Daniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

by leave—I also thank the other committee members who were involved in the production of this report and all of the witnesses who gave their time to give evidence. It's a very significant contribution to the development of policy in this important area. When some people think of insolvency, they think of it as a very technical area not necessarily relevant to people's day-to-day lives. But I would argue that insolvency law is in fact one of the key underpinnings of the economic dynamism of our economy.

In 1911, Nicholas Murray Butler, who was a philosopher and, at the time, president of Colombia University, said, with respect to limited liability:

… I say that in my judgment the limited liability corporation is the greatest single discovery of modern times, whether you judge it by its social, by its ethical, by its industrial or, in the long run,—-after we understand it and know how to use it,—by its political, effects. Even steam and electricity are far less important than the limited liability corporation, and they would be reduced to comparative impotence without it.

The Limited Liability Corporation is in one sense a bureaucratic and an administrative creation, but it does have a huge effect on our economy. If you read the paragraphs around this quote, you see that the impact of the limited liability scheme that was created in advanced economies was partly the ability for people to come together in their investments and create organisations of scale. But I would argue that the limited liability is also very important because it is a very effective risk allocation mechanism, and it is risk allocation which is so critical in the modern economy. Investors, of course, are protected from losing more than the capital that they put in, in general terms. The reason I raise this is that insolvency law is also partly about defining risk and allocating risk within our economy in a way that promotes economic dynamism. I believe it's deceptively impactful, in much the same way that I think the creation of the Limited Liability Corporation is deceptively impactful.

In its 1999 document titled Orderly and Effective Insolvency Procedures, the IMF stated that it's possible in broad terms to state there are two objectives of most insolvency systems. The first overall objective is the allocation of risk among participants in a market economy that is 'predictable, equitable and transparent'. The achievement of this objective plays a critical role in providing confidence in the credit system and fostering economic growth for all participants. The second objective of an insolvency law that it defined was to protect and maximise value for the benefit of all interested parties and the economy in general. Clearly, risk management is at the heart of it; value maximisation is at the heart of it.

A recent OECD paper framed the importance of insolvency law when it said:

Policies affecting the way failing firms can exit markets or be restructured can shape aggregate productivity through a variety of channels … These include the strength of market selection—which increases in the economy's ability to dispose of non-viable firms and facilitate the restructuring of viable firms—and the scope and speed at which scarce resources consumed by failing firms can be reallocated to more productive uses.

Insolvency law is absolutely critical to the efficient allocation of capital, to risk taking and to efficient risk allocation. That is why I believe getting insolvency law right is so important.

The report that was completed recently by our committee made a number of observations about Australia's corporate insolvency system, as the previous speaker indicated. It is that it is overly complex, difficult to access and creates unnecessary costs and confusion for both debtors and creditors and that much reform of insolvency law in recent years has been piecemeal. The report contains a number of recommendations in relation to how we consider strengthening insolvency law and 28 recommendations that aim to either address shortcomings or improve outcomes in our corporate insolvency system. It also contains a number of recommendations in relation to near-term reform or actions that should be progressed independent of any future comprehensive review, for example, steps to improve data access, particularly longitudinal time series data of key aspects of our system, and reforms to the small business restructuring pathway and changes to eligibility requirements for registered liquidators to address the gender imbalance in the profession. This is an incredibly important aspect of our law. It is one that has a profound impact on our overarching economic dynamism and productivity.

I recommend this report to the House.

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