Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Hansard source

I rise today to outline Labor's position on the Insolvency Law Reform Bill 2015, knowing that insolvency is not often at the forefront of most Australians' attention or interest. Perhaps we think about insolvency only when we hear of high-profile cases of business stress, like, for example, the recent administration of Dick Smith, which is currently underway and ongoing. The reality is that the insolvency profession is an incredibly important part of our financial system. It caters for thousands of cases of business liquidation, administration and restructuring each and every year. It is for this reason that having a strong framework to underpin the insolvency profession is so important and why it is such a good thing that we are debating this legislation before the House today.

The bill does make some substantial changes to the way in which insolvency professionals are registered, disciplined and regulated. This legislation has been a long time in the making; it has been a long time coming. It was first triggered by the 2010 Senate Economic References Committee report into the regulation, registration and remuneration of insolvency practitioners in Australia—the case for a new framework—and the last Labor government went through an extensive consultation process on insolvency law reform which culminated in draft legislation in 2013, but unfortunately it was unable to be considered by this place prior to the last election.

I want to take the opportunity to acknowledge the work that was done by some great parliamentarians, three of whom are no longer here and one is retiring: David Bradbury, Robert McClelland, in the first instance, and my great friend the member for Oxley, alongside Nicola Roxon, who did a lot of the leg work. We see some of that consideration and some of the elements of that work in the draft legislation and in the bill, which we will be supporting through the parliament.

We do note, though, that the bill contains just part of the legislative reform to insolvency which has been foreshadowed by the previous reports and previous efforts and by the government itself. We have the Assistant Minister for Innovation here at the table. The government have flagged, through the innovation process, that there will be additional action taken as it relates to insolvency, so we wait to see the detail of those measures that they have flagged. This is the first instalment and, arguably, it will probably be the least controversial instalment of the insolvency arrangements. We wait to see the other components. We call on the government to release, as soon as possible, the full detail of the proposed reforms to the framework so that we can give the industry confidence and allow the insolvency practitioners the opportunity to prepare for the changes, consider them altogether and properly prepare for the sorts of changes that they need to make to help strengthen the framework that we are talking about.

We would all like to think that all businesses in Australia will be successful all the time, but the real world is obviously very different. If you take some ASIC statistics, last year they showed that something like 9,177 companies entered into external administration. Business failure can be a very stressful time for those involved—obviously for the owners but also for their loved ones, as well as the managers, employees, creditors and customers who may be affected. So it is a very sensitive part of the financial system. Insolvency practitioners, including 707 registered liquidators in Australia, have a number of roles to help manage this stress and to help turn around a business, if that is a viable option and is possible, or to salvage what they can to leave as few people out of pocket as they can.

While the current insolvency framework does a pretty good job of balancing the interests of creditors and businesses in distress—not in all cases but in many cases—there have been some high-profile cases of misconduct by corporate insolvency practitioners. Unfortunately, we only hear about the very high-profile cases of business failure or the very worst cases of misconduct, which I think is one of the reasons why insolvency practitioners received the lowest rating for perceived integrity in the latest survey of all the various ASIC stakeholders. We need to fix this by giving them a better structure in which to operate and give them a better set of guidelines and regulations. We need to help them become better at the work that they do. I am sure that, if that happens and we do that effectively, the reputation of these practitioners will improve.

Across the industry and within government there is broad agreement that reforms to the insolvency framework are needed to modernise the industry and improve the standards of practitioners. The 2010 Senate economics committee report that I referred to before, the one that led to that original Labor bill, found that the regulators had inadequate powers, that fees were overly inflated and that the registration process for insolvency practitioners needed to be strengthened. More recently the Productivity Commission's report, which was commissioned by my colleagues opposite, called Business set-up, transfer and closure, found some additional issues with Australia's insolvency regime, including flaws in the restructuring processes due to risk aversion and negative perceptions, long time frames for corporate liquidations and disproportionately onerous reporting and appeals processes.

I think we can all agree, no matter what side of the parliament we are on or what part of the industry or the broader financial system we are in, that there is room for improvement. There is room to improve the operation of our framework in the interests of all of the participants in the industry and, through them, the broader Australian community. Good insolvency law reform needs to successfully balance the needs of all the various stakeholders—all of those players I mentioned before. For example, businesses and creditors have the right to expect that any insolvency case will be resolved as quickly and as fairly as possible. They have the right to expect that industry professionals will be acting in their best interests and behaving ethically. At the same time, insolvency practitioners should not be overburdened by unnecessarily onerous regulation. They also need to be protected from creditors who can, at times, in a sensitive part of the system act emotionally and perhaps irrationally in these stressful situations. We believe that the legislative change in this bill more or less strikes that difficult balance quite well.

There are a few major components of this reform in the bill. First of all, it reforms the registration framework for practitioners by strengthening their registration requirements. It compels them to renew their registration every three years and meet training requirements. It removes the distinction between registered and official liquidators. It reduces the period of experience that applicants must possess before they can apply for registration. That is the basket of issues that relate to registration.

There is another basket of issues around disciplinary action. The bill will largely introduce stronger disciplinary powers. It will allow the regulator to ask practitioners to show cause if they have breached their obligations and present why they should remain in the industry. There will be a disciplinary committee. There are a whole range of measures around discipline. The bill increases the penalties for a range of offences relating to misconduct, including failing to maintain adequate and appropriate insurance.

The third set of issues are around the two primary regulators in the area, which are ASIC, as I have already mentioned, and also the Australian Financial Security Authority. ASIC does the corporate side and AFSA covers the personal side. This bill gives them further powers to seek information or records, and it places a greater onus on practitioners to notify the regulators when matters arise. The final bunch of issues are around additional rights for creditors. There are a whole range of issues relating to that basket.

Despite generally supporting the bill and the reforms that are before us, we do want to put on the record for the benefit of the House here tonight four issues that concern us and that we want to identify and monitor. The first one is that the bill defers some fine detail to a legislative instrument called the 'insolvency practice rules'. The intended insolvency practice rules have not been released yet. They should be released to allow practitioners the opportunity to prepare for the change in regime. That is the first concern.

The second one is that the bill claims a compliance saving of $50 million, which the industry itself has said is completely wrong. It says that the regime will cost them substantially. I am reluctant to say in a largely bipartisan contribution that those opposite have form when it comes to overclaiming savings from red tape reductions, but we will watch that claim of a saving of $50 million with some scepticism.

The third concern is that, as a mentioned before, there are more components coming. We think you can minimise the cost to the industry if you release all the parts of the insolvency reforms close together to give people the opportunity to consider them together and try to harmonise the various phase-ins of the separate tranches of law reforms.

The fourth area of concern is around ASIC funding. This is a very contentious area. Some proposed changes for a user-pays model for ASIC have not been finalised. There have been a couple of years of fairly substantial cuts to ASIC. If we want ASIC to do its job, we have to make sure it is adequately resourced to do that job. Despite these concerns, as I said, we will be supporting the Insolvency Law Reform Bill through the parliament.

I want to take this opportunity to thank in particular the peak industry body, the Australian Restructuring Insolvency and Turnaround Association or ARITA, and particularly the CEO, John Winter, for sharing their thoughts on the bill with my office and also for providing honourable members with a very helpful summary of the various issues. It was a very balanced contribution from John Winter and ARITA that was very much appreciated by this side of the House.

We call on the government to release the insolvency practice rules and all the other proposed changes to the framework. When we see those, we will approach them the same way that we have approached this set of changes, with the interests of industry participants as our core priority and, through them, those of the broader Australian community, which relies so heavily on a good set of financial regulations to make sure that all parts of the financial system work for people and not against them.

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