil their legal obligations under the Corporations Act and otherwise. The Committee was asked to consider and report back in early 2014 on various issues regarding ASIC’s performance. Such matters for review included:

a) ASIC’s enabling legislation and if there were any barriers preventing ASIC from fulfilling its legislative responsibilities and obligations; and
b) the accountability framework to which ASIC is subject to and if that needed to be strengthened.

The final report was tabled on 26 June 2014 (the 'Report').
As part of its Report, the Committee made a total of sixty-one recommendations ('Recommendations'). The purpose of the Recommendations was to seek to address gaps in the corporations’ and financial services’ legislative and regulatory frameworks and to encourage ASIC to consider how its performance could be improved. One of the Recommendations made was in relation to Australia’s insolvency regime.

The arguments for changing the Australian insolvency regime
For the purposes of compiling the Report, the Committee received evidence and submissions from many organisations representing various stakeholders and other professionals, as well as from individual entities regulated by ASIC. As noted in the Report, reflecting ASIC’s broad remit, the Committee heard from bodies representing such stakeholders as directors, lawyers, financial advisers, accountants, auditors and insolvency practitioners.
Despite the focus of the inquiry being predominantly on the performance of ASIC, during the course of its inquiry, the Committee also received submissions in relation to the insolvency profession. In this respect, certain aspects of the insolvency profession were brought to the Committee’s attention. Common issues that were raised included:

– the independence, competence and fees of insolvency practitioners;
– if the fees charged represented value for money; and
– concerns by various participants regarding relatedparty transactions.

The relevant submissions called for fundamental changes to how large corporate insolvencies are undertaken in Australia. Amongst the submissions was a suggestion that Australia adopt provisions like those in Chapter 11 of the US Bankruptcy Code ('Chapter 11') which put 'recovery ahead of burial'.