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The Application and Improvement of Australian Insolvent Trading Regime

Author(s)

Hongyuan Zhang

Affiliation(s)

Law School, The University of Sydney, Sydney, Australia

Abstract

According to the relevant provisions of the Corporations Act 2001, it can be concluded that Australia takes a type of “conservative” attitude to insolvent businesses. In other words, the law discourages directors from taking any actions that may create new debts for the company in the event of insolvency. The purpose of this regime is to make sure the legitimate interests of the creditors are protected to the maximum extent, and the specific approach is to restrict the various actions of the debtors, thereby avoiding the debtors` continuous obstruction of the realization of the claims. It should be admitted that this system could secure the interests of the creditors from a series possible infringement by debtors. However, at the same time, this regulation also has some corresponding defaults. On the one hand, the content of this regulation is not flexible enough for the balance between legal rights and obligations; on the other hand, this regime itself completely restricts the ability of the directors, as well as the companies (especially the SMEs as the debtor) to operate during insolvency, which is inconsistent with the reality in Australia. Moreover, the current provisions are not conductive to the realization of the creditors` interests. Therefore, based on the above issues, this essay compares Australia`s insolvent trading provisions with the relevant regulations of other countries, and concludes that in order to improve the Australia`s insolvent trading regime, it is worthwhile to refer to New Zealand`s “Reckless Trading” provisions and Canada`s “Oppression Remedy” system.

Keywords

Insolvency Law; Insolvent Trading; Reckless Trading; Oppression Remedy

References

[1] Ministers Treasury portfolio (Cth). ‘Insolvency reforms to support small businesses recovery’ (Media Release, 24 September 2020). [2] Thomas H. Jackson. The logic and limits of Bankruptcy Law (Harvard University Press, 1986). [3] Australian Securities & Investments Commission. Insolvency statistics: External administrators’ reports (July 2018 to June 2019) (Report 645, December 2019). [4] Parliamentary Joint Committee on Corporations and Financial Services. Corporate Insolvency in Australia (Report, July 2023).