Terri Butler (Griffith, Australian Labor Party) Share this | Hansard source

It is a pleasure to follow my colleague, the member for Banks. The member for Banks and I co-chair a bipartisan parliamentary friends group on enterprise and innovation. It is certainly wonderful to have such a bipartisan focus on those issues, and one of the very important questions that comes up in our discussions frequently is: what are the right insolvency settings for Australian law?

It is fair to say that nothing stirs the blood like a discussion about insolvency law, in my view. You would have to look far to find something as exciting and as interesting as insolvency law. The reason I say that, of course, is that it is inherently political. The question of how governments, regulators, employees, small businesses—who are suppliers to firms—small investors, banks and other creditors should be treated, when a business cannot pay its debts as they fall due and payable, is obviously one that affects a broad range of interests and, for that matter, a broad range of rights,. So the way insolvency practitioners conduct themselves—the way liquidators and administrators conduct themselves—when it comes to handling both creditors' rights and the interests of the business that they may be trying to salvage, in the case of an administrator, is really important. It is a really important question for consideration by this parliament. That being the case, it is sensible to revisit and improve the standards to which those practitioners adhere.

That is the purpose of this bill: to reform, to modernise and to further professionalise insolvency practice. This bill cannot be divorced from its broader context, which is Australian insolvency laws and the ongoing debate about their consequences, both for individuals, for creditors—small creditors particularly—and for the broader economy. As I said, insolvency laws are inherently political and that also makes them inherently controversial. That is because at the end of the day we are talking about livelihoods—we are talking about the livelihoods of employees; we are talking about the livelihoods of their families; and we are talking about the livelihoods of small business suppliers. I am talking about the contract cleaners who have contracted to a firm, which may be their major client. What happens when the firm goes broke and cannot pay its debts? Think of those people, for example, whose lives have been affected by the great corporate failures of Australian history—the Ansetts, the HIHs—but also think about the people who have suffered in garden variety insolvencies and liquidations, like the employees and, for that matter, taxpayers who suffer when a firm goes broke, winds up in insolvency and the next day there is a phoenix company rising from the ashes with the same individuals involved but with a different corporate entity.

These are important political questions that ought to be the subject of consideration by this parliament. The way insolvencies are handled is an issue that affects people's lives, but it is not just an issue that affects people's lives—though that is very important—it is an issue that affects, as I said, broader economic issues. For example, insolvency law settings, or the public perception of them, arguably affect directors' behaviour. One argument often made is that the fear of insolvent trading laws actually makes directors more timid than they should be. It is an argument that fear gives rise to a risk averse culture, and it is something that has a lot of currency at the moment, as we talk about how to make directors, firms—particularly new firms—more entrepreneurial and more risk ready or to have a greater risk appetite. How do we get our firms in Australia to have that risk appetite and move away from a risk aversion that in some people's view a hallmark of Australian culture.

It is possible, in my submission and unfortunately quite likely, that the risks to directors have been exaggerated or that they loom larger in the imagination than in real life and in the letter of the law. I say that, having regard to the concerns some directors have. Why wouldn't they have them? They are told to be worried about these risks. They are told that they need to think about how to avoid the risk of, for example, a contravention of the insolvent trading laws in the Corporations Act.

It is not just my view that those risks have been exaggerated to directors. It is also a point the Productivity Commission made in its Business set-up transfer and closure inquiry report, which stated:

…the spectre of action looms larger than the actual (likely) consequence. The rate of successful enforcement of insolvent trading actions is low. There were only 103 insolvent trading cases between the law's introduction in 1961 and 2004. While the court ordered that compensation be paid in three quarters of those cases, more serious sanctions were extremely rare. Only 15 per cent of cases involved criminal proceedings, and only two cases involved an order banning directors from managing companies.

Since 2004, ASIC reports that they have commenced action for insolvent trading for circumstances involving five companies only between 2005 and 2011.

Two cases involved civil action, both resulting in the winding up of a company.

The remaining three cases involved criminal action. In one instance, the action was abandoned. In another, a director was fined and required to perform community service, but was subsequently imprisoned for failing to complete the community service.

The point of reciting that quote is to say to the directors of this country, and also to this parliament, that we not only have to deal with the question of what might be the legal impediments to a less risk averse culture; we have to talk about what might be the perceived impediments to a less risk averse culture.

When you think about the very low rate of prosecutions, the very low rate of actions, under the insolvent trading provisions of the Corporations Act, you will see that it is at least possible that the risks to directors have been exaggerated and overstated. That is fine if you are, for example, a professional adviser trying to sell training to directors about how to avoid their risks—you want them to be cognisant of their risks. It is, of course, important that, as a director, you are cognisant of your risks; you have legal obligations to be cognisant of those risks. But as a parliament we have to find a way to strike a balance between appropriate levels of cognisance of risk and appropriate levels of risk appetite.

It is only by being bold and entrepreneurial that firms will be able to grow and scale in the weight that we want them to—and I think everyone in this parliament wants to see Australian firms thrive, be bold, brave and succeed. It is really important that we remember in these situations that it is not just a question of what the black letter law says; it is not just the question of what the actual risks for directors are. That is important, and we certainly do have to make sure that the legal settings are right—of course, we do—but we also need to make sure that there is a realistic understanding of the risks posed to directors and to firms by the laws. And in doing those things we have to provide sufficient comfort to directors that they can be bold, that they can be very brave.

I know that the coalition wants to provide some very broad options for directors to avoid liability, and I think that is a matter that will be debated down the track. But in thinking about the risk aversion issues, in thinking about the protection that ought to be offered to directors, there are people that we should not forget, and those are the people who I mentioned at the outset—the employees, the small business suppliers, the small creditors, the mum and dad investors who suffer in insolvencies. There will always be an important role for drawing the right balance.

Debate interrupted.

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