Carnell/ASBFEO insolvency inquiry update

05/12/2019
On Tuesday 3 December, ARITA’s CEO and technical Specialist Team met with the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Insolvency Practices Inquiry team.

This meeting followed earlier attempts by ARITA to provide constructive assistance to the Inquiry including:

  • An offer to provide, free of charge, a one-day insolvency training intensive for ASBFEO staff to help get them across the basics of Australia’s complex insolvency and bankruptcy regimes. This offer was not taken up.
  • Provision of key policy documents:

Members may recall that the first two of these items formed the basis for much of the Productivity Commission’s inquiry report on Business Set-up, Transfer and Closure, wherein there was wholesale adoption of ARITA’s policy framework.

Most notably, the Productivity Commission (PC) supported our positions on SME-focussed reforms including:

  • Policy 15-09: Streamlined liquidation for micro companies
  • Policy 15-10: Micro restructuring
  • Policy 15-11: Pre-positioned sales (as distinguished from 'pre-packs' which were not supported by the PC).

At our meeting with ASBFEO staff on December 2, we discussed a wide range of issues including:

  • ASIC IFM impacts on the profession and the realisations charge imposed in bankruptcies.
  • Independence, including limitations on pre-appointment advice.
  • Conflicts that arise with 'pre-packs' including phoenixing.
  • Long-duration administrations.
  • The cost of litigation in insolvency.
  • Potential alternatives to using courts to resolving disputes.
  • Causes of insolvency.
  • How to encourage SMEs to seek assistance sooner.
  • ATO actions against SMEs.
  • Notions of directors’ 'rights' to their insolvent businesses.

ARITA has subsequently provided the ASBFEO with a range of supplementary papers on:

  • The recent decision in the Federal Court by Besenko J in which he adopts an approach to the requirements of s 286 of the Act which appears, potentially, to be inconsistent with commonly understood position adopted by insolvency practitioners and is likely to place a much higher expectation on liquidators to undertake investigations and reconstruct financial records, to the cost of creditors.
  • Recent correspondence between ARITA and AFCA around our concerns about the use of AFCA during insolvencies.
  • A technical paper by Mark Wellard (now UTS, then ARITA’s Legal Director) outlining judicial rulings on independence.
  • Copies of ARITA’s PCC decision in regard to the Channel 10 matter and the Court’s decision in the same.

Submissions to the Inquiry

We’ve been contacted by a number of members about making submissions to the ASBFEO Inquiry. It’s important to note that the ASBFEO Inquiry has NOT called for submissions. The only avenue for direct submissions to the Inquiry at this time is a SurveyMonkey form on the ASBFEO website that is limited to 'small and family businesses that have faced financial difficulties and restructured or wound up their business to share their stories'.

One Nation call for insolvency inquiry

We note that Senator Hanson has told the government the PHON party would only support the Government’s signature union-busting 'Ensuring Integrity' bill if her demands for a Royal Commission or major inquiry into insolvency were met.

ARITA’s Financial Recovery Law Reform Commission

ARITA is on record as being deeply concerned that the ASBFEO Inquiry is ill-conceived and continues the problematic trend of ad hoc inquiries into insolvency that have happened almost each year since 2010, for little benefit to any stakeholder.

This concern, which pre-dates the announcement of the Inquiry, is why ARITA announced its intention to conduct the Financial Recovery Law Reform Commission (FRLRC) to take a 'root and branch' review of all aspects of insolvency and bankruptcy law.

Further major announcements around our FRLRC can be expected very soon. ARITA has been actively engaging with all levels and sides of government on our FRLRC in order to gain support and acknowledgement of the work being planned.

We continue to advocate that our FRLRC is the proper solution to both our aging, bloated and less than effective dual insolvency regimes and to address broader community concerns about what those regimes deliver.