“There has been no comprehensive review in 34 years of Australia’s insolvency structures. The historic moment is now, especially as Australia sees a rise in insolvencies as pandemic-era protections wane and businesses grapple with inflation and supply chain issues,” said the Labor senator.
More than 700 companies entered external administration in July, according to ASIC data.
The figure was the highest level since November 2019 and more than double the lows of 2020 and 2021, when a series of government policies such as JobKeeper and temporary changes to insolvent business laws helped limit failures.
Experts and the Reserve Bank say business bankruptcies are set to rise further as soaring costs and a tax crackdown on unpaid debt increase pressure on businesses in the construction and construction sectors. struggling manufacturing.
The biggest rise in the number of administrations over the past year has been in the construction sector, where companies are laying off workers or collapsing in response to supply shortages and soaring costs materials.
Administrations in the manufacturing sector also rose sharply in July. East Coast manufacturers have been hit by soaring natural gas prices due to a mix of coal-fired power outages and instability in global energy markets due to the invasion of the Ukraine by Russia.
The review will include the role and remuneration of liquidators, the effectiveness of ASIC as an insolvency regulator, the tax office’s approach to debt collection and the operation of existing statutes. .
The committee flagged several potential areas for reform, including claims of unjust preference, which is when an insolvent company pays one creditor and not another, as well as safe harbor provisions, which protect directors against insolvent business laws as they try to save a failing company. Company.
Small business restructuring laws, which allow companies with liabilities of up to $1 million to seek advice from an insolvency practitioner on developing a restructuring plan, will also be reviewed, while such as new laws penalizing administrators who avoid paying workers’ dues during insolvency.
Ms O’Neill said insolvency should be the last intervention for struggling businesses, with the review also aiming to assess how to improve access to business support for businesses in financial difficulty.