Budget 2022: Trusts in focus as insolvency reforms set to continue

The Morrison government says it is committed to continued reform of Australia’s insolvency regime, earmarking the treatment of trusts as an area of focus. 

The federal budget papers outline plans to spend $29.8 million over four years, from 2022-23, on insolvency reforms, which includes $7 million “to clarify the treatment of trusts with corporate trustees” under the nation’s insolvency laws. 

The budget measure also includes $22 million to change Australia’s unfair preference rules from July 2023, including by “enhancing” the Assetless Administration Fund. 

Additionally, the government says it will spend $800,000 to implement its response to the recent review of safe harbour provisions, which was completed earlier this month. 

The government has largely agreed with most of the recommendations of the review, but stopped short of agreeing to a ‘root and branch’ review of the entire insolvency system. 

It is not clear whether the funding outlined in the budget represents additional spending by the government, with the budget papers indicating partial funding has already been provided and some costs will be met from existing Treasury resources. 

The government says these latest reforms build upon the insolvency changes introduced in last year’s budget, and in January 2021 before that. 

While insolvency practitioners welcomed last year’s reforms — which were largely based on a series of consultations, including on trusts and safe harbour provisions — they warned against “piecemeal” changes that could create even more complexity for business owners. 

Speaking to SmartCompany last year, John Winter, chief executive of the Australian Restructuring Insolvency and Turnaround Association, said Australia has some 22 different insolvency regimes and these legal arrangements are “incredibly complex”. 

It is therefore critical that proper industry consultation takes place, said Winter, who said he was concerned that the various smaller changes being considered did not address underlying, structural issues with the country’s insolvencies practices. 

“We believe there needs to be a root and branch review to radically simplify the cost and complexity of insolvency in Australia,” he said.