Submission: ALRC review of the legislative framework for corporations regulation

28/06/2021

The ALRC has been asked to inquire into the potential simplification of laws that regulate financial services in Australia.

The Terms of Reference focus on the provisions of the Corporations Act 2001 (Cth) (Act) and the Corporations Regulations 2001 (Cth) (Regulations) while also referring to other financial services legislation, and legislative instruments. Three sub-topics are specifically outlined, each of which is to be the subject of an interim report by the ALRC, prior to release of the consolidated Final Report:

• A first interim report focusing on the appropriate use of definitions in corporations and financial services legislation is due by 30 November 2021;
• A second interim report focusing on regulatory design and the hierarchy of primary law provisions, regulations, class orders, and standards, is due by 30 September 2022;
• A third interim report focusing on potential reframing or restructuring of Chapter 7 of the Corporations Act is due by 25 August 2023;
• A consolidated final report is due by 30 November 2023.

ARITA has taken the opportunity, after meeting with the ALRC, to make a submission. Whilst recognising that it is beyond the immediate remit of the ALRC's work under the specific Terms of Reference in the current enquiry, ARITA continues to promote the need for a comprehensive review of Australia's insolvency system, guided by simplicity, efficiency and effectiveness.

In relation the specific terms of reference, ARITA set out 10 ‘key points’ which address particular instances of definitional uncertainty and legislative complexity in the existing insolvency regulatory scheme under the Act, the supporting Regulations, the Insolvency Practice Schedule (Corporations) (IPS) and the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPRs):

1. uncertainty in the role and duties of a SBRP
2. using a definition of "associate" that is not fit for purpose in an insolvency context
3. uncertainty in the operation of the safe harbour from liability for insolvent trading and creditor-defeating dispositions
4. inconsistency in eligibility requirements in relation to taxation obligations
5. the circularity of the voidable transaction provisions
6. the need for clarity on what can be considered "the company" in the statutory duty owed by directors under s181(1) of the Act
7. inconsistency in the terminology between the Act and ancillary legislation
8. unnecessary regulatory complexity in retaining cross references of the Bankruptcy Act in the Act
9. problematic structure of the Act, and
10. normal days versus business days.