Parliamentary inquiry into the insolvency industry: a breakdown of the terms of reference

In late 2022, the Australian Parliament launched an inquiry into the insolvency industry, the largest of its kind in over 30 years. The inquiry aims to assess the effectiveness of the current regulatory framework and identify opportunities for improvement in the industry.

The terms of reference for the inquiry covered a range of issues related to insolvency, including the role and responsibilities of insolvency practitioners, protections for employees and small businesses, and the use of technology to improve the efficiency of the industry.

The list below contains the terms of reference:

• Review of the effectiveness of the current regulatory framework and regulatory environment in achieving a fair and efficient outcome for all stakeholders. This included an examination of the adequacy of dispute resolution mechanisms and the potential for conflicts of interest to arise.

• Examination of the role and responsibilities of insolvency practitioners. This included an assessment of their duties to creditors, their accountability, and the adequacy of current licensing and registration requirements.

• The use of ‘pre-pack’ administrations, which allow companies to restructure their debt and operations before entering into administration. The inquiry examined whether pre-packs are appropriate for the Australian context.

• Protections for employees during insolvency proceedings, including their entitlements and the adequacy of existing laws and regulations.

• Assessing the impact of insolvency on small businesses and whether current laws and regulations adequately protect them.

• The adequacy of dispute resolution mechanisms for parties involved in insolvency proceedings.

• Conflicts of interest in the insolvency industry and how they can be addressed.

• Consumer protections in the insolvency industry, particularly for vulnerable or disadvantaged consumers.

• Education and training for directors and managers of companies in financial distress, with the goal of improving their understanding of the insolvency process and their responsibilities.

• The role of technology in improving the efficiency and transparency of the insolvency industry.

The Australian Parliamentary inquiry into the insolvency industry will be a comprehensive examination of the industry, aiming to identify opportunities for improvement and make recommendations to strengthen the regulatory framework. The inquiry will consult with a wide range of stakeholders, including insolvency practitioners, creditors, employee representatives, small business advocates, and others to gather evidence and insights on the issues covered by the terms of reference.

The final report and recommendations from the inquiry will be eagerly awaited by all stakeholders in the insolvency industry.