Consumer insolvency in Australia

This paper seeks to identify and assess the features of Australian bankruptcy regulation as they apply to consumer insolvency. Although Australian bankruptcy law makes no explicit recognition of ‘consumer bankruptcy’ as a regulatory target in itself, the Australian legislation nevertheless has a number of features that impact on what would generally be seen to be consumer bankrupts. After providing an outline of the legislative framework within which consumer bankruptcy operates, the paper examines the consumer insolvency aspects of this legislation, together with an assessment of proposed reforms. Some brief comparisons of the ‘consumer’ features of Australian regulation with that of the more fully developed consumer provisions of the Canadian and the United States bankruptcy legislation, are made in order to highlight the Australian position. The Australian Act has historically drawn heavily on English bankruptcy legislation but inevitably Australia has to some extent developed along its own path. Notable is the reasonably vigorous approach to discharge from bankruptcy. The proposed reforms to the Bankruptcy Act, which have followed a detailed consultative process, are largely directed to consumer debtors. Some of these reforms are directed against a perceived debtor abuse of the bankruptcy system. Other reforms, such as increasing the availability of debt agreements, are more generous to insolvent debtors. On the whole the reforms appear to be based more on political than empirical grounds.     

Debt Agreements for Consumers under Bankruptcy Law in Australia and Developing International Principles and Standards for Personal Insolvency

The debt agreement option under bankruptcy law was introduced in Australia in 1996. Since its introduction, it has undergone significant review, and two sets of amendments have been crafted to meet issues as they have been raised. Its popularity is reflected in the increasing proportion of debt agreements compared with the other two debt relief options available under bankruptcy legislation, bankruptcy and the personal insolvency agreement. A review of the debt agreement scheme has recently been undertaken, but the government has yet to respond to its recommendations. Meanwhile, the work of comparative bankruptcy scholars has found new impetus from the treatment of consumer debtors during the Global Financial Crisis. At the same time, at the international level, there is growing interest in developing general principles for the treatment of personal insolvency, despite the acknowledged diversity of approach to personal insolvency at the national level. This paper examines the debt agreement framework and how it fits within the comparative bankruptcy literature and the developing international principles for the treatment of personal insolvency. Copyright © 2014 INSOL International and John Wiley & Sons, Ltd     

Household insolvency: A review of household debt repayment,delinquency, and bankruptcy

This review paper explores the issues related to the meaning and measurement of insolvency within the domain of household finances. Conceptual and empirical evidence to explain the onset of insolvency is reviewed. Predictive models and financial ratios are presented as techniques for identifying insolvent households. Implications for monitoring of solvency by households and responses to insolvency are presented.     

A comparative analysis of the Australian and New Zealand liquidation schemes

On September 28, 2022, Australia announced an inquiry into the effectiveness of its corporate insolvency laws. The Australia and New Zealand corporate insolvency frameworks have similar objectives and operate in a similar context where, as is the case the world over, most companies are small to medium enterprises. Despite liquidation being just one of several collective and formal corporate insolvency procedures, it is the most frequently occurring procedure in both countries by a large margin. The Australian and New Zealand liquidation schemes have many similarities but also some key differences. Differences include the structure of the respective schemes; the levers prompting liquidation of companies in appropriate circumstances; the role of creditors, the court and the regulator; and the management of low-value and assetless liquidations. These differences are analysed to determine what, if anything, the New Zealand scheme might contribute to development and/or reform of Australian corporate insolvency law. As consistency and coordination with Australian insolvency law is a New Zealand policy aim, the lessons the Australian scheme might have for New Zealand are also considered. Many of the points on which the Australian and New Zealand liquidation schemes differ are of universal concern (such as the management of low-value liquidations), meaning that the nature and success (or otherwise) of the Australian and New Zealand responses are of wider, comparative interest.     

Cross-border insolvency law of China: An empirical analysis and proposal based on the insolvency cooperation mechanism between the Chinese mainland and Hong Kong

In the context of the national strategy of the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, the first institutional breakthrough in cross-border insolvency cooperation between the Chinese Mainland and Hong Kong was achieved on 14 May 2021, and the first case of recognition and assistance in insolvency proceedings in Hong Kong, Re Samson Paper Co Ltd., emerged in judicial practice in December 2021. The judicial practice of Samson not only successfully verifies the great significance of the Record of Meeting and the Opinion for institutional ice-breaking of cross-border insolvency cooperation in the Chinese Mainland, but also reflects the practical effects and legislative issues of the above documents on the mechanism of insolvency cooperation between two areas. In view of the problems reflected by the practice of Re Samson Paper Co Ltd. and existing in the legislation, this paper puts forward specific proposals for the cross-border insolvency cooperation between the Chinese Mainland and Hong Kong, including abolishing the precondition of reciprocity, strengthening exchanges, and cooperation between the two areas on parallel bankruptcy issues, and supplementing the coordination of parallel bankruptcy procedures for cross-border insolvency. It also proposes domestic legislation on cross-border insolvency recognition and assistance in China in a point-by-point manner, so as to achieve the establishment of a sound cross-border insolvency cooperation mechanism in line with the international community.     

Consumer Credit and Over‐indebtedness in China

Over the past three decades, China has experienced a significant increase in consumer credit. There are many causes for this growth and expansion in credit availability, such as deregulation of consumer credit markets. The expansion of consumer credit leads to the climbing of consumers' over‐indebtedness. Traditional remedies provided to consumers are limited to minor restrictions on attachment of the debtor's property. No statute has been passed in China to rearrange consumer insolvency. Moral hazard and debtor fraud are the two particularly salient concerns that hinder the adoption of consumer insolvency legislation in China. This paper makes use of publicly available data collected on government websites and bank websites to empirically describe the development of consumer credit and consumers' indebtedness in China and also theoretically examines the treatment of over‐indebtedness and the obstacles encountered in the adoption of consumer insolvency legislation. Based on these investigations, the paper suggests that although there are some obstacles, it is necessary and feasible to construct consumer insolvency system in China. Copyright © 2018 INSOL International and John Wiley & Sons, Ltd.     

A case of constitutional apples and oranges: a functional comparison of pension priority and benefit guarantees in U.S., U.K. and Canadian insolvency and pension law regimes

Canada's insolvency law reform increased the priority granted to employer‐sponsored pension claims. The article compares the treatment of such claims in the U.S., the U.K. and Canada. A comparison of the legislative provisions concerning pension funding shortfalls from contribution arrears or economic underperformance in relation to the assumptions used for investment income or liability valuations finds that insolvency law has been used to address contribution arrears, but risks from economic underperformance have been addressed by pension benefit insurance. Post‐insolvency priority for contribution arrears provides appropriate incentives to discourage pre‐insolvency preferences for payments to other creditors, while shortfalls from economic underperformance do not involve issues of preference between creditors. The absence of any insolvency rationale for changing priority for shortfalls from economic underperformance and the likely disparity between the assets available to satisfy clams and the much larger amounts of such shortfalls makes the use of insolvency law to address this risk much less effective than insurance. Canada, however, has not adopted the insurance policy instrument used in the U.S. and U.K. to mitigate the impact of pension funding shortfalls. The constitutional inability of Canada to legislate in respect of matters of pension regulation that would allow it to control the well‐known insurance problems of moral hazard and adverse selection may explain why it has only chosen to adopt an insolvency policy instrument. However, a change in priorities in insolvency may generate incentives for secured creditors that either undermine or reinforce this policy choice. Secured creditors could attempt to circumvent the new priority scheme through private arrangements with the debtor or to increase their monitoring activities to ensure the debtor is current in its pension contributions. Secured creditors choices will be influenced by the bankruptcy courts' interpretation of the preference provisions in the insolvency legislation. Copyright © 2009 John Wiley & Sons, Ltd.     

The Costs and Benefits of Regulating the Market for Corporate Insolvency Practitioner Remuneration

The release by the Australian Treasury on Friday, 7 November 2014 of the Insolvency Law Reform Bill (ILRB) 2014 throws the spotlight once again on corporate insolvency law reform in Australia. Significantly, the ILRB 2014 identifies amongst its purposes two objectives with respect to Corporate Insolvency Practitioner (CIP) remuneration reform. Namely, to promote market competition on price and quality and improve the overall confidence in the professionalism and competence of insolvency practitioners. This paper considers whether the proposed CIP remuneration reforms outlined in the ILRB 2014 will effectively achieve these objectives. Where it is considered that reforms are misdirected, further changes, informed by UK insolvency reform proposals, are considered.     

Harmonising European Insolvency Law: The Emerging Role of Stakeholders

In recent years, the European Commission has given increased room for stakeholder involvement in the area of insolvency and restructuring. In revising the European Insolvency Regulation in 2012–2015 and preparing the proposal for a directive on preventive restructuring frameworks 2016, the role and direct influence of stakeholders has been noteworthy. In these efforts, the Commission touched upon a field of law characterised by diverse stakeholders with strongly opposing interests. Following the active involvement of all stakeholders by the Commission, this study examines what relevant stakeholders are, what their positions are with respect to European Union insolvency legislation and what their role has been and can be in legislative processes in the area of insolvency and restructuring. Copyright © 2018 INSOL International and John Wiley & Sons, Ltd.     

The impact of constitutional property law on insolvency law in South Africa

It is common for insolvency legislation to interfere with the property rights of debtors, creditors and third parties in pursuit of its purpose to provide an orderly and fair resolution to insolvency‐related problems. However, the South African property clause, Section 25 of the Constitution, prohibits arbitrary interferences with vested property interests. In light of this, this article focuses on the application of Section 25 to insolvency law in South Africa. The question is whether interferences with property rights in terms of insolvency legislation qualify as deprivations of property for constitutional purposes and, if so, whether they comply with the relevant validity requirements. This article investigates this question by explaining the interaction between insolvency law and constitutional law in general, followed by a closer look at the application and operation of the property clause in particular. Thereafter, three examples from case law are discussed to illustrate the role of constitutional property law in evaluating the effects of insolvency legislation in South Africa. The conclusion is drawn that, as long as the relevant requirements are met, the norms underlying the property clause do not hinder the development and implementation of legitimate and necessary insolvency procedures that could impact on vested property rights.     

Universalism and the recognition of group proceedings under the UNCITRAL Model Law in Montenegro

Among the most topical insolvency issues in 2017 was the Croatian “Lex Agrokor”—a controversial “tailor‐made” law providing a unique restructuring opportunity for the largest Croatian conglomerate, the parent company of which was otherwise facing bankruptcy. Soon after the “extraordinary administration procedure” began, the appointed administrator started filing motions for the recognition of the alleged group insolvency as foreign insolvency proceedings in a number of neighbouring and other European countries, most of which have adopted the UNCITRAL Model Law on Cross‐Border Insolvency. It was an attempt to save the conglomerate's property from being seized in a disorderly fashion by various secured creditors, most noticeably, the largest Russian financial institution Sberbank, which contested these motions with varying success. This article, however, does not present an effort to comprehensively analyse the ongoing legal battle but rather adopts a broader approach to examining the Lex Agrokor to establish grounds for more general conclusions. More precisely, the purpose of this article is twofold. First, to offer strong arguments that, from the standpoint of typical insolvency legislation based on the Model Law, such as that of Montenegro, both the actual and future group proceedings initiated under the Lex Agrokor should fail to meet recognition requirements. Second, based on the preceding case study, to offer conclusions on how to further promote universal approach regarding group insolvencies by emphasizing exactly what the national laws regulating group insolvency should not feature so as to have the proceedings introduced therewith recognized in countries adopting the Model Law.     

Chinese cross-border insolvency laws: Recent developments and international implications

The present Chinese insolvency law is under the process of legislative reform, and one focus point among legislators and academics is cross-border issues. China is slowly opening up its market to foreign insolvency proceedings, as demonstrated by the 2021 Chinese Mainland-Hong Kong cross-border insolvency cooperation mechanism. This first attempt, however, is only available in three trial cities in the Mainland and does not apply to jurisdictions other than Hong Kong. Nevertheless, it does not undermine the intention of the Mainland to advance its cross-border insolvency framework. Based on a thorough examination of Chinese legislation and judicial practices, this article submits that China would be willing to accept international standards and be a more active player in international insolvencies.     

Cross‐border Insolvency and Legal Transnationalisation

The last 20 years has seen an explosion of approaches for dealing with an inevitable consequence of globalised markets, that of cross‐border insolvencies. This article places phenomena such as the United Nations Commission on International Trade Law Model Law on Cross‐border Insolvency and Cross‐border Insolvency Agreements (also known as Protocols) within the context of developing laws on international commercial transactions. First, it briefly describes the evolution of the international commercial law (sometimes known as the law merchant) to provide a context to understanding the international commercial responses to the problems created by cross‐border insolvencies. Next, it outlines the range of approaches being adopted by states and multilateral bodies in recent decades to resolve cross‐border insolvency issues. Finally it draws some preliminary conclusions on the potential implication of this transnationalisation process and broader international commercial law perspective, in particular on the capacity of cross‐border insolvency agreements to address cross‐border insolvency issues. Copyright © 2012 John Wiley & Sons, Ltd.     

A principled justification for business rescue laws: A comparative perspective (part I)

In 1992 the Federal Government of Australia introduced the voluntary procedure administration as an option for a company in financial difficulties. In the same year the Canadian Parliament introduced legislation with the same objective. The precursor to both Australian and Canadian initiatives is the American Chapter 11 procedure. However there are some significant differences between the approaches adopted. These differences are outlined as a precursor to an analysis of selected policies behind business rescue laws. By considering the aim of the legislation and objective criteria against which the legislation could be assessed the authors conclude that the Australian procedure is preferable to both its Canadian and American counterparts. Part II of this article will appear in the next issue of IIR.     

Dutch corporate insolvency law: On the brink of a revolution?

The Dutch Bankruptcy Code (DBC) has not changed fundamentally over the more than 110 years of its existence, at least as far as corporate insolvency proceedings are concerned. On 1 November 2007, however, a committee of insolvency experts presented a draft for an entirely new code to the Ministry of Justice. Whether this new code will gain the force of law and whether this will happen within the near future remains uncertain but the proposals will in any event dominate discussions on insolvency law in the Netherlands for the foreseeable future. The main goal behind many of the proposals is improving the ability to successfully restructure companies that experience financial difficulties. To this end the proposals include various measures that would weaken the position of (secured) creditors. The proposals include widening the scope of the cooling-off period during which secured creditors are unable to enforce their security by granting the administrator a right of use of assets subject to security interests. The ability to rely on early termination clauses in contracts is also reduced during the cooling-off period. The position of secured creditors is further weakened by a proposal to grant the right to sell assets that are subject to security interests to the administrator if he continues the business. Under the current bankruptcy code, secured creditors can largely ignore insolvency proceedings, there is no general stay on enforcement and, early termination clauses in contracts are generally thought to be valid and enforceable during insolvency proceedings. Although banks have already argued that weakening the position of secured creditors will limit the ability to restructure companies, it seems safe to assume that the relatively comfortable position that secured creditors currently enjoy during insolvency proceedings in the Netherlands will be under fire due to the proposals for a new bankruptcy code. Copyright © 2008 John Wiley & Sons, Ltd.     

A Quarter of a Century of Performance Auditing in the Australian Federal Public Sector: A Malleable Masque

Utilizing Porter's (1981) theoretical framework for historical narrative analysis, this article examines the history of performance auditing in the Australian federal public sector. The analysis considers four crucial events in the period 1973-98 the Royal Commission on Australian Government Administration (1976), the Australian National Audit Office efficiency audit developments (1979), the Joint Committee of Public Accounts Inquiry (1989), and the struggles over the passage of the Audit Act 1997. The analysis supports the proposition that performance auditing is a malleable social construct rather than a definitive performance review technology. The construction of its technological basis has been contested, with several concepts being included or excluded by various groups. These have both reflected and influenced agendas and activities at individual, organizational, institutional, sociopolitical and socioeconomic levels in the Australian public sector. Performance auditing is therefore revealed as a masque that ultimately may defy any universal technical definition.     

Jurisdiction concerning annex actions in the context of the insolvency and Brussels Ibis regulations

The legislation of the European Union has addressed the private international law aspects of civil and commercial matters and those of insolvency cases separately. While the Brussels Ibis Regulation (and its predecessors) focuses on “classic” civil of commercial cases, insolvency proceedings are subject to the (recast) Insolvency Regulation. However, the close interference between the two related areas of law—commercial and insolvency—results in a category of cases that are commercial and contentious in nature, and so they would tend to gravitate towards the Brussels regime, but yet they are so closely connected to the insolvency proceedings that justifies a special approach. This article focuses on the question of international jurisdiction regarding these “annex actions” in the context of the EU law. It will attempt to explore the historical roots of the current provisions and the evolution of both the European legislation and the relevant case law. The examination of this progression provides a better understanding of the current legislation and answers some questions apparently left open in the recast Insolvency Regulation.     

Insolvency law: a comparative analysis of the preference tests in the Hong Kong Special Administrative Region (HKSAR) and Australia

This paper examines the unfair preference tests under corporate insolvency legislation in the Hong Kong Special Administrative Region (HKSAR) and Australia and undertakes a comparison of the law as it exists in relation to the tests in these jurisdictions. It suggests that the objective effects‐based test used in the Australian provisions may be more effective in terms of challenging unfair preferences than the subjective ‘desire’ test based on the actual or presumed intention of the debtor company used in HKSAR. Copyright © 2007 John Wiley & Sons, Ltd.     

Aspects of tax pertaining to insolvency law in South Africa

This paper seeks to briefly analyse the somewhat convoluted provisions contained in South African tax legislation that apply to insolvent entities in South Africa. While South Africa has modern and effective taxation laws, the provisions, when applied to insolvent entities, are often exposed as cumbersome and ineffective. Tax legislation in South Africa does not take proper cognisance of the unique nature of insolvency, often placing a heavy burden on the trustee or liquidator who is required to administer the estate as speedily and effectively as possible. In addition, there are different rules that apply to consumer and corporate insolvency regarding the assessment of income tax pre‐ and post‐liquidation. The recent introduction of a capital gains tax has placed an additional burden on insolvency practitioners, especially considering the lack of clarity as to how these provisions should be applied in practice. Although the Value‐Added Tax Act was introduced more than a decade ago, its provisions continue to pose problems for insolvency practitioners during the administration process of insolvent estates. Despite these difficulties, the South African revenue authorities are to be lauded for the sensible manner in which problems are addressed in practice. Copyright © 2005 John Wiley & Sons, Ltd.