Government to delay taking action on insolvency reforms

The government has issued its response to recommendations from the parliamentary joint committee that undertook an inquiry into corporate insolvency in 2023.

In its final report, the committee said Australia's corporate insolvency system was overly complex, difficult to access and created unnecessary cost and confusion for both debtors and creditors.

The committee recommended that the government commission a comprehensive and independent review of Australia's insolvency law, encompassing both corporate and personal insolvency.

It also called for the government to implement a range of reform actions on a shorter-term basis before the comprehensive review of insolvency is completed.

The government said while it supported in principle the recommendation to initiate a comprehensive and independent review of Australia's insolvency law, it would instead consider Australia's corporate and personal insolvency frameworks through the Productivity Commission's inquiry into business dynamism.

"The government has tasked the Productivity Commission (PC) with undertaking an inquiry into regulatory barriers to business dynamism in Australia, which, among other matters, will consider the impact of Australia’s corporate and personal insolvency frameworks on business dynamism," it said.

"The government has asked the PC to have regard to previous inquiries where relevant in conducting its inquiry."

It also said that it planned to defer consideration of the near-term reform actions identified by the Committee to enable these recommendations to be considered alongside the recommendations of the PC business dynamism inquiry.

"This will support the development and implementation of reforms in a holistic and coordinated manner and minimise unnecessary regulatory change for stakeholders," it said.

One of the committee's near-term action recommendations was that ASIC collect high-quality, granular data on insolvency and provide it in a timely way to relevant government agencies and regulators.

The government said that the PC may consider whether any additional powers to collect data should be made available to ASIC through legislation to help drive better industry practices and further assist its oversight of corporate insolvency as part of its business dynamism inquiry.

In the near term, the government said it would encourage ASIC to further analyse and share available data with relevant government agencies and regulators pending completion of the PC business dynamism inquiry.

"The government will also consider opportunities for changes to ASIC’s collection and sharing of data from regulated entities as part of its broader work to make communications more technology-neutral and flexible," it said.

The committee also made a raft of other reform actions that could be implemented independent of the broader, independent review, including reforms to simplify the small business restructuring pathway, improvements to the regulation of active enforcement of pre-insolvency advisers, and consideration of amendments to the thresholds for reporting requirements for insolvency practitioners, and ASIC’s responses to them.

The committee said these more immediate potential reforms would address clear and broadly recognised failings in the current law.

The government agreed to most of these other actions in principle and said the PC would potentially consider these recommendations as part of its current inquiry.