House debates

Monday, 7 December 2020

Bills

Corporations Amendment (Corporate Insolvency Reforms) Bill 2020; Second Reading

6:13 pm

Photo of Stephen JonesStephen Jones (Whitlam, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

This Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 concerns insolvency. Legally, if you ask any lawyer, it's the situation where a person—natural or otherwise—is unable to pay their debts as and when they fall due. If you ask a nonlawyer, they'll tell you it's a crisis. It's a crisis for a business, it's a crisis for the family whose livelihood relies on that business and it's a crisis for the people who are owed money by that business. This bill before the House seeks to alter the legal arrangements surrounding small business insolvencies.

Temporary insolvency relief measures have been in place since March this year. Labor has proposed and supported many measures, including relief for directors from personal liability for trading while insolvent; increased thresholds at which a creditor can issue a statutory letter of demand upon a company; and increased thresholds at which creditors can initiate bankruptcy proceedings. These are all measures that have been applied to businesses across the economy. In addition, Labor has proposed and supported measures including the payment of wage subsidies, known as JobKeeper, and has called for and supported measures that have led to bank forbearance in respect of personal and commercial loans owed by businesses. It has called for and supported measures that provide for relief and forbearance by landlords, whether that be rent relief or other arrangements in relation to leases. In addition to that, we have called for and supported relief in relation to utilities bills, such as phone bills, electricity bills and the like.

A lot of these measures either end or start to taper off on 31 December this year. It might surprise many members of this place to learn that, in the midst of the greatest economic downturn since at least the Great Depression but most likely in the past 120 years, insolvencies are actually down—not by a little bit but by a lot. In fact, if you look at the number of insolvencies in May 2020 compared with May 2019, they're down 50 per cent. You might say that's an aberration concerning something that was going on in May, but, if you look at the figures in relation to June, July and August, you will see the same pattern. In fact, in July and August insolvencies are down by 60 per cent compared with the same period in 2019.

That tells us a few things. It tells us that the measures put in place by this parliament and by others are working. Those businesses that, in the midst of a crisis, would have gone to the wall actually haven't. They've either been able to put themselves into hibernation and look after their staff and creditors or been able to trade through this great difficulty. And of course that's a good thing. But something about this just does not ring true. If insolvencies are not just down but down by 50 and 60 per cent on the corresponding period last year, it's quite clear to us that at least a proportion of those businesses have been kept alive when otherwise they probably would not have been, whether through JobKeeper, bank forbearance, relief from paying rent and other payments, protection from action by creditors or the relaxation of arrangements for directors. We know that those insolvencies are going to kick up again.

Just in passing, it's interesting to note that over 55 per cent of insolvency practitioners have, over the period since March, actually been on JobKeeper themselves, because their normal trade has been interrupted. They would normally be dealing with insolvencies and bankruptcies, but that hasn't occurred. It looks like the majority of insolvency practitioners themselves have been on JobKeeper.

So we know there's something very abnormal happening. We know there's going to be big kick-up in insolvencies. The bill seeks to address this issue. We know that for hundreds of thousands of small businesses from coast to coast things have been pretty tough. There's been a lot of uncertainty for them and for their employees. We also know that ventures that were viable and prosperous at the beginning of the year are now, because of the COVID crisis, battling for their very existence. They need help, and Labor intends to support measures that are going to help them. We want to ensure that they get all the help they need. We agree that owners of small and medium businesses should have every chance to return to profitability, to trade out of their difficulties, to deal sensibly and legally with their creditors to ensure that, in the midst of disaster, it's not lose-lose but there is some win-win.

Insolvency processes can be a burden on both those debtors and those creditors in the midst of that crisis. But we also know that changes like this need to be done properly. They can't be rushed through. They have to be adaptable to the reality on the ground. We've found a hell of a lot of legislation that has been pushed through this place in the midst of the crisis hasn't been all perfect. Some of it actually hasn't been all good. A lot of it has had consequences that were either foreseen at the time but ignored by the government or unforeseen at the time and not remedied.

An example of a consequence that was foreseen at the time but ignored by the government was their unwillingness to deal with Labor propositions around the superannuation early access scheme. We knew that the way the government had the scheme put in place was going to leave a big back door open to fraud. Fraud has happened. There are hundreds of Australians who have had their life savings wiped out as a result of fraud that could have been avoided. That's one example; I am sure there are others. So it is absolutely essential that when we're passing legislation designed to deal with the crisis that we put in place mechanisms to ensure that it's well attuned to the crisis at hand but also doesn't saddle us with problems down the track that we will live to regret.

I want to make this point: when you change the rules in an insolvency situation you're always changing the balance of power between creditors on the one hand and those who owe them money. Whenever you do that, somebody is going to be better off than they were prior to the change. So, effectively, we are picking sides when we do that. There is no avoiding it. So this parliament has to get the balance right.

The bill is advanced as a measure to support small businesses. We want to do the sorts of things that are going to support small businesses. But we have to be very, very mindful of this: if we just look at an insolvency situation through the prism of the small business that is insolvent or potentially insolvent then we run the very great risk of ignoring the fact that amongst those people who are owed money are a lot of small businesses as well. So we need to ensure that, whatever we do in this space, we're getting the balance right. There will be unforeseen consequences. I predict there will be some unforeseen consequences with the best will of every member in this place. When we change the balance of power between those who owe money and those to whom money is owed, we are changing a commercial relationship and there will be consequences that we cannot predict today.

It's for this reason that we will be proposing some substantial amendments. They will do nothing to hinder the speed or the ability of the government to implement the changes which it judges to be necessary. Those measures will be legislated. They can go through the parliament this week, with the proviso that our amendments are accepted. Our amendments propose a review of the mechanism and a sunset of the mechanism once we have got beyond the crisis—not immediately. We'll be sensible about this. It's not immediately. This has got a long tail to go through. We know that. Businesses may need to have access to these emergency small-business insolvency provisions for some time. So we are not being reckless about this. We are being very mindful of the circumstances of those small businesses that may owe up to a million dollars and under the existing rules are unable to meet those debts, think they have a plan to trade out of it and want to put in place a new insolvency practitioner to help them to do that to deal honestly and credibly with their creditors and trade out of the business. Who could be against that? Of course we're for it. But we know that we are going through the biggest changes in insolvency provisions in over 30 years. We are moving very, very fast. The lives and livelihoods of thousands of Australians are dependent on us getting it right. A proper look back at how they're working is not only prudent but vital if these laws are to protect the very people that they seek to help: the small businesses of Australia.

It is important to note that this bill does not cover sole traders or partnerships. Some may observe that they're the majority of small businesses. It's not a criticism by the way; it's not a criticism of the bill, it's just observing a simple fact. There may be many of those amongst the pool of creditors. They certainly won't be the majority amongst those who owe money.

Let's have a think about who some of the owners of those small businesses are going to be, the people who are owed money. They will be subcontractors in the building trade. They might be a one-man or a one-woman courier and transport operator. They may be a small supplier to the retail or the restaurant trade. They may be a contractor in the tourism industry—not necessarily in the tourism industry themselves, but they supply goods and services to that industry. We can predict today that these are going to be some of the industries that are reasonably impacted by this.

Of course, it's in their interests that the bigger businesses with whom they trade are able to fight their way out and back to viability. But in the case where that's not going to be possible their interests also need to be considered. Maybe the $10,000 that they're owed by the insolvent business is the difference between whether they continue to trade or whether they go out the door themselves. So it's not as simple as saying: 'Let's just relax the insolvency laws. Let's just put these measures in place, because it's got the name "small business" in the title it is automatically going to be good for every small business in the country.' We're adjusting the relationship between one group of small businesses and another group of small businesses when we adjust these insolvency laws so we want to ensure we get it right.

A lot has been said about these bills somehow being an Aussie version of the chapter 11 insolvency rules. I'm pretty sure you know that that's not the case, Deputy Speaker Zimmerman. They fall somewhat short of that. Some may argue that's a good thing. In practice, what the bill does do is it establishes a new debt-restructuring process for eligible small businesses, which allows company directors a stronger role in the insolvency process—putting together a plan, trading themselves out of the problem. It puts in place a simplified liquidation process for voluntarily winding up an insolvent company. It puts in place an expanded set of situations where documents related to an administration can be provided and signed electronically. It makes sense. We've learnt to do a hell of a lot of things electronically that were thought to be a bridge too far before this crisis. It also establishes a new category of insolvency practitioner for small businesses with a small amount of debt recovery, and this has raised quite a degree of concern: It may work or there may be problems with it. There are a lot of regulations which support this bill—as with so much of the legislation that has come before this parliament during the crisis and before—a thin stream of legislation meandering its way through lush fields of delegated legislation! So it is with this bill, which is all the more reason why we need to have some reasonable caution and put in place some brakes, checks and balances about how this proceeds. A review and a sunset clause in these circumstances make absolute good sense.

We have not reached this position lightly, I have to say. Had we not had the opportunity to talk to small business associations, insolvency practitioners, representatives of unincorporated businesses and the like we might have said, 'This looks good on the face of it', but we have done those things. The bodies that I've just listed have expressed some concerns—some of the accountancy bodies have expressed the same sorts of concerns that we have—which include a lack of clarity in the powers, duties and obligations of different parties in the restructuring process. The concerns include inappropriate individuals potentially being able to be qualified as restructuring practitioners—that's the new qualification that I'm talking about. That's not a reason for us to say, 'Don't pass this bill,' but it is a reason for us to say, 'Let's have a little bit of legislative caution and put in place the checks and balances in the bill itself.' The third concern is the scale of business potentially captured by the eligibility criteria.

Many of these concerns, as I've said, have been raised by stakeholders across different sectors, including the Australian Restructuring Insolvency and Turnaround Association, major accountancy peak bodies, banks and the Australian Chamber of Commerce and Industry. We share their concerns. The consultation process for the bill has been extremely truncated, considering the scale of the changes proposed. One example: stakeholders had five days to make submissions on the exposure draft of the bill, and those submissions are yet to be published. Stakeholders, collective and individual, have raised concerns and they haven't had the ability to meet with a Labor representative. We don't know what their concerns are, because the government, not too keen on transparency in this or any other matter, has not published those submissions. That's just one example.

Much of the detail of the bill, as I've said, will be contained in those lush meadows of regulation that have not yet been finalised. As a result of all of this, it's unlikely that many of the technical issues identified by the stakeholders will have been addressed by the government by the time it passes through this place and the other place, assuming that it will. So, on the basis of that, I foreshadow now that, in the consideration in detail, I'll be moving two substantial amendments—the first being a statutory review and the second being a sunset clause on the provisions before the House. But now, in this second reading stage, I'll be moving an amendment to the question before the House, and I want to go to one particular provision within that second reading amendment. In that provision, you'll understand why we are insisting on a statutory review and you'll understand why we are insisting on a sunset provision. It says that the House:

(2) Calls on the Treasurer to abide by the requirements in Section 588HA of the Corporations Act 2001, which required the Minister to cause an independent review of the safe harbour insolvency provisions inserted into the Corporations Act 2001 by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 to be completed and tabled in parliament by September 2019.

I know you're familiar with that one, Deputy Speaker Zimmerman. Not only was it not tabled in parliament in September 2019; the review wasn't conducted. It goes to the heart of the matter that is before the parliament today. So why is Labor raising these concerns? Above and beyond all of the issues that I have already described, I say that this minister has form. Parliament directed the minister to conduct a review. He didn't. Parliament directed the minister to table that review. He couldn't, because he didn't. So if you want to know why Labor is insisting upon the amendments that I have foreshadowed, it's because this government and this minister have form. We will be insisting on a review. We will be insisting on a sunset clause.

Let me be clear: we support provisions to ensure that viable businesses are able to trade their way out of their difficulties and that viable businesses are able to deal honestly, cogently and credibly with their creditors. But we want to ensure that, in one year, two years or three years down the track, we don't look back and say, 'What the hell have we created here?', because it will be so difficult to unwind, and the government hasn't done what it undertook to do—once again, conduct a review and implement the recommendations of the review.

With those observations in mind, I formally move my second reading amendment and foreshadow that there'll be more to come:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House:

(1) notes that the Government has:

(a) failed to provide adequate support for ordinary Australian small businesses during the COVID-19 pandemic, leading to a potential wave of insolvencies over the next year; and

(b) rushed through this legislation with limited consultation, providing stakeholders only five days to consider the exposure draft of this legislation; and

(2) calls on the Treasurer to abide by the requirements in Section 588HA of the Corporations Act 2001, which required the Minister to cause an independent review of the safe harbour insolvency provisions inserted into the Corporations Act 2001 by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 to be completed and tabled in Parliament by September 2019".

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