An Introduction to Corporate Insolvency Law and Reforms in Australia

Introduction

In Liberalized & Globalized world, in which companies participate in multinational investments and agreements, the way in which they involve in resolutions of insolvency & management of bad debts becomes the subject matter of critical economic significance. Corporate Insolvency law in Australia is an effort to pursue a reasonable equilibrium amongst the conflicting interests of debtors, creditors and community at large in a situation when corporate debtors are unable to his financial obligations. Australia’s legal scheme of corporate insolvency and personal bankruptcy is regarded as highly robust and efficient. It’s also noteworthy that most business closures and transfers occurred without the burden and stigma of failure. The law was unchanged since the 1980s & is primarily based on common law principles. The term insolvency typically refers to companies, and bankruptcy is applicable with respect to individuals under Australian law. Recently, the Australian government has introduced with a desire to build a stronger entrepreneurial culture with these measures considered to support calculated risk-taking and encourage innovation. Australian insolvency law is divided into two streams, each governed by a separate piece of legislation which governs the probable insolvency proceedings of all companies incorporated in Australia and companies incorporated or possessing separate legal. For personal insolvency, a specific legislation called bankruptcy Act is there but the basic framework of corporate insolvency law has been there since the inception of Corporations Act 2001 enactment which includes all the aspects of company formation, management, governance & dissolution. This legislation contains main provisions relating to voluntary administration & judicial management. Nevertheless, authors have given some highlight to recent reforms initiative, however, the main concentration of this chapter is on the legal infrastructure of corporate insolvency law at present as the reforms are not yet in force. The author has emphasised the Australian Insolvency law which is based on UK Model. The Corporations Act 2001, regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The Act regulates, creditors' voluntary liquidation, a court ordered or compulsory liquidation & scheme of arrangement. In the event of reforms in business rescuer regulations in Australia, the government have taken baby steps since 2014 with the submission of working paper by Productivity Commission on Business Set-up, Transfer and Closure to government & has reached to the bill on corporate insolvency law reforms which is yet to enforce. The Authors has made an attempt to analyses the insolvency procedures as per the corporations act with an objective to walk through the technical and procedural aspects of corporate insolvency system in Australia & changes made by the Corporate Law Reform in judicial management which includes Receivership, Voluntary Administration, Deeds of Company Arrangement and Liquidation The paper also put forth the problems faced by corporate debtor & creditors in the proceedings of insolvency resolution & has also expressed the scenario of cross border insolvency in Australia in light of UNICTRAL Model law of cross border insolvency which has been adopted by Australian government in 2008.

Corporate law, in Australia, has seen a huge progress and success in the years, although the pace was gradual (Tomasic, 2006). However, there has been an unfortunate situation in Australia whenever it came to implementing and enforcing corporations’ law in Australia. It is said that the speculation of the future should always be done keeping in mind the actions and practices found and followed in past and more or less, every country’s legal system follows the same path to achieve better results (Gordon & Roe, 2002). Even Australia have its distinct features that distinguishes its corporate law and governance measures from most of the parts of the world (Cheffins, 2002) but it has some common features which are in similarity to the other developed nations, one of the most popular example being that of Australian Cross-Border Insolvency Law, which is based on UNCITRAL Model Law, as adopted by most of the countries.