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

I rise today to speak in favour of the second reading amendment to the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 and the proposed substantive amendments which the member for Whitlam referred to during his earlier contribution.

As the member for Whitlam and the member for Rankin both indicated, we support the key measures contained in this bill in principle. But for a number of reasons, including those referenced in speeches given by those opposite, including the member for Curtin and the member for Higgins, about the importance of these reforms we believe that it's appropriate that there be a statutory review included in the bill. We also believe that it's appropriate that there be a sunset clause.

Before commenting on the provisions in this bill and our approach to it, I just want to set out very briefly the fact that this bill has three main elements. Firstly, there is the new debt-restructuring process for eligible small companies which allows company directors a stronger role in the process. Secondly, there is a simplified liquidation process for voluntary winding up of insolvent companies and, thirdly, there is an expanded set of situations where documents related to administration can be provided and signed electronically.

As earlier speakers on this side of the House have indicated—and the member for Whitlam ran through a number of measures in some detail—over a number of years the ALP has supported improvements and strengthening of insolvency provisions, so we are very supportive of insolvency provisions that are suitable and which are as appropriate as possible, given the circumstances. In addition to that, in the current circumstances where, obviously, there has been a severe economic downturn in recent months as a result of COVID, we have supported a range of measures, including loan flexibility and of course, as a number of earlier speakers indicated, JobKeeper. We called for that for quite some time before the government finally embraced it as a measure. All of these different measures have interacted in ways that have made it more possible for companies to keep going as long as possible for the benefit of creditors, for the benefit of the owners of those companies and for the benefit of employees. So we have supported any number of measures over the years in relation to insolvency regulations specifically, but also a number measures over recent months to help companies, whether they be large or small, to get through this very difficult period.

I just want to make an observation—and, again, the member for Whitlam touched on this earlier—that insolvency is one of the more complex areas of financial regulation, involving, at its core, a set of balanced interests. On occasions, those interests can be conflicting. There are occasions where it's in the interest of a range of different stakeholders for a company to continue trading and to try to get through its situation, but there can be situations which one might describe as zero-sum. If one looks at all of the stakeholders in a situation where insolvency is imminent and where a company might be in serious trouble, one can quickly reel off a significant number of stakeholders. Obviously, there are the creditors; there are the owners of the company; the employees will have a significant stake, not just in the company and whether it survives or not but often in the way in which a company might fail and what impact that might have on their benefits; and then of course there's the broader public good. This is clearly an area where there are externalities and where the way in which companies trade and their prospects for survival during broader economic downturns have an impact on other companies.

Again, to make reference to a situation that other speakers on my side have already made reference to, if you have a regulatory system that tries to give more space to companies to trade out of situations in which they're facing difficulty then of course the other side of that ledger is that companies facing difficulty are going to accrue more debts. If it turns out that they can't pay those debts, the other side of that transaction is going to suffer some harm as a result. This is all a matter of balancing interests, of risk assessment and, ultimately, one would hope, setting up a regulatory arrangement that is for the greater good. But it is the inherent complexity of all of this, the inherent balancing of sometimes-competing interests, that should make us very cautious—doubly so, given that both speakers opposite, the member for Curtin and the member for Higgins, have given very persuasive indications that this is a major set of reforms. Indeed, both of them indicated that this is the most significant proposed set of reforms in relation to insolvency law for three decades. That should make us doubly cautious, given both the magnitude of the reforms and the fact that they relate to something so inherently complex and sensitive.

We can all reel off a number of regulatory principles that we believe should be applied, such as transparency and consistency—consistency on one hand yet, on the other, treating different entities differently where that makes sense—and flexibility, while at the same time providing protections. Again, we can imagine a whole range of different regulatory objectives that one might balance in different ways. I think the member for Curtin gave a very interesting example of that, where the laws were reformed some decades ago to give greater emphasis to allowing survivorship. But, again, any changes of that nature in the regulatory balances embedded in the system have to be undertaken in a very cautious way so as not to lead to unintended consequences.

What are some of the unintended consequences? Well, one that we think is material is that the risk of illegal phoenixing might be affected by poorly designed regulation. As other speakers have indicated already, a number of elements of this consultation process occurred over a handful of days. The fact that this is a significant risk is something that we believe should make parliament cautious. As all of us in this place know, illegal phoenixing has the potential to cause serious harm to vulnerable individuals. The cost to business is significant. Some have estimated that it is between $1.1 billion and $3.1 billion. The cost to employees through lost, unpaid entitlements is somewhere between $31 million and $298 million, and the cost to government from unpaid taxes is well over $1½ billion by some estimates. Of course, some of these estimates are difficult to pin down because of the very nature of the phenomenon that we're talking about.

That's one example. Another example of a regulatory risk is eligibility. It is true to say that all of us in this place want to give small companies more of a chance to survive where that makes sense; of course we want to see that. But when we draw eligibility lines, we necessarily put some companies on one side of that line and some companies on the other. We also need to understand that many Australian small businesses are sole traders and partnerships and won't benefit from changes to the Corporations Act to make restructuring their debts easier. Again, we need to be very conscious that, while eligibility lines must be drawn, where those lines are drawn is going to have serious implications, particularly, as I referred to earlier, in a world of zero-sum games, potentially. That's another dimension of this regulatory suite that we need to be very cautious about.

There are a whole range of stakeholders who understand the complexity of what we're talking about. There's the Australian Restructuring Insolvency and Turnaround Association as well as the major accountancy firms, the major accountancy peak bodies, the banks and the Australian Chamber of Commerce and Industry. Many of these bodies, these stakeholders, have expressed serious concerns about the process. That in and of itself should make us very cautious.

The sensible thing that we are proposing here is that, in light of these concerns, in light of the fact that there is a material risk of unintended consequences, a sunset clause and a statutory review are entirely appropriate. As the member for Whitlam indicated when making reference to his second reading amendment, a statutory review is essential given that in this area this government has shown a willingness to not undertake reviews when not compelled by statutory provisions. So we are, for that reason, going to insist on a statutory review in this case.

I will go to a couple of comments, and there are many, many comments I could go to. Ryan Lennon of Kott Gunning Lawyers said:

In perhaps the clearest display of the haste with which these reforms were prepared, and are being enacted, the period for submission from the "insolvency industry" was effectively two days …

A number of speakers have talked about different elements of this process being what one can only say was rushed. I go back to contributions made by the member for Curtin and the member for Higgins. Both of them said, 'This is the most significant reform in this area for 30 years.' Yes, of course, we want to see reforms go through this parliament which make it easier for businesses to survive where they can. We want to see reforms which promote jobs growth. But if those opposite, on one hand, are saying this is the biggest reform for three decades and we have serious stakeholders, on the other, saying, 'We were given a handful of days to days to respond,' at the very least that raises concerns about potential unintended consequences in a very complicated piece of legislation.

Some opposite made reference to the fact that this has parallels with chapter 11 provisions. The Australian Restructuring Insolvency and Turnaround Association said that any parallels drawn with chapter 11 provisions show that whoever made those parallels doesn't know what they are talking about. That's concerning, because I think the Treasurer has, on occasion, made that parallel. So, again, these are reasons we should perhaps be more cautious than the bill as currently formulated is.

It has been a rushed consultation process. Stakeholders had only five days to make submissions on the exposure draft of the bill. Five days for something this complex, this momentous, is not enough. As the member for Whitlam pointed out earlier, so much of the detail of what we're going to see is going to be in the regs. This is something we see as a somewhat concerning trend in a number of areas of regulation. Given the complexity of this reform and how serious it is, if there is a lot of detail in the regs it only reinforces the appropriateness of a statutory review and a sunset clause. The fact that so much of the detail is not going to be seen by this parliament when we vote on this bill reinforces the need for this parliament to insist upon additional protection.

We support in principle what this bill is trying to achieve, but we need to acknowledge that insolvency is an area of regulation that is inherently complex. It inherently involves trading off different interests. Of course, while all of us in this place can say that we want more jobs and we can all say that we want firms that have a good prospect of surviving to have an opportunity to survive, we also need to acknowledge that when you tweak insolvency laws it has impacts on other stakeholders. It doesn't just impact on the entity you're trying to help. For that reason, we need to be cautious. We need to be more cautious than how this bill is currently formulated. This government needs to be sensible. We have indicated we're supportive in principle of what it's trying to do here, but this government needs to be sensible and accept a couple of very modest and appropriate amendments and to basically provide this parliament with a guarantee that there will be a review and an appropriate sunset clause.

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