Over 130 questions about insolvency regulation and practises have been raised for discussion by the Attorney-General’s Department and the Departments of Treasury in their “Options paper: a modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”, released at the 2011 Gala Dinner of the Insolvency Practitioners Association of Australia on 2 June.
The questions, extracted from the 120 page paper, are shown below. The final date for submissions is 29 July 2011.
Standards for entry into the insolvency profession
- Are there any concerns with changing the academic requirements to remove the greater emphasis placed upon accounting skills over legal skills, while retaining a minimum level of study in each?
- Should the gaining of a Masters in Business Administration meet the qualification requirements for registration, if it did not otherwise meet legal and accounting study requirements?
- Should a minimum level of actual experience in insolvency administration remain a mandatory requirement for registration as a practitioner?
- Should the experience requirements for registered liquidators be reduced to two years of full‑time experience in five years?
- Should new market entrants be required to complete some form of insolvency specific education before practicing as registered liquidators or registered trustees?
- Should ASIC be empowered to impose requirements on a registered liquidator as a condition of the registration? What types of conditions should a regulator be empowered to impose upon a new registered liquidator’s registration?
- Should a registered trustee face more streamlined entry requirements than those that exist for a standard applicant for registration as a registered liquidator, and vice versa?
- Is further formal training necessary to ensure that practitioners that wish to transition between the two professions are able to fulfil their statutory obligations?
Registration process for insolvency practitioners
- Should an applicant seeking registration as a registered liquidator or registered trustee be required to be interviewed as part of the registration process?
- Should an applicant seeking registration as a registered liquidator or registered trustee be required to sit an exam as part of the registration process?
- Should a general ‘fit and proper’ person requirement be imposed for the registration of both personal and corporate insolvency practitioners?
- If the process for the registration of liquidators is aligned with the process for the registration of registered trustees, what differences should be maintained between the two registration processes?
- Is it appropriate that the current fee for registration of liquidators be increased to reflect the amendments to registration processes?
- Should the official liquidator role be maintained?
- What other aspects of the current Bankruptcy Act committee system might be amended?
- If registration of a registered liquidator is for a defined period, what conditions should be required to be met for renewal of the registration to occur?
- Should the renewal process include a fee? Should the fee be commensurate merely with the administrative cost for completing the renewal or should the revenue raised by the fee be used to fund additional oversight of the insolvency market? Should the renewal fee be determined with reference to the numbers and nature of the administrations to which the practitioner is appointed?
Remuneration framework for insolvency practitioners
- Should the Corporations Act be amended to include a provision that aligns with the Bankruptcy Act prohibition upon practitioners making any arrangement whereby a benefit is received, either directly or indirectly, in addition to the remuneration to which he or she is entitled? Should such a prohibition be clarified to provide that this extends to charging disbursements with a profit component that may benefit, directly or indirectly, the practitioner?
- Are the current requirements for the provision of information to creditors to assist them in assessing costs appropriate? Should this information be provided in a standard form? Should these requirements be aligned between corporate and personal insolvency?
- What could be done to address concerns about cross subsidisation?
- What could be done to address concerns about inappropriate use of disbursements?
- Should all fee approval be required to be subject to a cap set by creditors in an external administration or bankruptcy? Is it unreasonable to expect that an insolvency practitioner go back to the creditors in order to seek an increase on the initial remuneration cap?
- Should a group of creditors (or a single creditor) that successfully challenge an insolvency practitioners’ remuneration, receive an increased priority in relation to the savings that may result?
- Should a registered liquidator, under any circumstances, be able to exercise a casting vote on a motion regarding his or her remuneration or removal?
Communication and monitoring
- What amendments should be made to provide creditors with more information or power to monitor the progress of a winding up, administration or bankruptcy?
- Should creditors have largely the same rights to information and tools to monitor a liquidation, administration, bankruptcy or controlling trusteeship?
- Are there any impediments to insolvency practitioners communicating with creditors electronically?
- If the statutory frameworks are aligned, are there any modifications necessary to account for the practical differences between the bankruptcy and corporate insolvency frameworks?
- Would support from at least 25 per cent of creditors be an appropriate threshold in corporate insolvency for requiring a creditors meeting to be held? Given the larger numbers and quantum of claims, would a lower threshold (for example, 10 per cent) be more appropriate? What rules should apply in relation to who bears the costs of holding a meeting of creditors?
- If liquidators are required to provide all information reasonably requested by a creditor regarding a liquidation or administration and creditors have improved powers to require the calling of meetings, is there any need for default annual meetings, written updates or creditors’ meetings at the completion of a winding‑up? Could these requirements be amended to a requirement for the practitioner to raise the option of having such updates and meetings with creditors (for consideration and voting) as a default reporting arrangement?
- Should the role of the COI be given greater prominence in the corporate and personal insolvency systems? If so, how might this occur?
- Should the rules governing COIs be aligned between corporate and personal insolvency? Are there any specific aspects of COI law that should be otherwise reformed?
- Should creditors be able to make a binding resolution on a liquidator? If yes, should there be any role for the Court to overrule that resolution (for example, where the Court believes that the resolution is not in the best interests of the creditors as a whole)? Should there be any limit on the type of areas that creditors are able to pass a binding resolution?
Funds handling and record keeping
- Should the rules governing record keeping, accounting, audits and funds handling in corporate and personal insolvency be aligned? If so, how should this occur?
- If aligned rules on accounts reporting are introduced, what should be the content, form and frequency of the accounts required?
- Are there other record keeping, accounting, audits and funds handling rules that should be mandated for personal and corporate insolvency, in addition to those that currently exist?
- If amendments are made to the personal and corporate law to align the powers of the regulators (in certain circumstances) to freeze the accounts of insolvency practitioners, in what circumstances should the regulators be able to issue an account freezing notice to a bank?
- Should the issuing of an account freezing notice require an application to the Courts? For how long should a freezing notice have effect?
- At what level should the penalties that apply to breaches of the funds handling, record keeping, retention of books, and audit provisions in the Corporations Act and the Bankruptcy Act be set to provide a greater deterrent to potential offenders?
- Will increasing the penalties make practitioners more likely to pay greater attention to these requirements?
- Are there additional civil obligations and criminal offences that should be provided for in respect of these areas?
- If civil or criminal penalties are applied for the lodgement of inaccurate annual reports, under what circumstances should those penalties apply?
- Should late lodgement, non‑lodgement or false lodgement of accounts be a statutory basis for removal? If so, by what process might removal take place?
Insurance requirements for insolvency practitioners
- Is there a benefit for insolvency practitioners, creditors or other stakeholders in aligning the insurance requirements for liquidators and registered trustees?
- If the criminal penalty for not complying with insurance requirements is increased, at what level should the penalty be set to provide a sufficient deterrence against breach?
- Should a fidelity fund be established? If so, how should such a fund be operated and funded?
- What other reforms might be put in place regarding insurance requirements?
Discipline and deregistration of insolvency practitioners
- Are there any reforms that should be made to either the Committee’s or the CALDB’s systems of disciplining practitioners to improve their operation?
- Do you think that aligning the disciplinary frameworks will provide for more consistent and improved outcomes for practitioners and other stakeholders between personal and corporate insolvency?
- If a Committee structure is adopted for registered liquidators:
- Should there be any amendments to the framework that underpins the current personal insolvency committee system?
- Should the statutory framework for the committee system currently in the Bankruptcy Act be replicated in the Corporations legislation?
- Should ASIC be statutorily required to provide a show‑cause notice to the practitioner before establishing a committee?
- Should the committee consist of a member of ASIC, a member of the IPA, and an appointee of the Minister?
- Should there be a time limit for decisions by the committee? Should it be aligned with the current time limit for bankruptcy?
- If a Committee structure is not adopted for registered liquidators, what specific reform options should be adopted under either the CALDB or Committee regimes? In particular:
- Should a statutory timeframe be introduced for decisions by the CALDB?
- Are there any powers that the CALDB currently has that should equally be conferred upon a Committee under the Bankruptcy Act or vice versa?
- What, if any, other reforms should be made in respect of the transparency of Board and Committee hearings and decisions?
- Should a committee constituted under the Bankruptcy Act be empowered to summon a third party to appear at a hearing to give evidence and be cross examined?
- Should mechanisms be put in place to impose sanctions on practitioners or witnesses who fail to attend or provide books to a Committee or Board?
- Should the Bankruptcy Act be amended to provide ITSA with the express power to seek to deregister a registered trustee where the trustee is no longer ‘fit and proper’?
- If the regulatory frameworks are amended to expand the powers of ASIC and ITSA to discipline insolvency practitioners directly, what minor breaches should those powers extend to?
- Would the suggested amendments to enhance the powers of the court breach considerations of natural justice?
- Should the nature of the role of registered liquidators and registered trustees as officers of the court, as well as their inherent fiduciary duties, mean that it is reasonable to empower the Court to direct them to stand aside where there are serious allegations that have yet to be resolved?
Removal and replacement of insolvency practitioners
- Should an initial creditors’ meeting in a compulsory winding up at which creditors would have the right to replace or appoint a new liquidator be mandated?
- If an initial creditors’ meeting were mandated for court‑ordered windings up:
- Should there be an exception for assetless administrations?
- Should approval of the appointed registered liquidator be able to be obtained through a mail out? If confirmation/replacement of registered liquidations occurred by postal vote in court ordered liquidations, should this mechanism also replace the opportunity to replace a practitioner provided via initial meetings in other kinds of corporate insolvency?
- Should creditors in corporate insolvencies be generally empowered to remove a registered liquidator by resolution in the same way as under personal insolvency law?
- What effect, if any, would the potential for removal be expected to have on remuneration arrangements?
- Does the current scheme for the removal of a registered trustee provided sufficient and clear protections against abuses of process?
- If creditors are empowered to remove a liquidator in a creditors’ voluntary winding up (subsequent to the first meeting), should members have any corresponding right in a members’ voluntary winding up?
- Is there a need to facilitate the transfer of the books of the administration from an outgoing insolvency practitioner to his or her replacement? What barriers, if any, are there to the implementation of such a reform?
- Are any other amendments necessary to assist creditors to use any new power to remove a registered liquidator? What other administrative arrangements would be required to ensure a smooth transition from one registered liquidator to another?
- Are there unjustified divergences between the powers and roles of the insolvency regulators?
- Should a creditor in a corporate insolvency have any right to request that ASIC undertake a review of specified kinds of decision by a liquidator?
- If ASIC was to be empowered, what types of decisions should ASIC be able to review?
- The expansion of ASIC’s current functions to include such a review power would have some cost. Given the Government’s cost recovery policy how should any expansion of powers be funded?
- Should ASIC and ITSA be given more flexibility to communicate to a complainant (or creditors generally) information obtained by it in relation to the conduct of an external administration?
- Should regulators be able to require a practitioner to sit an examination to test ongoing compliance with the knowledge or skills requirements for registration? Should such a power be extended to enabling regulators to require persons acting under delegation from practitioners to sit an examination?
- What powers might be appropriate to provide to regulators to facilitate (if necessary) the rights of creditors to call meetings and to ensure such meetings are held in a transparent manner — in particular in relation to the assessment of votes for and against the retention of the current insolvency practitioner?
- Does section 536 of the Corporations Act, as currently applied by the Court, provide for the appropriate supervision of registered liquidators by ASIC?
- Should ASIC be able to share information with the IPA for disciplinary purposes?
- Should ITSA and ASIC be empowered to impose conditions across the market? If so, what types of conditions should the regulator be empowered to impose?
- If a new Ombudsman or external dispute resolution scheme were established:
- Should the new body be a statutory body (for example, the Superannuation Complaints Tribunal) or a private body (for example, the Financial Ombudsman Service)?
- Should any new body have the ability to hear disputes in both corporate and personal insolvency? Should the new entity be independent of the two regulators?
- If the body is a statutory entity, what functions of ITSA or ASIC should be given to the new body? Should the body have power to obtain information or to inspect the records of an organisation relevant to the complaint? If the new body is privately run, what protections would need to be put in place to achieve this?
- How should the new body be funded? Should there be any charge to the complainant to investigate a complaint or should it be funded through an industry levy?
- Should the body have an explicit educative role?
- Should the body have the right to deal with systemic issues or commence its own investigation? If the body is a private entity, what powers should it be given to achieve those objectives?
- What types of disputes should the body be able to hear and deal with? Should the body be able to review remuneration? Should this be done through independent cost assessors?
Specific issues for small business
- Are any statutory reforms required to assist regulators to provide improved regulation in relation to interconnected personal and corporate insolvencies? Are improvements needed in relation to their capacity to share information and cooperate?
- If the scope of the AA Fund is broadened to allow for the funding of registered trustees to investigate and report on corporate law breaches, which Corporations Act breaches in particular should be provided for?
- Should the scope of the AA Fund be broadened to allow for loans to registered liquidators to properly carry out their fiduciary and statutory duties?
- Should section 305 of the Bankruptcy Act also be expanded to provide for the funding of investigations into corporate law breaches?
- What steps might be taken to improve efficiency in relation to related personal and corporate insolvencies while appropriately addressing conflicts of interest?
- What other amendments can be made to assist creditors and directors of small corporates to better engage with the corporate insolvency system?
- Is there a case for automatic disqualification of directors after a company failure? If so, how many repeated failures should trigger disqualification? Should there be a threshold for failures to trigger disqualification (for example, where less than 50 cents in a dollar are returned to creditors)? Over what period must the failures occur?
- Should a registered liquidator be able to assign actions which vest personally in the liquidator? If so, should a registered trustee be likewise able to assign rights of action?
- Should ASIC be able to automatically disqualify a director of an insolvent company who has not taken reasonable steps to ensure that the company has maintained its financial records?