David Gillespie (Lyne, National Party) Share this | Hansard source

The Corporations Amendment (Corporate Insolvency Reforms) Bill is a phenomenon that has come out of the COVID-19 crisis. COVID-19 has changed everything in Australia, in a way, but nothing has been as dramatic as the rapid rise in unemployment and, I'm pleased to say, the rapid return of employment as the COVID restrictions are lifted. When the crisis first hit, a lot of things were done which, in the history of the nation, will go down as quite amazing. Not only was JobKeeper, which everyone is familiar with, introduced but the initiative to improve cash flow by rebating PAYE taxes kept a lot of companies functioning by basically giving them tax relief. These were two great reforms.

This insolvency reform, which has borrowed things from the US chapter 11 bankruptcy measures, has also been born out of the COVID-19 crisis. We were potentially faced with many more businesses falling over and being liquidated, and it was quite an appropriate response. The change in this is that the debtor, rather than the creditors, is in possession of the business. For those of you that haven't been through or seen someone go through an insolvency or a liquidation, that is quite a major change. But there are certain caveats to it, and I will go through some of those later.

Having been around a regional town that's been through boom and bust and having known many tradesmen and businesspeople, I know it's sometimes a bit of a bloodbath. When a business is failing, there are people called unsecured creditors—often tradesmen who may be sole traders or in a partnership—and they get left behind in the wake. Many businesses that are on the road to collapse get put into forced administration or into a liquidation process, and the liquidation process and the fire sales that happen mean that, rather than coming out with something, they exit with nothing. They're in negative territory, and there's a knock-on down the chain to all the subcontractors and other people, who also go under as a result. I was really pleased to see that the directors of businesses won't be able to take up these provisions if phoenixing of their business is involved, or if they've done that before, or if the companies are currently undergoing restructuring or have been through restructuring once in the last seven years.

The process up to now has been directors have been given relief by section 588G(2) of the Corporations Act so they can't be charged with trading whilst insolvent. This legislation is to try and formalise it going forward from January next year. It's really important to note that a lot of wise heads have looked at this and put some common-sense things in. Other speakers have mentioned the need to have skilled and appropriately qualified small-business-restructuring practitioners. I know some accountants and financial advisers have moved into those roles, but you actually have to have been registered as a liquidator to be able to do it. I know there are many people who have made a profession out of restructuring and saving businesses, and there are some, unfortunately, for whom the liquidation process has been like vultures cleaning out and taking the last meat off the bones of a failed company. It is distressing when that happens.

Hopefully, if the company are allowed to declare, 'We're drowning; we 've got problems; we might go under,' they can get a sort of time-out, call in a qualified restructuring practitioner, notify their creditors and then go through a 20-working-day process of deciding how they're going to get out of the situation and take steps so that they don't submerge, they get their sales up and they trade out of it—particularly as the trigger for a lot of this was COVID-19, which isn't a normal business phenomenon. Something like this happens every hundred years, and a lot of good businesses wouldn't have even been contemplating this if COVID hadn't come along. That's why I said these changes are born out of the phenomenon that we have in front of us. After this 20-working-day restructuring plan has been worked through, there's another 15 days of analysis by creditors. The creditors still get a say in it, obviously. Secured creditors haven't lost their security, by the way. Unsecured creditors, the fine details of that, would be worked out with the small business restructuring practitioner and the applicable laws.

Overall, I think this is a good initiative, because we will save a lot of inherently good businesses that have had a short-term interruption to normal business, not normal flow of credit. A lot of people think that businesses, particularly in the construction game, do it because they've got a whole bundle of money piled up, just sitting there, waiting to be spent on building X, Y or Z. But, like lots of construction projects, it relies on credit and it relies on drawing down progress payments from your creditors and, at the same time, making future sales and getting the building done on time and having the people who have signed up to purchase or to lease, then, giving you cash flow. If that's interrupted—say, a government body is holding back taxes or has put a claim on you, for any reason—that can bring mighty empires down.

I've seen it in my area and I've seen it in the big smoke. One of the biggest construction companies in the country that's been around forever has had problems. Reading the financial pages, it appears that they had a problem getting some money that they deemed was owed to them by another level of government. So people have to realise that credit and money running through a business is like blood running through us. If the circulation fails, all things can come unstuck. We had the big daddy of them all. We had COVID-19. So these chapter 11 concepts that we have married with our pretty sound and solid insolvency rules, I think will be a good thing.

I support the bill. I think it will be good. We will keep a watching brief on it. I suspect most of the people in the House have the same opinion as me: we don't want to throw the baby out with the bathwater but we want to give these businesses a chance to trade their way out of COVID-19 and go on to flourish and keep all those people employed. Most of the businesses are small businesses that will be eligible for this. If they've got liabilities greater than a million dollars, no can do; it's back to regular rules. A lot of these small businesses know their business better than any liquidator and most administrators, and, giving a pause in proceedings, I think, will let many of them—not all of them—get through to the other side and go on to flourish. I commend the bill to the House.

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