Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

I present the explanatory memorandum to the bill and move:

That this bill be now read a second time.

This bill adopts the model law on cross-border insolvency developed by the United Nations Commission on International Trade Law. Australia had a significant involvement in the development of model law, with work commencing in the early 1990s under the then Attorney-General, Michael Lavarch, who, Mr Deputy Speaker Thomson, we both know very well. The United Nations commission finalised its work on the model law back in 1997, and I am pleased to note that Australia took a leading role in the project.

The previous government published a proposals paper dealing with adoption of the model law in 2002, and it introduced this same bill just prior to the 2007 election being called. It is now time to complete the work that Labor started.

Enactment of this bill will reduce complexity, risk and cost to business. Given Australia’s place in the world economy, it is particularly important for us to implement measures that promote international trading efficiency. The adoption of the model law represents a departure from the territorial approach to cross-border insolvency where each country assumes that it has exclusive jurisdiction over a debtor and that separate proceedings will be undertaken in each country. Obviously, this territorial approach results in a significant duplication of costs, which ultimately are borne by the creditors. But an even greater concern is that this approach creates opportunities for debtors and creditors to take advantage of time delays and differences in laws to minimise their own losses. Also, there is little scope for coordinating the rescue of viable business operations if the business assets are split across several different proceedings. The adoption of the model law will move us closer to the universal approach to cross-border insolvency, which assumes that one coordinated proceeding will be recognised by all jurisdictions in which the debtor has assets.

The relevant provisions are found in chapters II, III, IV and V of the model law. The provisions in chapter II of the model law will allow foreign representatives direct access to Australian courts. Foreign representatives will be able to commence proceedings under our insolvency and bankruptcy laws and make submissions directly to the court when a proceeding concerning a debtor has taken place in Australia. The model law clearly articulates the principle that foreign creditors, when they apply to commence or file claims in an insolvency proceeding in Australia, will not be treated worse than local creditors.

Chapter III of the model law introduces a regime for Australian courts to recognise a foreign proceeding and make orders consistent with the universal approach. It introduces a quick and simple process for recognition and provides the court with a discretionary power to grant any urgent relief that is required to preserve the assets of the debtor. The court will then make a determination of whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding. This question is determined by reference to the location of the debtor’s centre of main interest. In the absence of evidence to the contrary, this will be taken to be the jurisdiction in which the debtor has its registered office or habitual residence. If the foreign proceeding is recognised as the main proceeding, the court will automatically grant a stay on actions against the debtor and suspend any rights to transfer assets of the debtor. The scope of the stay and suspension is subject to Australian insolvency and bankruptcy law.

It is important to note here that the model law does not introduce foreign laws into Australia. If the foreign proceeding is recognised as a non-main proceeding, the court will have a discretion to grant relief if it considers that is appropriate. In exercising its discretion to grant relief, the court must be satisfied that the interests of creditors and other interested persons are adequately protected.

Chapter IV provides that Australian courts will cooperate with foreign courts and foreign representatives to the maximum extent possible when dealing with cross-border insolvency matters.

Finally, chapter V of the model law sets out procedures to be followed where there are concurrent proceedings under the laws of different countries. These provisions allow for an Australian insolvency or bankruptcy proceeding to be commenced in relation to the assets held by a debtor in Australia, even where a foreign main proceeding has been recognised.

In conclusion, the bill will improve certainty for businesses engaged in international trade. It will bring our laws into line with those of key trading partners such as the United States, the United Kingdom and Japan, and it will provide a platform for future work in improving insolvency laws. I commend the bill to the House.

Michael Keenan (Stirling, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

The Cross-Border Insolvency Bill 2008 has the full support of the opposition, and it has the full support of the opposition because it is exactly the same as the Cross-Border Insolvency Bill 2007—with the exception of the change of the date—which was introduced by the previous government last year. Sadly, this piece of legislation did not get an opportunity to be passed by the parliament, but I note that the government introducing this bill today finishes the good work that was done by the Howard government in this area.

In modern economic life we live in an increasingly globalised world and we have constant electronic communication and asset transfers. There was a time in the past when cross-border complexities would have been restricted to the largest companies in the world, but of course in the world we live in now we have an increasingly changing international environment. Therefore this bill is very timely.

However, when it comes to security and certainty in terms of cross-border insolvency, which is something that is integral to economic confidence for individuals and companies, we have seen that the law has not kept pace with the changes within the international system. In response to that, in 2007, the then Parliamentary Secretary to the Treasurer, Chris Pearce, introduced a draft Corporations Amendment (Insolvency) Bill 2007 that contained an integrated package of reforms to improve the operation of Australia’s laws. It was the first comprehensive package of insolvency law formed since the Harmer review of 1998. The then parliamentary secretary, the member for Aston, well understood that insolvency law is at the very heart of financial and contractual relationships which enable trade and commerce to take place. The development of the draft bill was also greatly assisted by the efforts of the Insolvency Law Advisory Group, a group put together under the former coalition government.

The bill before us will help strengthen Australia’s leadership role in this area, thanks to the hard work and foresight of the previous government. Australia needs a secure and transparent system of enforcing unsecured and secured credit claims. This bill creates certainty that will help business secure loan capital and at a lower cost, which in turn will deliver important economic benefits for Australian business and for Australia.

The bill will take a systematic approach to improving outcomes for creditors and deter misconduct. The bill will give greater weight to measures that are already in place and, in terms of the globalisation of people and of companies, it will provide greater certainty. When an insolvent debtor has assets and/or creditors in more than one country, this bill is vital in terms of security for trade and investment. It will lead to cooperation between foreign and local courts and local foreign insolvency professionals who are involved in cross-border insolvency cases. It will lead to greater legal certainty for trade and investment. It will lead to fair and efficient administration of cross-border insolvencies. It protects the interests of all creditors and other interested persons, including the debtor. This bill will lead to protection and maximisation to the value of the debtor’s assets and facilitate the rescue of financial businesses, protecting investment in employment.

There is no financial cost for these important measures. There already exists a level of cooperation and coordination with other nations in cases of cross-border insolvency. This bill just builds on those existing measures. However, that said, the bill certainly does deliver increased certainty and continues Australia’s leading stance and development in this area. This is extraordinarily important. Given the number of cross-border insolvency cases, it will no doubt increase certainty for individuals and corporations in Australia who are involved in any cross-border insolvencies. I therefore recommend that the House support the bill and it has the full support of the opposition.

Mark Dreyfus (Isaacs, Australian Labor Party) Share this | Link to this | Hansard source

I am pleased to speak in support of the Cross-Border Insolvency Bill 2008. The purpose of this bill is to give effect to the model law of the United Nations Commission on International Trade Law, UNCITRAL. The enactment of the model law in Australia should encourage other nations, particularly our neighbours and trading partners, to adopt this reform. Enactment of the model law in other countries will enable Australian creditors to pursue more easily corporate miscreants such as the infamous Christopher Skase.

To give some context of this legislation, it is worth recalling the 2004 Joint Parliamentary Committee on Corporations and Financial Services report, in particular chapter 13 of that report, which is a chapter headed ‘Cross-Border Insolvency’, and it has a subsection entitled ‘Cross-border insolvency and corporate scoundrels’. It is worth reading a couple of the paragraphs from that report, because it puts it in a colourful way but, regrettably, a very accurate way. It says:

13.14 Over recent decades, there have been reported cases of hundreds of millions of dollars being lost to creditors in Australia through the sustained and systematic misappropriation of company funds involving complex financial dealings often with the collusion of lawyers, accountants and other professional people. Such schemes frequently involve overseas transactions intended to place the recovery of debts beyond the reach of creditors. Attempting to recover assets from such companies or directors once the company has failed is costly, time consuming and often unproductive.

13.15 The financial scandals involving well known entrepreneurs such as Alan Bond and Christopher Skase highlight the difficulty and expense involved in chasing the money trail to locate assets that have been spirited away. This trail leads investigators through a maze of complicated business arrangements more often than not involving a network of corporate structures in different parts of the world that may act as agents and repositories of assets.

13.16 Mr Max Donnelly et al noted that Mr Robert Trimbole was one of the first of the high profile bankrupts and the first to realise Spain was a bankruptcy haven. While Trimbole’s assets in Australia were realised for the benefit of creditors, including a suburban residence which was the subject of competing claims and a rice farm located at Griffith, those held overseas proved out of reach.

13.17 Mr Christopher Skase provides one of the best known examples in Australia of corporate skulduggery where complicated overseas financial transactions involving family and the clever structuring of companies were used to prevent recovery procedures. He faced numerous charges in Australia including ‘a set of thirty charges of dishonest conduct, through the provision of false information to independent directors, breach of fiduciary duties—

and improper use of various information. The report goes on to give other examples.

One thing Australians cannot stand, and I think this was shown by the reaction to Christopher Skase, is the idea that those who do not pay their debts, rip off their business partners, rip off suppliers, defraud creditors could escape their obligations by skipping overseas. Just as it is important for other countries to be able to pursue insolvents in Australia, it is important for Australia to be able to pursue those who seek to escape their obligations in this country.

It is worth noting the key features of this bill. One could start by saying that cross-border insolvency arises when an insolvent debtor has assets or debts in more than one country. It is also a term that is used to refer to a range of other situations covering recovery of foreign debts, examination of foreign residence and claims against local assets by a foreign insolvency administrator. This bill introduces a regime which will facilitate procedures in insolvency administration involving more than one jurisdiction. The bill will also provide access to Australian courts for a foreign representative—someone administering a foreign insolvency proceeding—to seek a temporary stay of proceedings against the assets of an insolvent debtor. The proposed regime seeks to ensure that creditors receive equal treatment, regardless of their country of origin; foreign creditors have the same rights as Australian creditors. The regime also does not change the ranking of an unsecured creditor; foreign employees of a company will rank equally with Australian employees. The bill also applies the model law to personal bankruptcy, and it is worth noting that the main Australian laws affected are the Corporations Act and the Bankruptcy Act.

This legislation is long overdue. More than 10 years have passed since the adoption of the model law by UNCITRAL. The model law has been adopted by numerous countries already, including the United Kingdom, New Zealand, the United States, Colombia, South Africa, Japan, Poland and others. We are entering a period of uncertainty in international financial markets as well as an apparent downturn in the United States. The time to prepare for economic uncertainty, to secure future prosperity, is during the good times, a fact that apparently escaped the former government.

In Australia, the enactment of the model law was first proposed in 2002 in the Corporate Law Economic Reform Program paper No. 8 entitled ‘Cross-border insolvency’. The former Parliamentary Secretary to the Treasurer announced plans to adopt the model law on 17 October 2002, which is over five years ago, and it is regrettable that the former government took so long to get around to introducing the legislation in 2007. In 2004 the Parliamentary Joint Committee on Corporations and Financial Services conducted an inquiry into this matter that recommended the adoption of the model law. It is worth noting that it is now some 11 years since the model law was adopted by an UNCITRAL, 5½ years since it was proposed by the Howard government and four years since it was recommended by a parliamentary committee. Now it is being passed under a Labor government. As it was put rather politely in the 2002 CLERP 8 paper, the movement towards enactment was ‘not at the pace that might have been expected’. It was pointed out in the CLERP 8 report that this change provides immediate short-term benefit for foreign representatives rather than for domestic benefit, but to leave the analysis there would be to miss the broader point.

The bill is significant not only for its practical implications, important though they are, but also for what the bill represents in terms of Australia’s engagement with the globalised economy. In an era of rapid globalisation, barriers—to trade in goods and services, to asset transfers, to other international financial transactions between nations—continue to fall. Equally, barriers both physical and administrative that prevent the movement of people are also being reduced by more rapid transportation. While these developments provide increased opportunities for governments, corporations and consumers, they also result in challenges for legal systems that continue to be separated by political borders. In such an environment, it is vital to develop common frameworks to provide certainty and consistency in the marketplace. Reforms such as the model law will serve to increase trade and investment by providing greater certainty. Consistent international rules governing the behaviour of market participants help to reduce the risk faced when operating in foreign jurisdictions as many firms, both large and small, now do. Clear and consistent rules about the operation of insolvency laws are particularly important for reducing the risk for creditors in international markets and for promoting increased trade and investment.

Harmonisation of market rules also reduces transactions costs for entities carrying on business across borders. Given the rapid advances in technology that are simplifying international business, this will affect an increasing number of firms and consumers. The bill is wholly consistent with Labor’s longstanding commitment to multilateralism. The Labor Party has always believed, as our national platform makes plain:

Global economic and social development, human rights, environmental protection and international security can best be achieved through multilateral diplomacy.

The negotiation of this model law is an example of multilateralism at work. It was a Labor government that was instrumental in furthering the development of model law under the then Attorney-General, Michael Lavarch. Across a range of foreign policy engagements, Labor has been committed to multilateralism in representing Australia’s interests in economic, social and environmental areas for very many years. Examples of this that I could quickly give include the leadership of Herbert Vere Evatt as President of the United Nations General Assembly and in drafting the UN Universal Declaration of Human Rights, the setting up of the Cairns group in 1986 to advocate the reduction of barriers in agricultural markets and its success during the Uruguay Round of trade negotiations, our promotion of Asia Pacific economic cooperation, the Canberra Commission on the Elimination Of Nuclear Weapons, and most recently Labor’s support for the Kyoto protocol.

The 2002 CLERP 8 paper also highlighted the potential for Australia to take a leadership role in enacting the model law. At that stage only a handful of nations had taken this action—that was in 2002—and it would have provided an opportunity for Australia to have acted as a leader if the former government had acted in a timely fashion. I fully support the Minister for Superannuation and Corporate Law in his statement in the other place that ‘we will continue our work of cross-border insolvency through bodies such as UNCITRAL’ as we continue the inexorable move towards globalised markets. It will be vital for Australia to engage in international economic forums and with our trading partners on a multilateral basis. As the enactment of the model law shows, we can, through cooperation, continue to simplify trade and investment rules for Australian firms.

Richard Marles (Corio, Australian Labor Party) Share this | Link to this | Hansard source

The Cross-Border Insolvency Bill 2008 connects this country to a global insolvency scheme. Laws governing insolvency are utterly fundamental to the economy. They provide for the timely notification of corporations which are going into a stage of financial ill-health. They provide for careful dealing with sick companies, if you like, by company doctors through careful notification of those procedures. And when a company gets into a position where it does, in effect, die and its assets need to be divided up, insolvency laws provide for measured and fair means by which those assets are divided between the various creditors of the company.

In 2008 both companies and individuals are increasingly becoming debtors and creditors across international borders; increasingly, contracts are being made across varying jurisdictions. In May 1997 the United Nations Commission on International Trade Law adopted the model law on cross-border insolvency, which was an attempt to put in place a global scheme covering insolvency laws. Indeed, the Australian government had been a key player in the early 1990s in the development of the model law. This bill we are discussing today gives application to the model law in the Australian jurisdiction. The Corporations Law Economic Reform Program discussed the application of the model law to Australia on a number of occasions, and it was first raised and a number of recommendations were put forward in the CLERP 8 paper in December 2002 entitled ‘Cross-border insolvency’. This bill closely follows the recommendations in that paper. As the previous speaker mentioned, it is a pity that it has taken 11 years from the original model law being adopted by the UN Commission on International Trade Law and more than five years since the CLERP paper was published—a significant amount of time since both those actions—for it to become law in this country. It is a credit to the Rudd Labor government that this will become law within a few months of its election. This bill is also the result of significant consultation with a range of practitioners, lawyers and academics in the field.

The model law connects to the Australian jurisdiction by referencing a number of laws which exist within our own jurisdiction. Clause 8 of part 2 of the bill cites the Bankruptcy Act in relation to individuals and chapter 5 of the Corporations Act 2001, excluding parts 5.2 and 5.4A, as being the relevant provisions of the Australian law to which the model law is referenced. In addition to that there is also section 601CL of the Corporations Act which applies to companies. Clause 10 of part 2 of the bill refers to the relevant courts in Australia as being the Federal Court of Australia when we are talking about individual bankruptcy and the Federal Court of Australia and the various supreme courts of the states and territories where we are talking about insolvency of corporations.

Subclause 12(1) of part 2 of the bill provides that foreign creditors are given the same rights as Australian creditors in relation to an Australian debtor when we are talking about an insolvency. So foreign creditors will have exactly the same rights as Australian creditors in terms of commencing proceedings or participating in proceedings which have already been commenced as if they were Australian creditors. This bill does not seek to disturb the rankings or the preferences which exist within our current insolvency laws, so foreign creditors will not be ranked any differently in terms of their access to the assets of an insolvent company by virtue of being foreign creditors.

Clause 13 of part 2 of the bill provides for the recognition in Australian courts of a foreign proceeding in relation to a liquidation or an insolvency proceeding, because often, when a company is becoming insolvent, you will see proceedings in a number of jurisdictions. This then embodies one of the really important principles of this bill, which is to basically facilitate the cooperation of various proceedings across jurisdictions and to facilitate the cooperation involved in that. So any application to provide for the recognition in the Australian court system of a foreign proceeding must contain within it information about any other foreign proceedings which are occurring and, indeed, any other Australian proceedings which are known to the foreign representative.

Clause 16 of part 2 of the bill importantly enacts Article 20 of the model law in the Australian system. What this provides is that, when recognition of a foreign proceeding is granted in the Australian system, a stay of all actions and proceedings against an Australian debtor is automatically granted in precisely the same way as would occur if a proceeding were initiated under either the Bankruptcy Act or the relevant parts of chapter 5 of the Corporations Act.

Clause 17 of part 2 of the bill provides for foreign representatives of foreign proceedings being recognised in the Australian context. So, in referring to a foreign representative, we are really talking about the equivalent of a liquidator or a trustee in bankruptcy operating in another country. And those foreign representatives, under this particular clause, are able to make applications in relation to voidable transactions in the Australian system in the same way that those rights exist for liquidators in the context of division 2 of part 5.7B of the Corporations Act or a trustee in bankruptcy under the relevant provisions of the Bankruptcy Act.

I mentioned earlier that an important principle of this bill is to facilitate and encourage the cooperation between the courts and the various representatives of differing jurisdictions and, in clause 18 of part 2 of the bill, there is a non-exhaustive list of the kinds of cooperation that can occur directly between a court in Australia and a court in a foreign jurisdiction—or, indeed, between a liquidator or a trustee in bankruptcy in Australia and a foreign representative.

There is one further general point in relation to the model law which I am keen to describe. This bill adopts the model law with as little modification as possible. It is an adoption of the model law in a sense to the fullest extent that can be done in the Australian context. This is important for a number of reasons. Firstly, as a middle power, it is in Australia’s interests to have one set of consistent global laws relating to insolvency which we can be a part of and comply with. So to that end, it is consistent and in the national interest for us to be adopting this consistent set of global laws in our country to the fullest extent possible. Again, as the previous speaker mentioned, this is very consistent with Labor’s ongoing commitment, in terms of international diplomacy, to multilateralism. There is also another advantage in giving as complete as possible an application of the model law to the Australia context. It allows this country to rely on the significant body of international precedent law, which is now arising as a result of the model law applying in other countries, so that Australian jurisprudence can take advantage of the jurisprudence which is already growing up around the model law in other countries.

Australia is increasingly becoming connected to the global economy—indeed, the economy in which we all live is increasingly characterised by the global economy. There is no greater symbol of this, in my view, than my own electorate of Geelong, where the three iconic employers are Ford, Alcoa and Shell. Each is an Australian company but each is part of a global corporation with parent companies in other parts of the world. The other symbol of the global economy in my electorate is the vibrant port of Geelong, which is an international port that sees goods entering and leaving our country every day. In all of that you have a representation of contracts and financial transactions being engaged in across borders every single day.

In 2006-07 total trade in Australia amounted to $444 billion, or 42 per cent of GDP. In the same year, Australians invested $921 billion abroad, or the equivalent of 88 per cent of GDP; of that, $532 billion was in the form of equity, which in turn equated to 51 per cent of GDP. In the same year, foreigners invested $1,567 billion into Australia, or 150 per cent of GDP; of that, $634 billion was in the form of equity, or 61 per cent of GDP. In the June quarter of last year Australian equity on issue equated to $2,195 billion; of that, $634 billion was held by foreigners, which meant that 29 per cent of Australian equity was held in foreign hands. Those statistics give a compelling picture of the extent to which Australia is utterly connected to the global economy and, more importantly, how significant it is for Australia’s ongoing economic prosperity that we see ourselves as a trading nation that is very much connected to the global economy. The Cross-Border Insolvency Bill 2008 is an important measure to put in place an international global insolvency scheme, which is an important building block in the global economy. This bill is an important plank in ensuring certainty and security in international financial transactions. Most importantly, it provides security for those people who are investing their money into this country.

Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

in reply—I would like to thank those members who took part in the debate on the Cross-Border Insolvency Bill 2008. Insolvency law is one of the most important parts of our regulatory framework. Well-designed insolvency laws will promote entrepreneurship, facilitate credit markets and quickly and cheaply re-allocate the capital of failed ventures to its highest valued use. Underpinning all of this is the concept of certainty. Sound insolvency laws will provide debtors and creditors with the means of ascertaining and maintaining their exposure to risk. This bill represents one part of an international effort to improve certainty where businesses trade across national borders. This government is committed to improving the quality of business regulation. There has been a lot of debate about that. Just recently the Business Council of Australia had cause to issue a report calling for an accelerated reform process. The Rudd Labor government will be doing that.

We will continue to be an active supporter of initiatives that seek to harmonise regulation and improve the efficiency of markets. It is important to recognise the leadership role of Australia in the area covered by this bill. Australia was actively involved in developing the model law and continues to be actively involved through the United Nations Commission on International Trade Law, the Forum for Asian Insolvency Reform, the OECD and APEC, just to name a few. Australian practitioners are well regarded internationally and tend to feature prominently in leadership groups of international insolvency organisations. This suggests that Australia’s adoption of the model law may directly influence other countries, particularly in our own Asia-Pacific region. This would further add to the momentum for harmonisation in this important area and provide a strong platform for future reform.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.