Insolvency law failing small business

One of the problems is that our insolvency laws adopt a ‘one-size-fits-all’ approach that makes little distinction between winding up a national transport company and dealing with a failed corner store business. This work must be paid for and while the former may well justify the attention of what is an experienced, and highly regulated, private profession, the latter, representing the bulk of insolvencies, will generally have limited or no assets to even fund the work required, let alone pay a dividend to creditors.

Such a market failure needs government intervention. In our view, a government liquidator is needed to handle the large number of unfunded insolvencies. It should also take a role in ensuring regulatory compliance, reporting and enforcement in insolvency, comparable with the roles that that have existed for over a century in the UK and New Zealand. This would free up private insolvency and restructuring professionals to apply their core skills of identifying businesses that can and should be saved and in generating returns for creditors through asset sales and recovery proceedings. Asset-less companies…