Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

It seems fortuitous that we are discussing the Cross-Border Insolvency Bill 2008 at this time, given the current state of the stock market in Australia, the downturn in the American economy, fears of less buoyant times in Australia and the reality that many of the publicly listed businesses which have been hitting the headlines recently conduct their business across a variety of countries. Although Australia, and in particular my home state of Western Australia, is still in a growth phase and many company balance sheets are in good shape, there are companies so highly leveraged with such high debt exposure, not to mention exposure to the United States market, that new insolvencies loom. This legislation is therefore timely, but it is long overdue. Simply put, the problems posed by cross-border insolvencies have long been with us. But more of that later.

The purpose of this bill is to adopt the model law on cross-border insolvency. Eleven years ago, in May 1997, the United Nations Commission on International Trade Law, known as UNCITRAL, adopted a model law on cross-border insolvency. Australia supported this initiative. Eleven years later we have consequent legislation before the parliament. The purpose of the model law is to provide effective and efficient mechanisms for dealing with cases of cross-border insolvency. The model law: sets out the conditions under which persons administering a foreign insolvency proceeding have access to local courts; sets out the conditions for recognition of a foreign insolvency proceeding and for granting relief to the representatives of such a proceeding; permits foreign creditors to participate in local insolvency proceedings; permits courts and insolvency practitioners from different countries to cooperate more effectively; and makes provision for the coordination of insolvency proceedings that are taking place concurrently in different countries. Other countries that have adopted the model law include Colombia, Eritrea, Japan, Mexico, Montenegro, New Zealand, Poland, Romania, Serbia, South Africa, the United Kingdom and the United States of America.

The main Australian laws affected are the Corporations Act and the Bankruptcy Act. An important objective of the bill is to provide access for the person administering a foreign insolvency proceeding, known as the foreign representative, to Australian courts to seek a temporary stay of proceedings against the assets of an insolvent debtor. This stay will allow the foreign representative and the courts to determine any relief or coordination that may assist in the administration of the affairs of the insolvent debtor. This stay will have the same scope and effect as if the stay arose under chapter 5 of the Corporations Act for a corporate debtor or under the Bankruptcy Act 1966 for a debtor that is a natural person.

The Parliamentary Joint Committee on Corporations and Financial Services can adopt inquiries on its own motion. I initiated the committee inquiry into insolvency. This bill implements recommendations 60 to 63 of the 2004 Parliamentary Joint Committee on Corporations and Financial Services report entitled Corporate insolvency laws: a stocktake. Like so many recommendations made by committees during the Howard coalition government’s time, the reform asked for has been a long time coming and so, even though these recommendations were supported by all members and all political parties on the joint house committee, it is four years later that they are finally seeing the light of day. Not only is it 11 years since we first agreed to the model law but it is four years since the parliamentary committee recommended that we get a move on with this.

I will remind the Senate of the recommendations of the joint committee’s report, and in doing so I will also refer to the government’s response. By the way, the government’s response to the committee’s report took over three years—a snail-like response. Recommendation 60 was:

The Committee recommends that Australia adopt the UNCITRAL Model Law on Cross Border Insolvency as proposed in CLERP Paper No 8: Proposals for Reform—Cross-Border Insolvency.

The government response was that it supports this recommendation. Recommendation 61 was:

The Committee recommends that the Government play an active role in multilateral forums and international initiatives to strengthen countries’ insolvency systems and develop sound practices and principles for insolvency systems taking into consideration differing national legal systems and economic circumstances.

The government response was: ‘The government supports this recommendation.’ And it went on to say:

Australia is a participant in, or has participated in, a number of international fora relating to corporate law. The Government is exploring methods for the promotion and adoption of good insolvency practices and laws in appropriate international fora.

We have not heard much about that. Perhaps the minister will be able to expand on that.

Recommendation 62 was:

The Committee recommends that the Government examine the problem of cross border insolvency involving the misappropriation of company funds with a view firstly to preventing such activities (improved reporting on the financial affairs of a company, more effective monitoring and enforcement of requirements to keep records and the more effective use of restraining orders in respect of company assets) and secondly to holding those responsible for missing funds or assets accountable for the losses.

The government answered that they supported the recommendation in principle but that there:

... are many aspects to the question of cross-border insolvency and the Government has examined, and continues to examine, initiatives that seek to address the problem.

Once again, we have not heard much about that since then. Recommendation 63 was:

The Committee recognises that cross-border insolvency and the bankruptcy of those associated with the financial transactions of a failed company are often interlinked. The Committee recommends that any measures taken in either the Corporations Act or the Bankruptcy Act to effect the recovery of debts or to punish the perpetrators of fraud involved in cross-border insolvency take account of how the laws may interact.

The government supported this recommendation in principle and said:

It is important that the Corporations Act insolvency provisions and the Bankruptcy Act contain effective measures to address cross-border insolvency issues.

I am not satisfied that the full meaning of those recommendations has yet been addressed by the government.

The recommendations of the joint parliament committee did not stand alone. The CLERP 8 paper that I referred to earlier preceded the committee report and identified further difficulties for cross-border insolvency, some of which are not being addressed by this legislation. The CLERP 8 paper identified the following additional complexities that may arise in cross-border insolvency: the extent to which an insolvency administrator may obtain access to assets held in a foreign country; the priority of payments; whether local creditors may have access to local assets before funds go to the foreign administrator or whether they are to stand in line with all foreign creditors; recognition of the claims of local creditors in a foreign administration; the recognition and enforcement of local securities over local assets where a foreign administrator is appointed; and the application of transaction avoidance provisions as a further issue.

Once this bill is passed it would be helpful if, in due course, this matter could be revisited so that relevant aspects of the committee’s report, the complexities identified by CLERP 8 and new issues that will undoubtedly arise can be addressed. I would appreciate a commitment from the minister as to whether this process could be undertaken.

The reality of business today is that most large companies, and even many smaller ones, are globalised. They carry on business across borders and jurisdictions, and if they get into solvency problems, either as debtors or creditors, then long legal battles simply slow matters down for creditors. Those creditors might be other large corporations which may often be able to carry the burden, but why should they have to wait unnecessarily long years for the matter to be resolved? Those creditors might include the tax office, which could also carry the burden, but they might also be small business creditors or employees for whom years and years of delay will, or could, send them to the wall. These inefficiencies and costs have a flow-on effect for the whole economy. That is why it is important that this particular bill is passed.

According to the latest figures from ASIC, insolvency appointments have increased from 601 appointments in January 2007 to 641 this year. There may be worse to come, especially for those companies stressed by the short-selling and margin-lending phenomenon, those with exposure to the troubled American market or those subject to the credit squeeze.

The 2004 Joint Parliamentary Committee on Corporations and Financial Services report recalled the terrible fallout from the unscrupulous behaviour of certain individuals. I will quote from that report. It is in the chapter headed ‘Cross-border insolvency’, chapter 13. It has a marvellous subsection entitled ‘Cross-border insolvency and corporate scoundrels’. It reads:

13.14 Over recent decades, there have been reported cases of hundreds of millions of dollars being lost to creditors in Australia through the sustained and systematic misappropriation of company funds involving complex financial dealings often with the collusion of lawyers, accountants and other professional people. Such schemes frequently involve overseas transactions intended to place the recovery of debts beyond the reach of creditors. Attempting to recover assets from such companies or directors once the company has failed is costly, time consuming and often unproductive.

13.15 The financial scandals involving well known entrepreneurs such as Alan Bond and Christopher Skase highlight the difficulty and expense involved in chasing the money trail to locate assets that have been spirited away. This trail leads investigators through a maze of complicated business arrangements more often than not involving a network of corporate structures in different parts of the world that may act as agents and repositories of assets.

13.16 Mr Max Donnelly et al noted that Mr Robert Trimbole was one of the first of the high profile bankrupts and the first to realise Spain was a bankruptcy haven. While Trimbole’s assets in Australia were realised for the benefit of creditors, including a suburban residence which was the subject of competing claims and a rice farm located at Griffith, those held overseas proved out of reach.

13.17 Mr Christopher Skase provides one of the best known examples in Australia of corporate skulduggery where complicated overseas financial transactions involving family and the clever structuring of companies were used to prevent recovery procedures. He faced numerous charges in Australia including ‘a set of thirty charges of dishonest conduct, through the provision of false information to independent directors, breach of fiduciary duties owed as a company officer, and improper use of specific provisions under Arts 129, 229(1)(b) and 229(4) of the Companies (Queensland) Code 1982’.

13.18 Using Alan Bond as an example, Professor Ken Polk wrote that in cases of complex fraud:

The criminal investigation can take many months if not years, and involve enormous sums of money. Literally hundreds of thousands of financial transactions will have to be reviewed in the investigations of such crimes, and the money trail may lead literally around the globe. After many years of trying, for example, the Australian policing agencies found that the enormous costs of attempting to trace the money hidden by Bond through accounts in tax-haven countries whose secrecy laws protect all investors (including criminals) was simply not worth the huge expense …

These problems continue into the trial phase as well, since it is not uncommon for complex fraud prosecutions to last for many months.

The problem we face is that the coalition government was far too slow in responding to those matters: the final improvement to insolvency law came through last year. It has been—as I have just outlined—11 years since the model law was first agreed, many years since CLERP 8 and at least four years since the committee reported. It is just not good enough. In this country, our tax office is still having to go through the awful grind of lawyers, accountants and their clients resisting—through every stratagem possible, both domestically and overseas—opening up their affairs to the tax office. And why? Because they are concealing criminal activity. They have the best accountants, lawyers and other professionals—and, of course, dubious Swiss bankers and Liechtenstein bankers—to assist them.

We need strong cross-border insolvency laws in this country. We need strong laws to limit as far as possible the ability of corporate and other crooks, and their amoral advisers, to obstruct the proper payment of tax, and we need to attend to our overseas efforts to coordinate better security with respect to revenue. In conclusion, I congratulate the new government on bringing this new law forward and I hope it makes a real contribution to improving the practice of insolvency in this area.

Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

We are addressing the Cross-Border Insolvency Bill 2008. Its purpose is to implement the model law on cross-border insolvency developed by the United Nations Commission on International Trade Law. The Hon. Chris Pearce MP, the former Parliamentary Secretary to the Treasurer, introduced the Cross-Border Insolvency Bill 2007 on 20 September last year; the bill lapsed on the calling of the election. The Cross-Border Insolvency Bill 2008 is identical to the Cross-Border Insolvency Bill 2007. Obviously, in these circumstances, the opposition supports passage of the legislation.

I do not feel that I am called upon to delay the Senate unnecessarily on the detail of the bill, save to say that I think it is very much an uncontroversial bill and very well supported, not only in the parliament but also in the broader business community. Insolvency laws are among the most important—indeed, they are of critical importance—laws governing market conduct, and we know that they enhance both certainty and integrity in the market and promote economic stability and growth.

There are a number of very complex issues, as we see repeatedly, that arise in the press and elsewhere in the context of cross-border insolvency. An insolvency administrator may have limited access to assets of the company that are located in another country. There may be, for example, special rules providing local creditors with access to local assets before funds go to a foreign administration. There may be limited or no recognition of foreign creditors. There may be inconsistency in the priority of creditors, particularly in relation to the ranking of employee claims across jurisdictions. And there may be difficulties for foreign creditors seeking to enforce their securities over local assets. That gives rise to uncertainty, risk and untimely cost to businesses.

We were of the view, when we were in government, that it would be of overall benefit to businesses in all countries to have adequate mechanisms in place to deal both efficiently and effectively with cross-border insolvencies. Reforms of this nature are simply critical to facilitating international trade in goods and services and to the integration of national financial systems with the international financial system. So, based on the model law, we developed the legislation. We are pleased that the government has seen fit to bring it forward and we will be supporting it.

(Quorum formed)

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

In closing the debate, I would firstly like to thank those senators who spoke on the Cross-Border Insolvency Bill 2008. The bill gives effect to the model law on cross-border insolvency adopted by the United Nations Commission on International Trade Law. The model law provides a streamlined approach to dealing with instances of cross-border insolvency. This streamlined approach will improve the fairness and efficiency of such proceedings, thereby providing better outcomes for creditors, employees and other stakeholders.

Adoption of a model law does not change Australia’s substantive insolvency laws. The model law provides procedural rules that will allow for access to Australian courts for foreign representatives and cooperation between courts in proceedings that have a cross-border element.

Over the last 15 years the international community has devoted much effort to improving the international financial architecture. This is work that is obviously needed in a whole range of areas, given the flow of international capital across borders in the financial sector. Effective cross-border insolvency arrangements have the potential to improve the operation of the global financial system, providing long-term benefits to Australian businesses. In this regard the model law has already been adopted by a number of Australia’s trading partners, including the United States, the UK and Japan.

The bill will assist in maintaining Australia’s reputation as a destination for international capital flows by ensuring that investors have confidence in Australia’s arrangements for dealing with cases of cross-border insolvency. The efficient and effective administration of cross-border insolvency proceedings will provide benefits to all participants. To the extent that such proceedings are conducted in a more efficient manner, there will be more assets available to distribute to creditors and less money wasted on unnecessary litigation and other administrative costs.

Senator Murray did raise the fact that there are other cross-border issues that this bill does not address. That is certainly correct. The government will obviously be continuing work in this area. This legislation has been a long time in preparation and the issues have been under consideration I think as far back as the former Attorney-General, Mr Lavarch, which is more than 12 years ago, to the best of my recollection, and the previous Labor government. So the government is aware that this bill will not address all the complexities and uncertainties that arise in this area. However, it is an important step. As I said, it will bring us into line with other jurisdictions. We will continue our work on cross-border insolvency through bodies such as UNCITRAL—I will not indicate what that stands for but it is an impressive acronym—and the Forum for Asian Insolvency Reform.

To conclude, I note that the opposition shadow minister, Senator Coonan, indicated that they regarded the legislation as uncontroversial. I certainly hope so, because it is in fact a bill adopted without change from the previous government. Not one word, not one letter is changed—every ‘t’ is crossed the same way; every ‘i’ is dotted—so I would have been amazed if the now opposition had opposed or amended legislation which was certainly drafted and prepared by them and I think at some point considered in the House of Representatives. I would have to double-check on that.

It is an example of bipartisan cooperation where we believe it is necessary in our Australian financial system to deal with issues such as cross-border insolvency. I thank senators for their contributions.

Question agreed to.

Bill read a second time.