Jane Prentice (Ryan, Liberal Party) Share this | Hansard source

The government is acting to restore confidence in the insolvency profession, which remains low following an adverse 2010 Senate Economics References Committee report into corporate insolvency. There have been numerous inquiries in which weaknesses in the existing laws and practices surrounding insolvency were comprehensively discussed. Members would also be aware that the coalition commissioned the Productivity Commission to examine the impact of the personal and corporate insolvency regimes on business exits. While we will not put the cart before the horse, the Insolvency Law Reform Bill 2015 certainly moves the cart back to the horse. It is the first real move in the right direction since 2007.

As a responsible government we will carefully consider the Productivity Commission inquiry and recommendations before deciding on the most appropriate balance of further action. I congratulate the minister for progressing this bill today because it will assist in building confidence in the insolvency sector. The level of confidence in the insolvency industry needs to be improved, despite increased activity by the Australian Securities and Investments Commission in relation to oversight for the corporate insolvency industry. Insolvency practitioners received the lowest rating for perceived integrity in the last survey of ASIC stakeholders.

While the government is considering the Productivity Commission's report and recommendations to ensure that financially distressed businesses are given the best opportunity to restructure—or be wound up efficiently where the business cannot be saved—there are things we can do now. This bill implements the first phase of the coalition's reforms aimed at strengthening and streamlining Australia's bankruptcy and corporate insolvency regimes. A key purpose of this bill is to restore confidence in the insolvency profession by raising the standards of professionalism and competence of practitioners while also identifying and then quickly removing the bad apples. This is done by aligning and strengthening the registration, disciplining and having regulator oversight of corporate insolvency practitioners.

It is worth noting that this bill is the first tranche of reforms to modernise Australia's insolvency framework in a very long time. The bill expands on efforts in the Howard government's Corporations Amendment (Insolvency) Act 2007 to streamline external administrations while better informing creditor decisions. Unlike Labor, the coalition recognises that government needs to do more than simply talk about problems as they grow into bigger, more complex and more expensive problems. We recognise there is a need to constantly review the status quo and take action to reduce risk and loss wherever possible while increasing productivity, efficiency and opportunity. We understand businesses and the problems they sometimes face because most of us know and understand the challenges and rewards in creating and managing a business. Indeed, there are still issues that need to be addressed.

As part of our regular and ongoing discussions with small business owners, Senator John Williams and I met with the owner of a machinery equipment hire company who was worried about how insolvency laws and practices intersect with the Personal Property Securities Act 2009 to unfairly load financial risk, by default, onto an otherwise unsuspecting business operator. One of the perverse outcomes associated with the PPSA is that a receiver can take possession and sell property on a site or business that is in receivership regardless of whether it is owned by another business or individual. That is right; someone else can have the title deed and the receipt for that piece of equipment—they own it under every other aspect of the law—but the receiver can move in and sell it as part of that arrangement.

In Maiden Civil v Queensland Excavation Services, for example, the New South Wales Supreme Court found a receiver's perfected security interest took priority over the unperfected security interest of another small business. In effect, if you own a business and lease two trucks valued at, say, $100,000 and the lessor goes broke and the receivers are then called onsite, ownership of those trucks and other property transfers to the receiver, so the person who actually owns those trucks and leases them loses them and the money he invested in them. Assuming you were the owner of the small business who leases these trucks to another business that fails and is in receivership, you are already out of pocket—usually you have mortgaged something or are paying leases off the equipment you have leased out—before you then lose income-generating assets. If the assets are carrying debt, you lose that asset and you lose the income but you still keep the debt. If it was a struggling business in a competitive market, it would sink and, indeed, many have. Many are small businesses started by mums and dads trying to save and investing their hard-earned savings to improve their lives and set their children up for a better future. This is neither fair nor reasonable for small businesses whose commercial operations include leasing property and equipment.

I trust that as part of the preparation for further reforms the minister will look into these issues and concerns raised by a small business operator who leases machinery and equipment. While the government will continue to consult with the community on further possible amendments to the external administration regime to provide additional flexibility for businesses in financial difficulty, any future reforms will require an insolvency profession in which stakeholders can have confidence. The government believes progressing this package of reforms will provide benefits to creditors, businesses and insolvency practitioners because it will increase the efficiency of the insolvency administrations and cut unnecessary costs and red tape. This bill will remove unnecessary regulatory burdens while improving creditors' ability to get the information they really need when they need it. Over the first four years, these reforms are estimated to reduce compliance costs by about $50 million a year, with those savings flowing through to creditors as better returns.

Because ASIC and the Australian Financial Security Authority play an important role in promoting an efficient and equitable market for insolvency services, this bill strengthens the powers of the regulators to monitor insolvency practitioners, provide information to stakeholders and intervene in individual corporate and personal insolvencies where appropriate. ASIC will be given further powers to seek information or records from corporate insolvency practitioners—similar to the existing powers in relation to auditors. These new powers will help ASIC in its efforts to undertake proactive surveillance of corporate insolvency practitioners.

The government recognises that confidence in how practitioners handle the funds of external administrations—as well as the protection from potentially negligent behaviour—is crucial to the overall confidence in Australia's insolvency laws. Reforms to the registration framework for practitioners will improve the balance between the need to protect consumers of insolvency services and the need for a competitive market that provides the best opportunity for maximising returns to creditors.

In line with the current arrangements for personal insolvency practitioners, a practitioner will need to renew their registration every three years and, at that time, they must show evidence of compliance with any new requirements for continuing professional education set by the regulator as well as demonstrate that they have maintained their insurance coverage. Any rules made, following the passage of this bill, will require new entrants to have completed formal insolvency-specific tertiary studies as well as accounting and legal studies. Importantly, corporate insolvency practitioner registration will no longer be indefinite.

Responses from insolvency and legal firms, and representative bodies, indicate there is a broad acceptance of the policies underpinning this bill. Minor and technical amendments were made in response to some concerns that the bill may have an unintended consequence for the efficient management of insolvencies. This bill is another very good example of how the coalition is using consumer and industry experience, committee research, academic studies and economic modelling to inform the legislative approach and administrative action we are now taking.

While I recognise there is more detailed reform to come, following detailed consideration of the Productivity Commission report and recommendations, I am pleased we are now taking the first big step in the right direction since the Howard government. Shame on those opposite for doing nothing for so long. I commend this bill to the House.

See this speech in context