On 22 February 2016, the Insolvency Law Reform Bill 2015 (Cth) (the Bill) was passed by both houses of the Commonwealth Parliament. The Bill substantially reforms the way in which insolvency practitioners are regulated.
In particular, the Bill reduces unnecessary differences between the corporate and personal insolvency regimes but its clear focus is on the registration, discipline and regulation of insolvency practitioners.
The new regime for the regulation of insolvency practitioners will be set out in schedules attached to each of the Corporations Act 2001 (Cth) (the Corporations Act) and the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) known as the Insolvency Practice Schedules. This article will deal with the changes outlined in the Insolvency Practice Schedule (Corporations).
Insolvency Practice Schedule (Corporations)
The Insolvency Practice Schedule (Corporations) (the Corporations Schedule) is comprised of four separate parts. Part 1 outlines the objectives of the Corporations Schedule along with a number of definitions, whilst the substantive amendments are contained in parts 2 to 4 of the Corporations Schedule.
The Insolvency Law Reform Bill 2015 replaces the current process of registration in which a person submits a written application to become a registered liquidator to the Australian Securities and Investments Commission (ASIC) with a process whereby applications will be considered by a committee consisting of a representative of ASIC, a registered liquidator appointed by the Australian Restructuring, Insolvency and Turnaround Association (ARITA) and a representative of the Minister.
ASIC must convene the committee within three months of receiving an application. The committee must interview the applicant and may require them to sit an exam. Once the committee approves an application and an applicant provides written evidence of appropriate insurance cover, ASIC must register the applicant as a liquidator.
Registrations will now only last for three years, after which liquidators must apply to ASIC for renewal of their registration. This will also apply to existing liquidators, whose registration will end on the first anniversary of the date of their current registration occurring after the commencement of the Corporations Schedule.
Under the Insolvency Law Reform Bill 2015 , ASIC assumes the powers of the Companies Auditors and Liquidators Disciplinary Board and may cancel or suspend the registration of a liquidator in certain circumstances, such as conviction for an offence involving fraud or dishonesty.
ASIC may also issue a show cause notice to a registered liquidator if they believe that person has, amongst other things, contravened the Corporations Act or breached their duties in any way.
The liquidator will then have 20 business days in which to provide a satisfactory explanation of the matter. Should such an explanation not be forthcoming, ASIC may refer to the liquidator to a disciplinary committee consisting of a representative of ASIC, a registered liquidator chosen by ARITA and a representative of the Minister to decide whether they should retain their registration.
Importantly, unlike the current regime, ASIC’s disciplinary committees are not required to undertake a hearing and may have regard to information provided by ASIC, the liquidator’s explanation and any other matters they consider relevant.
The Bill also confers extra powers on the court to regulate the conduct of liquidators, which may be exercised by the court on its own initiative.
The Insolvency Law Reform Bill 2015 also makes a number of changes to the conduct of external administrations. In particular, except for members’ voluntary windings up and provisional liquidation, the remuneration of insolvency practitioners will now be made by creditors of the company or, where relevant, the committee of inspection.
External administrators will also no longer have to file a Form 524 – Presentation of accounts and statement with ASIC every 6 months but will not be required to lodge an annual report with ASIC within 3 months of the end of each year.
The Bill also requires that external administrators provide information, reports or documents to individual creditors upon request except where such documents are not relevant to the external administration, the administrator would breach their duties or it would otherwise be unreasonable to comply with the request.
The Insolvency Law Reform Bill 2015 also provides that an external administrator may convene a meeting of creditors at any time on their own initiative but must do so where they are reasonably directed by:
- a resolution of creditors;
- at least 25% in value of creditors; or
- more than 10% in value of creditors, provided that security is given for the costs of the meeting.
Sections 497 and 509 of the Corporations Act will also be repealed by the Bill, meaning that in the case of a creditor’s voluntary winding up, liquidators will no longer be required to hold either the initial meeting of creditors at the commencement of the winding up or the final meeting of creditors at the completion of the winding up.
The Insolvency Law Reform Bill 2015 also empowers the Court to make enquiries into the administration of a company and may any orders it considers appropriate. This may be done either on the court’s own initiative or on the application of a person with an interest in the external administration or ASIC.
The court may remove an external administrator, order them to repay their remuneration and make other orders in relation to losses sustained by the company.
The Bill also allows ASIC or the court to appoint a registered liquidator to carry out a review into any matter relating to the external administration of the company. A registered liquidator may also be appointed to conduct such a review by resolution of the creditors.
Creditors are also empowered by the Insolvency Law Reform Bill 2015 to remove an external administrator by resolution and appoint a replacement. An external administrator removed in this way may apply to the court to be reinstated if the court is satisfied that their removal was improper.
Assignment of Actions
Most interestingly, the Bill will allow external administrators to assign their rights to sue under the Corporations Act, including those relating to the recovery of voidable transactions, provided that the actions have not already begun (unless the approval of the court is obtained) and the external administrator gives written notice to the company’s creditors of the assignment.