Insolvency Law – Page 4 – ░░░ INSOLVENCY INTERFACE

Review of the Personal Property Securities Act finished and tabled

Corporate Insolvency, External administration, Insolvency Law, Personal Property Securities, retention of title Comments Off

Mar 252015

The Final Report on the review of Australia’s Personal Property Securities Act (PPSA) was tabled before Parliament on 18 March 2015. (It was written by Bruce Whittaker, Partner, Ashurst.)

Cover of report

Extracts from Executive Summary

…. The Personal Property Securities Act 2009 (referred to in this report as the Act) has improved consistency in Australia’s secured transactions laws, but submissions emphasised that the Act and the Register are far too complex and that their meaning is often unclear, and that the resultant uncertainty has not allowed the Act to reach its potential…. …. Much can be done to improve the Act. The Act is significantly longer than the corresponding legislation in other jurisdictions, and while some of that additional length is attributable to constitutional or other machinery provisions, much of it flows from the very prescriptive nature of some of the drafting, and from the inclusion of additional provisions that may be of only marginal benefit…. …. There is no one single step that by itself will produce a major improvement to the Act. Rather, improvement needs to come from the making of many small changes…. …. The reforms introduced by the Act will only realise their objectives if the people that it affects are aware of it, and understand how it affects them. Government went to considerable efforts to raise awareness of the Act around the time that the Act was passed, but general awareness of the Act appears to have remained low, and the complexity and unfamiliarity of the content of the Act have meant that many do not know how to work with it….

Recommendations

There are 394 recommendations in the Final Report. They appear in a table in Annexure E, beginning at page 502 of the report. DOWNLOAD: The full report is available for download at this AG department website.

Non-compliance with the Act

As someone who believes that our laws must be drafted using plain writing skills, and as one of those who felt strongly and said from the start that the Personal Properties Securities Act 2009 was far too complex and confusing for the vast majority of people to understand (and hence, badly written), the Report’s comments to this effect are worth repeating here. They appear under the heading “3.2.3 Causes of non-compliance with the Act”:

The lack of awareness and understanding of the Act among users is also the primary reason why businesses are failing to comply with it. A person who is not aware of the existence of the Act, or of the fact that it could apply to them, is most unlikely to be operating in a manner that is consistent with the rules set out in the Act, particularly as those rules are very different in some critical respects to the laws that preceded them. Similarly, even people who are aware of the Act and of the fact that it affects them are often failing to comply with its rules because they do not understand those rules properly. One submission from the rural sector observed, for example, that the Act:

has not achieved a clear and appropriate outcome for small business; rather it has created a raft of uncertainty, misrepresentation and total confusion for all small business operators in Rural Australia.

The extracts from submissions that are set out above in Section 3.1.2 all make the same point: that the Act and the Register are far too complex. This was a consistent theme across the submissions as a whole.

The Act deals with a complex area of the law – one that traverses our entire economy, and that manifests itself in different sectors of the economy in very many different ways. The area does not lend itself to one simple set of rules, and the Act will always be complex. The submissions demonstrated, however, that the Act is more complex than it needs to be. In my view, a number of factors have contributed to this outcome.

First, as noted earlier, many of the concepts and much of the terminology in the Act have been adopted from overseas models. Those models were not created in a legal vacuum, but were founded in and based on the substance of the legal systems for which they were developed. In particular, while Article 9 of the Uniform Commercial Code in the United States was regarded as revolutionary in the way that it created a standard set of rules for all types of security interests, it was also very much a creature of the state of law and commercial practice in the United States at the time it was developed. Clearly, the economic structures and legal systems in Australia in the early 21st century are very different to those that prevailed in the United States in the middle of the previous century. As a result, terminology and concepts that made sense and were relevant for Article 9 as part of United States law will not necessarily make the same sense, or have the same relevance, in the Act as a component of current Australian law.

Secondly, it appears that the architects of the Act may have tried too hard to be helpful. The Act is far longer than its Canadian and New Zealand counterparts, even allowing for the additional provisions that were included to accommodate constitutional and other machinery requirements. The developers of the Act appear to have endeavoured to produce a “best of breed” piece of personal property securities legislation, by picking out the best elements of the offshore models and then adding additional detail in an effort to explain more clearly exactly what is required. Rather than helping Australian businesses, however, this had the effect of creating very specific and detailed operational requirements. It limited flexibility and required changes to operating practices in order to align them with the structures required by the new rules.

The third main factor that has led to this situation, in my view, is that the development of the Act appears to have been approached as a design process, too divorced from the realities of the marketplace that it was designed for. While Government did provide the business and legal community with opportunities to comment on drafts of the legislation, the sense of many of those who were involved in the consultation process was that input from the business and legal community was not sufficiently incorporated into the policy design and the detailed drafting. As a result, there is a misalignment in some areas between the policy and drafting of the Act on the one hand, and the operating realities of the Australian business environment on the other. This has created confusion and uncertainty, rather than clarity and certainty.

This is not intended to reflect adversely on the individuals involved in the actual drafting of the Act, or those who instructed them. Rather, it is a reflection of the magnitude and complexity of the task.

Whatever the reasons for the confusions and complexities in the Act, they have made the Act very hard to understand and to work with, not just for businesses but even for legal specialists as well. This is exacerbated by the fact that the complexities compound each other – unfamiliar terms and uncertain concepts are used in complex provisions, in a way that can make it even more difficult to determine how those complex provisions inter-relate with each other. The cumulative effect is that the Act can be very difficult to understand and to work with.

It is clear that much can and should be done to streamline the Act, and to align it more closely with the realities of the marketplace that it applies to. That is the subject of Chapters 4 to 9 of this report.

The big challenge for amendments to the Act that are made as a result of the Final Report is that they make the Act and its practical application much easier to understand.

Policy positions of the insolvency practitioners association

Corporate Insolvency, External administration, External administrators, Insolvency Law, Insolvency practices, Official Inquiries, Practitioners Association (ARITA) Comments Off

Mar 052015

A set of “policy positions” on insolvency law and practice has just been issued by Australia’s insolvency practitioners association – the Australian Restructuring Insolvency and Turnaround Association (ARITA).

The policies are titled:

Policy 15-01: ARITA Law Reform Objectives (Corporate)
Policy 15-02: Aims of insolvency law
Policy 15-03: Current Australian corporate restructuring, insolvency and turnaround regime and the need for change
Policy 15-04: Creation of a Restructuring Moratorium (Safe Harbour)
Policy 15-05: Stronger regulation of directors and creation of a director identification number
Policy 15-06: Advocate for Informal Restructuring
Policy 15-07: Reworked Schemes/Voluntary Administration regimes to aid in the rehabilitation of large enterprises in financial distress
Policy 15-08: Extension of moratorium to ipso facto clauses
Policy 15-09: Streamlined Liquidation for Micro Companies
Policy 15-10: Micro Restructuring
Policy 15-11: Pre-positioned sales

ARITA’s 17-page paper – named Policy Positions of the Australian Restructuring Insolvency and Turnaround Association – is the final version of its discussion paper, A Platform for Recovery 2014. It is attached to its submission on 2 March 2015 to the Productivity Commission’s public inquiry into ” barriers to setting up, transferring and closing a business”.

It seems ARITA’s policy positions paper is not yet (mid-day 5/3/15) published as a separate document on ARITA’s website. However, I have created a copy, which is available on my website now.

ARITA’S full 59-page submission to the Productivity Commission is available on its site, as is its useful summary of the key points made in the submission. ARITA says that the policies in the Policy Positions paper form the key basis of ARITA’s submission to the Productivity Commission.

Other link: To the website of the Productivity Commission’s Business Set-up, Transfer and Closure inquiry.

Factors considered in court review of provisional liquidator’s remuneration

Corporate Insolvency, court decisions, External administrators, Insolvency Law, law reports Comments Off

Feb 172015

What information should a liquidator supply to the court to have his or her remuneration approved? On the other side, those opposed to the amount of remuneration must “settle on particular aspects of the liquidators’ conduct which can be queried”. This judgment from Western Australia on 11 February 2015 considers some issues.

Judgment – Remuneration of Provisional Liquidator – WA

Judges Gavel

RE PNP PACIFIC PTY LTD; EX PARTE STRICKLAND & HURT as Liquidators of PNP PACIFIC PTY LTD [2015] WASC 49 (11 February 2015)

CORAM : MASTER SANDERSON > HEARD : 6 NOVEMBER 2014 > DELIVERED : 6 NOVEMBER 2014 > PUBLISHED : 11 FEBRUARY 2015 > FILE NO/S : COR 147 of 2014

MATTER : Application for approval of liquidators’ remuneration pursuant to s 504 of the Corporations Act 2001 (Cth) > EX PARTE > KIMBERLEY ANDREW STRICKLAND as Liquidator of PNP PACIFIC PTY LTD First-named Plaintiff > DAVID ASHLEY NORMAN HURT as Liquidator of PNP PACIFIC PTY LTD > Second-named Plaintiff.

Catchwords: Liquidation – Application for approval of remuneration – Turns on own facts. Legislation: Corporations Act 2001 (Cth), s 449E (7)

________________________________________________________________

1 MASTER SANDERSON: This was the plaintiffs’ application for approval of remuneration. The application was issued on 6 August 2014. It was supported by an affidavit of the second-named plaintiff, David Ashley Norman Hurt, sworn 29 May 2014, and a further affidavit of Mr Hurt, sworn 6 August 2014. Mr Sean Damian O’Reilly, a secured creditor of the company, appeared and opposed the making of the order for remuneration. I granted Mr O’Reilly leave to file any affidavit in opposition to the liquidator’s remuneration claim by 16 September 2014.

2 The matter came back before the court on 6 November 2014. The plaintiffs were represented, but Mr O’Reilly did not appear. I indicated to counsel for the plaintiffs no affidavit from Mr O’Reilly had been received and I would make orders approving the remuneration in terms of the originating process. I indicated I would give written reasons for my decision. On 16 December 2014 I read short oral reasons into the transcript and published these reasons both to the plaintiffs’ solicitors and to Mr O’Reilly. Regrettably, due to an administrative oversight, I did not take into account an affidavit of Mr O’Reilly which had been filed on 7 October 2014. I have now had the opportunity to consider that affidavit and have concluded that even with the benefit of Mr O’Reilly’s affidavit, the plaintiffs’ application should be approved. These reasons deal shortly with why, in these rather unusual circumstances, I would approve the plaintiffs’ remuneration.

3 The way in which the remuneration of liquidators, provisional liquidators and other company administrators is to be determined was set out by the Full Court of this court in Venetian Pty Ltd v Conlan (1998) 20 WAR 96. It is worth setting out again the regime mandated by the court. It is as follows (103 104):

Ordinarily, to commence the proceedings, the provisional liquidator will provide the court with a statement of account reflecting in appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly. The statement of account should also reflect in appropriately itemised form the expenses incurred by the provisional liquidator, accompanied where necessary by voucher proof. Sufficient detail should be provided to enable the court to determine whether the disbursements were reasonably incurred and that the amounts claimed are reasonable.

The statement of account should be verified by affidavit. When the remuneration claimed involves work carried out by the provisional liquidator and his staff, the verifying affidavit need state merely that the work described in the statement of account was done by the provisional liquidator or under his personal supervision, and that from personal knowledge or from the records kept by the provisional liquidator or his firm, or from some other appropriate source, he believes that the information contained in the statement of account is correct. When disbursements are claimed, the affidavit should verify that they were incurred and, if necessary, why they needed to be incurred.

In Re Solfire Pty Ltd (In liq) (No 2), Shepherdson J said (at 1,164):

‘In my view, when a provisional liquidator seeks to have his remuneration determined by the court he should provide a document not dissimilar in form to the bill of costs in taxable form provided by a solicitor to his client … He should identify the person or persons and the grade or grades of the person or persons engaged in the particular task concerning the provisional liquidation, he should identify that task and dates on which time was spent on it, the amount of time spent on it and he should identify the relevant rate, according to the grade of the person or persons performing the work. I also consider that he should require the person performing the work to keep reasonably detailed diary notes and time sheets which documents should be open to inspection by persons entitled to see them.’

In our opinion, however, it is, with respect, unnecessary to lay down an absolute rule, in such detailed terms, concerning the statement of account to be provided by a provisional liquidator. It may well be that in a particular case information particularised as suggested by Shepherdson J would be appropriate. In other cases less detailed information may be required. Every case depends on its own circumstances. But the overriding principle remains: sufficient information must be provided to the court to enable it to perform its function under s 473(2).

If the Master were to be satisfied that the statement of account was sufficiently detailed to enable the remuneration to be determined, but there were objections to the account, special directions should be given in regard to the mode in which the account is to be taken or vouched. The procedure set out in O 45 should as far as possible be adopted. If, for example, the objector challenges whether a particular item of work was in fact done, or whether the person alleged to have done the work spent the time alleged in doing it, it may be necessary for the provisional liquidator to call direct evidence establishing the correctness of the allegations made: see generally Gava v Grljusich (unreported, Supreme Court, WA, Full Court, Library No 970492, 19 September 1997).

Notice should be given of the points on which the provisional liquidator will be crossexamined (if crossexamination is allowed). The notice of objection should be supported by affidavit. Crossexamination of the provisional liquidator and the objecting party may then occur. But care should be taken to follow the admonition of Sir Robert Megarry VC in Computer Machinery Co Ltd v Drescher (at 1386), namely: ‘It would not be right to allow anything resembling a trial of the action to take place in the guise of an argument on costs’.

4 What is anticipated by this regime is a twostage process. The practice is grown up of liquidators swearing an affidavit and attaching to that affidavit copies of the timesheets used to calculate remuneration. In addition, the liquidator will provide a brief description of the role of each person for whom a charge has been made, and the rate at which the time has been charged. I then consider the timesheets and all related material and form a prima facie view as to whether the charge is reasonable.

5 In this case the approach taken by the liquidators was slightly different. They produced a remuneration report pursuant to s 449E(7) of the Act. A copy of that report is annexure DH11 to the first affidavit of Mr Hurt. The remuneration was approved at a meeting of creditors held on 23 April 2012. The liquidators then undertook further work and prepared a further remuneration request report which appears as annexure DH13 to Mr Hurt’s affidavit. It is this report seeking an amount of $25,419 which formed the basis of this application. The report was not approved by a meeting of directors.

6 The first report itself begins by setting out a ‘Schedule of Hourly Rates and General Guide to Staff Experience’. For instance, under the classification ‘Director’ there appears a heading ‘Description’. It reads as follows:

Chartered accountant (or equivalent) and degree qualified with 9+ years (approximately) of experience. Able to autonomously lead complex insolvency appointments.

7 The hourly rate specified is $510. There then follow a number of categories down to the final category of ‘Clerical’. Such persons are charged at $110 an hour. There is then a heading ‘Liquidators’ Disbursements’ which sets out the way in which disbursements are charged. For instance, ‘Printing’ is charged at 30 cents per page. There then follows a heading ‘Remuneration Methods’ and it is said that the liquidators have charged on a time cost basis. There is a further subheading ‘Other Creditor Information on Remuneration’. Reference is made to a number of publications providing some guide as to the way in which liquidators charge generally.

8 The main part of the report appears under the heading ‘Schedule of Liquidator’s Anticipated Tasks and Estimated Remuneration for the Period 5 April 2012 to Finalisation of the Liquidation’. The total shown is $40,230, and it was this amount that was approved.

9 The second report was in a slightly different form. Once again, the hourly rates of staff were set out and it is said charging was based on a time cost method. There then appears a heading ‘Tasks Undertaken by the Liquidators and Time Costs for the Period 5 April 2012 to 30 June 2013’. By way of example as to how these matters are set out, appearing below is the first of a number of discrete boxes setting out what was done in relation to particular matters.

Task area	General description	Includes
Assets 9.9 hours $2,804 $311 per hour	Stock, Plant and Equipment	reviewing asset listings; correspondence and liaison with auctioneers and potential buyers; obtaining valuations; and tasks associated with realising assets.
	Debtors	reviewing the trade debtor position.
	Other assets	tasks associated with realising other assets.
	Funds in CS Legal trust account	tasks associated with realising funds in CS Legal Trust account; correspondence and liaison with solicitors; tasks associated with obtaining court order.

10 There is a final heading ‘Summary of the Liquidators’ Time Costs for the Period 5 April 2012 to 30 June 2013 by Personnel Level and Task’. By way of example, Mr Hurt is described as ‘Associate Director’. His hourly rate is $467. He is said to have spent 6.7 hours working on the liquidation at a total cost of $3,129. That dollar figure is then broken down further. For instance, under ‘Assets’, as set out above, Mr Hurt is said to have incurred an amount of $94 by way of costs.

11 As with every single case I have looked at over the past almost 17 years since Venetian was decided, I was satisfied, prima facie, the charges claimed were justified. It is difficult to see how in any circumstance a different conclusion can ever be reached. All a liquidator can ever do is set out in broad detail what was done in the course of the liquidation and the hourly rate charged. There is no way I could, by looking at the broad description of the work done by Mr Hurt and his hourly rate, assess whether or not the charge is reasonable. Really, the first stage of this two stage process is a waste of time. Of course, if it were the case the material before the court was manifestly inadequate because there were no timesheets, the hourly rate was not specified, or the individuals who did the work were not identified, then the claim would fail. But that is a wholly different thing from requiring a preliminary assessment of the entitlement to remuneration.

12 In any event, having undertaken in this case a preliminary assessment of the material, I was satisfied, prima facie, the plaintiffs were entitled to compensation. It was then a matter of considering the affidavit of Mr O’Reilly. It is somewhat difficult to distil from the affidavit the nature of Mr O’Reilly’s complaint. It would appear to amount to Mr O’Reilly being dissatisfied with the time invested by the plaintiffs in the liquidation. At par 51 of his affidavit he says:

My professional opinion is that the amount of hours that could be substantiated in this matter is less than 50 hours.

13 In a following paragraph he goes on to offer a breakdown of how long various tasks would take. For instance, ‘Creditors’ is suggested to take four hours. Mr O’Reilly also complains about the charges of liquidators generally without reference to this particular liquidation. Mr O’Reilly was also not satisfied there was a need for investigation of the company’s affairs. If an investigation was actually undertaken, he says it was not comprehensive.

14 The difficulty with Mr O’Reilly’s affidavit is its generality. It does not settle on particular aspects of the liquidators’ conduct which can be queried. To refer again to the Venetian decision, Mr O’Reilly does not challenge whether a particular item of work was done or whether a particular person specified actually did the work. Based upon the general affidavit filed by Mr O’Reilly, there was no way I could have directed the liquidator to file further affidavit material. That would have required each and every one of the persons who were associated with the liquidation to swear an affidavit saying what they did, when they did it and why they did it. It is that sort of exercise which, on any approach to a review of remuneration, is to be avoided.

15 Accordingly, I was not satisfied the affidavit of Mr O’Reilly gave rise to any matter about which the liquidators had to provide further information. I am satisfied the approval of that remuneration was proper and appropriate. I made orders accordingly.

___________________________________________________________________

Insolvency law in United Kingdom to help external administrators obtain essential supplies

Corporate Insolvency, External administration, Insolvency Law Comments Off

Feb 102015

In the UK on 9 February 2015 the government issued the following statement by the Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs (Business Minister, Jo Swinson) :

Rescuing struggling but viable businesses out of formal insolvency helps save jobs and improves the prospect of creditors recovering some of what they are owed. The Enterprise and Regulatory Reform Act 2013 introduced new powers to help insolvency practitioners secure essential IT and utility supplies to keep a business going whilst it is being rescued.

I have today laid an Order to ensure that insolvency practitioners can retain the essential supplies they need to save viable businesses. There will be an impact on suppliers in the IT and utility sectors but I believe that by providing strong safeguards to ensure the supplier can have confidence they will be paid, we will ensure that the benefits of this measure far outweigh the
costs. In particular:

1. The supplier will be able to seek a personal guarantee from the insolvency practitioner at any time to give them more certainty that the supplies will be paid for.
2. The supplier will be able to apply to court to terminate their contract on the grounds of
‘ hardship’.
3. Guidance will be issued to insolvency practitioners to urge them to make contact with essential suppliers at the earliest possible time following their appointment to discuss their needs in relation to supply, to ensure that undue costs are not incurred.

The Government’s aim remains to ensure that a balance is struck between ensuring the rescue of viable businesses against the obligations placed on those suppliers that will be impacted by the Order. The proposed changes will have effect in relation to contracts made after 1 October 2015.

The Government consulted on how those new powers should be exercised and whether the safeguards proposed were adequate to ensure that those essential suppliers bound to supply an insolvent business would be paid. A total of 31 responses were received and I am very grateful for the time those respondents took to provide constructive feedback to the consultation. Almost all respondents expressed their support for the aims of the proposals with some suggesting ways to make the safeguards more effective. The draft Order was amended in the light of comments received.

Source: House of Commons: Written Statement (HCWS265)

Press Release: Insolvency Service Essential supplies to be guaranteed during business rescue

The Insolvency Service: Summary of Responses: Consultation on the Continuity of Essential Supplies.

Pre-appointment support for DOCA may be an inducement for valuable consideration

Corporate Insolvency, court decisions, External administration, External administrators, Insolvency Law, law reports, Offences Comments Off

Dec 152014

Registered liquidators are aware that they are prohibited by law from giving, or agreeing or offering to give, someone valuable consideration with a view to securing their own appointment or nomination as a liquidator or an administrator of a company, or an administrator of a deed of company arrangement (section 595 of the Corporations Act 2001).

But I wonder how many of them would be aware that giving an assurance of support for a proposed Deed of Company Arrangement may be an inducement under section 595.

The Chief Justice of the South Australian Supreme Court, Chief Justice Kourakis, took this view in his judgment in the case of Viscariello v Macks [2014] SASC 189, handed down on 9 December 2014.

Mr John Viscariello, a company director, alleged that registered liquidator Mr Peter Macks, administrator of two of Mr Viscariello’s companies, wrongfully failed to negotiate and put in place a Deed of Company Arrangement which would have allowed the companies to continue to trade under a changed ownership structure.

There were several other matters adjudicated upon in this case, and in a sense the allegation that the administrator had given an undertaking to the director that he would support a certain Deed of Company Arrangement (DOCA) became secondary.

But the comments by Chief Justice Kourakis are intriguing.

Chief Justice Kourakis

Mr Viscariello alleged that Mr Macks made certain representations to him and Mr Fred Bart (a businessman and entrepreneur who was a prospective purchaser of the company’s business) in a meeting in November 2001 to the effect that if he (Macks) were appointed as administrator, he would cause the company to enter into a deed of company arrangement reflecting the terms in a Heads of Agreement document, refered to by His Honour as “the proposed Bart DOCA”.

His Honour said:

“I find it unlikely that Mr Macks would have given an unqualified assurance that he would support the proposed Bart DOCA in breach of his duty to investigate the financial circumstances of the Companies and provide opinions to creditors.” [Para 122 of judgment]
….
“It is inherently improbable that he would have made the unqualified representations pleaded by Mr Viscariello.”[Para.125]
….
“If the pleaded representations were made and an agreement or understanding reached to that effect, Mr Macks would have breached s 595 of the Corporations Act and both Mr Bart and Mr Viscariello would have procured him to do so.” [Para.128]
….
“It would be contrary to the public interest to allow Mr Viscariello to recover damages for a misrepresentation which arises out of a failure to give effect to an unlawful arrangement.(Footnote 76) With respect to the false and misleading conduct alleged against Mr Macks in respect of the 27 November meeting with Mr Viscariello and Mr Bart, I reject Mr Viscariello’s evidence that Mr Macks gave an assurance that he would ensure that the Companies would enter into the Bart DOCA.” [para. 130](Emphasis added)

Footnote 76: Yango Pastoral Co Pty Ltd v First Chicago (Australia) Limited (1978) 139 CLR 410; Brownbill v Kenworth Trucks Sales (NSW) Pty Ltd (1982) 39 ALR 191; Alexander v Rayson [1936] 1 KB 169; McCarthy Rose (Milk Vendors) Pty Ltd v Dairy Farmers Coop Milk Co Ltd (1945) 45 SR(NSW) 266; Mason v Clarke [1955] AC 778.

Click here for pdf copy of judgment by Chief Justice Kourakis on 9 December 2014: Judgment in Viscariello v Macks [2014] SASC 18

Holiday reading for insolvency law enthusiasts

Corporate Insolvency, External administration, Insolvency Law, Law reform proposals, Regulation Comments Off

Dec 102014

In time for the Christmas holidays the American Bankruptcy Institute (ABI) has released (8 December 2014) a 400-page report titled Commission to Study the Reform of Chapter 11, 2012-2014, Final Report and Recommendations.

The ABI [**] is a bit like the Australian Reconstructing Insolvency & Turnaround Association (ARITA), only much larger. On its website it’s described as follows:

“The American Bankruptcy Institute is the largest multi-disciplinary, non-partisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI Canal Center Plaza membership includes more than 13,000 attorneys, auctioneers, bankers, judges, lenders, professors, turnaround specialists, accountants and other bankruptcy professionals providing a forum for the exchange of ideas and information. In fulfillment of its mission to provide information to its members, journalists, Congress and the public, ABI is engaged in numerous educational and research activities, as well as the production of a number of publications both for the insolvency practitioner and the public.”

This is an extract from the Introduction to the ABI’s report:

“A robust, effective, and efficient bankruptcy system rebuilds companies, preserves jobs, and facilitates economic growth with dynamic financial markets and lower costs of capital. For more than 35 years, the U.S. Bankruptcy Code has served these purposes, and its innovative debtor in possession chapter 11 process, which allows a company to manage and direct its reorganization efforts, is emulated around the globe. As with any law or regulation, however, periodic review of U.S. bankruptcy laws is necessary to ensure their continued efficacy and relevance …. Markets and financial products, as well as industry itself, often evolve far more quickly than the regulations intended to govern them. It may be that significant economic crises tend to occur cyclically and encourage reevaluation of the federal bankruptcy laws. Regardless, the general consensus among restructuring professionals is that the time has come once again to evaluate U.S. business reorganization laws.”

Despite the ABI’s report being mainly about Chapter 11 – i.e., the US law which permits a corporation or other entity to propose a plan of reorganization (debtor in possession) to keep its business alive and pay creditors over time – it seems to me that Australian insolvency law enthusiasts will find its discussion and analysis invaluable. Seriously.

A pdf copy of may be downloaded from the ABI site.

[**] As we all know, in America the term “bankruptcy” refers to corporate insolvency as well as personal insolvency.

Insolvency industry bodies may request disciplinary action by ASIC against registered liquidators

ASIC, Corporate Insolvency, External administrators, Insolvency Law, Law reform proposals, Practitioners Association (ARITA), Regulation Comments Off

Dec 092014

Under the Insolvency Law Reform Bill 2014 the insolvency practitioners association and the accountants associations are to be granted the right to formally refer registered liquidators who they suspect are guilty of misconduct to the Australian Securities and Investments Commission to consider using its disciplinary powers.

Disciplinary-action The following table sets out the proposed legislation by using extracts from the Bill and related official material.

SUBJECT: DISCIPLINE OF REGISTERED LIQUIDATORS:
POWER OF INDUSTRY BODY TO GIVE INDUSTRY NOTICE

SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC.	SOURCE OF TEXT
Subdivision G of Division 40 provides that an industry body will be able to provide information about potential breaches of the law by a liquidator, and also be able to expect a response from ASIC on the outcome of that information provision. The following industry bodies are proposed to be prescribed bodies: • Australian Restructuring Insolvency & Turnaround Association; • CPA Australia; • Institute of Chartered Accountants in Australia; and • Institute of Public Accountants.	Insolvency Practice Rules Proposal Paper, page 19, para 110
An industry body (prescribed in the Insolvency Practice Rules) may lodge a notice (*an industry notice*) stating that the body reasonably suspects that there are grounds for ASIC to take disciplinary action against a registered liquidator. The industry body must identify the registered liquidator and include the information and copies of any documents upon which the suspicion is grounded. ASIC must consider the information and documents included in the industry notice and take action as follows: • if ASIC decides to take no action ASIC, must give the industry body a notice within 45 business days after the industry notice is lodged; • however, such a notice does not preclude ASIC from taking action based wholly or partly on the basis of information in the industry notice of the following kind: – suspending or cancelling the registration of the registered liquidator; – giving the registered liquidator a show cause notice; or – imposing a condition on the registered liquidator; • if ASIC does take action based wholly or partly on the information included in an industry notice, ASIC must give the industry body notice of that fact. An industry notice is not a legislative instrument. An industry body is not liable civilly, criminally or under any administrative process for giving an industry notice if the body acted in good faith and the suspicion that the body holds in relation to the subject of the notice is a reasonable suspicion. A person who makes a decision in good faith as a result of which an industry body gives an industry notice is not civilly, criminally or under any administrative process for making the decision. A person who gives information or a document in good faith which is included, or a copy of which is included, in an industry notice is not liable civilly, criminally or under any administrative process for giving the information or document.	Explanatory Material, pages 140-141, paras 6.67 to 6.70
An industry body (which will be prescribed in the Insolvency Practice Rules) may give ASIC an ‘industry notice’ stating that the industry body reasonably suspects that there are grounds for ASIC to take disciplinary action in relation to a registered liquidator. ASIC is required to notify the industry body whether or not it has decided to take action in relation to the matters in the industry notice. An industry body is not liable civilly, criminally or under any administrative process if the body acted in good faith and its suspicion in relation to the subject of the notice is a reasonable suspicion. A person who makes a decision in good faith as a result of which an industry body gives a notice is not liable civilly, criminally or under any administrative process. Similarly, a person who in good faith provides information or gives a document which is included in an industry notice, or a copy of which is included, is not liable civilly, criminally or under any administrative process.	Explanatory Material, Comparison of key features of new law and current law, page 125
Notice by industry bodies of possible grounds for disciplinary action Industry body may lodge notice (1) An industry body may lodge with ASIC a notice in the approved form (an industry notice): (a) stating that the body reasonably suspects that there are grounds for ASIC: (i) to suspend the registration of a registered liquidator under section 40-25; or (ii) to cancel the registration of a registered liquidator under section 40-30; or (iii) to give a registered liquidator a notice under section 40-40 (*a show-cause notice); or (iv) to impose a condition on a registered liquidator under another provision of this Schedule; and (b) identifying the registered liquidator; and (c) including the information and copies of any documents upon which the suspicion is founded. ASIC must consider information and documents* (2) ASIC must consider the information and the copies of any documents included with the industry notice. ASIC must give notice if no action to be taken (3) If, after such consideration, ASIC decides to take no action in relation to the matters raised by the industry notice, ASIC must give the industry body written notice of that fact. 45 business days to consider and decide (4) The consideration of the information and the copies of any documents included with the industry notice must be completed and, if ASIC decides to take no action, a notice under subsection (3) given, within 45 business days after the industry notice is lodged. ASIC not precluded from taking action (5) ASIC is not precluded from: (a) suspending the registration of a registered liquidator under section 40-25; or (b) cancelling the registration of a registered liquidator under section 40-30; or (c) giving a registered liquidator a notice under section 40-40 (a show-cause notice); or (d) imposing a condition on a registered liquidator under another provision of this Schedule; and wholly or partly on the basis of information or a copy of a document included with the industry notice, merely because ASIC has given a notice under subsection (3) in relation to the matters raised by the industry notice. Notice to industry body if ASIC takes action (6) If ASIC does take action of the kind mentioned in subsection (5) wholly or partly on the basis of information or a copy of a document included with the industry notice, ASIC must give the industry body notice of that fact. Notices are not legislative instruments (7) A notice under subsection (3) or (6) is not a legislative instrument. No liability for notice given in good faith etc. (1) An industry body is not liable civilly, criminally or under any administrative process for giving a notice under subsection 40-100(1) if: (a) the body acted in good faith in giving the notice; and (b) the suspicion that is the subject of the notice is a reasonable suspicion. (2) A person who, in good faith, makes a decision as a result of which the industry body gives a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for making the decision. (3) A person who, in good faith, gives information or a document to an industry body that is included, or a copy of which is included, in a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for giving the information or document.	Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), sections 40-100 and 40-105, pages 186 & 187

New law to give creditors power to review fees of liquidators

Corporate Insolvency, External administration, Insolvency Law, Insolvency Laws, Law reform proposals, Regulation Comments Off

Dec 062014

When the Insolvency Law Reform Bill 2014 is passed, creditors in an external administration of a company (except under receivership or provisional liquidation) will be granted the power to have the external administrator’s fees reviewed by another external administrator. In the draft legislation, the person appointed by creditors is called a reviewer, a reviewing liquidator and, occasionally, a cost assessor.

The following table sets out the proposed legislation by using extracts from the Bill and related official material.

SUBJECT: CREDITORS’ REVIEW OF REMUNERATION OF EXTERNAL ADMINISTRATORS

SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC.	SOURCE OF TEXT
5-20 Meaning of external administrator of a company A person is an external administrator of a company if the person is: (a) the administrator of the company; or (b) the administrator under a deed of company arrangement that has been entered into in relation to the company; or (c) the liquidator of the company; or (d) the provisional liquidator of the company.Note: A person is not an external administrator of a company for the purposes of this Schedule merely because the person has been appointed as a receiver, receiver and manager, or controller in relation to property of the company.	Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 5-20, page 157
90-22 Application of this Subdivision This Subdivision applies in relation to a company that is under external administration, other than a company in relation to which a provisional liquidator has been appointed.	Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), Subdivision C section 90-22, page 263
Appointment to carry out review (1) A registered liquidator may be appointed to carry out a review into either or both of the following matters: (a) remuneration of the external administrator of the company; (b) a cost or expense incurred by the external administrator of the company. Appointment by resolution (2) The appointment may be made by resolution of: (a) the creditors; or (b) if the company is being wound up under a members’ voluntary winding up—the company; (3) If the appointment is made by resolution, the resolution must specify: (a) the remuneration, costs or expenses which the liquidator is appointed to review; and (b) the way in which the cost of carrying out the review is to be determined. Appointment by one or more creditors or members (4) The appointment may be made by: (a) one or more of the creditors; or (b) if the company is being wound up under a members’ voluntary winding up—one or more of the members. (5) However, an appointment may only be made under subsection (4) if the external administrator of the company agrees to the appointment. (6) The agreement must: (a) be in accordance with the Insolvency Practice Rules; and (b) specify: (i) the remuneration, costs or expenses which the liquidator is appointed to review; and (ii) the way in which the cost of carrying out the review is to be determined. Appointments by creditors etc.—limit (7) Despite subsection (1), a registered liquidator appointed under this section has no power to review the remuneration to which the external administrator of a company is entitled under subsection 60-5(2) (remuneration if no remuneration determinations made).	Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), Subdivision C, section 90-24, pages 264 and 265
…. Creditors, ASIC and the Court will also have the power to appoint a cost assessor to assess and report on the reasonableness of the remuneration and costs incurred during a portion or all of an administration.	Explanatory Material, page 163, para 7.22
Review of the external administration of a company The creditors may resolve by majority of creditors in both value and number, or the external administrator may agree, to appoint a reviewer to review and report on the reasonableness of the remuneration and costs incurred in an external administration …. The purpose of the report is to provide information for interested parties to exercise their rights in relation to the administration, such as to remove the liquidator or challenge the liquidator’s remuneration. The review is not determinative of the issues considered. The costs of the review will form part of the expenses of the administration, unless so agreed with the liquidator. The Court may make any orders it deems fit in relation to the review. The reviewer must be a registered liquidator. The Insolvency Practice Rules may prescribe, amongst other things, the duties of a reviewer.	Explanatory Material, Comparison of key features of new law and current law, page 168
90-29 Rules about reviews (1) The Insolvency Practice Rules may provide for and in relation to reviews under this Subdivision. (2) Without limiting subsection (1), the Insolvency Practice Rules may provide for and in relation to any or all of the following matters: (a) the giving of notice to the external administrator of a company before appointing, or making an application for the appointment of, a reviewing liquidator under this Subdivision; (b) the meaning, for the purposes of section 90-26, of properly incurred in relation to costs or expenses incurred by an external administrator of a company; (c) the appointment of reviewing liquidators, including requirements as to who may be appointed and the provision of declarations of relevant relationships; (d) the powers and duties of reviewing liquidators in carrying out a review; (e) the form and content of reports by reviewing liquidators; (f) the preparation and provision of reports by reviewing liquidators.	Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 90-29, page 268
Subdivision D of Division 90 provides ….for the creditors to resolve to appoint, or otherwise agree with the liquidator, to appoint a reviewer to report on external administrator remuneration or costs only. Section 90-27 provides for the Insolvency Practice Rules to contain rules about such reviews.	Insolvency Practice Rules Proposal Paper, page 25, para 143
Only a registered external administrator would be able to be appointed as a reviewer.	Insolvency Practice Rules Proposal Paper, page 26, para 147
In conducting a review of remuneration and/or costs, the reviewer will be empowered to do any of following: • conduct the review; • direct the external administrator to provide an itemised invoice in a form, and within the time, specified in the direction for work undertaken by the liquidator; • direct a third party to give an itemised bill of costs in a form, and within the time, specified in the direction in relation to work undertaken by the third party; • interview any party to the review and allow that party to be questioned by any other party to the review; • direct a person to give a written statement, in a specified form and signed by the person, about a matter relevant to the review; • direct the external administrator to produce all or part of the liquidator’s files or documents in relation to the administration of the estate.	Insolvency Practice Rules Proposal Paper, page 26, para 150
It is proposed that the new rules would also stipulate that: • if the reviewer gives a person a direction, and the person does not comply with the direction, the reviewer may conduct the assessment on the basis of the information available to the reviewer; and • the reviewer will have a duty to act independently, in the interests of creditors and to avoid actual and apparent conflicts of interest.	Insolvency Practice Rules Proposal Paper, page 26, para 151
The report to be prepared by the reviewing practitioner would be required to be provided in the form, and with the content, as agreed between the reviewer and the appointing body.	Insolvency Practice Rules Proposal Paper, page 27, para 152
Once the report is completed, it would be required to be provided to the external administrator responsible for the administration, the committee of inspection (if applicable) and ASIC.	Insolvency Practice Rules Proposal Paper, page 27, para 153
ASIC may give a registered liquidator notice in writing asking the liquidator to give ASIC a written explanation why the liquidator should continue to be registered, if ASIC believes that …. (g) the liquidator has been appointed to act as a reviewing liquidator … and has failed to properly exercise the powers or perform the duties of a reviewing liquidator	Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 40-40, page 180

Corporate insolvency laws: the shape of things to come

ASIC, Corporate Insolvency, Insolvency Law, Law reform proposals, Regulation, Standards Comments Off

Nov 282014

The exposure draft of Australia’s Insolvency Law Reform Bill 2014 has, in its 240 pages dealing with corporate insolvency, so many proposed changes in the form of amended, repealed, omitted, added and substituted words, items, definitions and sections, and so many additional parts, divisions, subdivisions, schedules and transitional provisions, that only an expert with tremendous devotion to the task would be able to understand what it all means and see what the new law governing corporate insolvencies is going to look like. The rest of us will probably have to wait until this Bill is passed and a compilation of the Corporations Act 2001 that takes into account all these changes is prepared.

Even then it appears we’ll see quite a mishmash of insolvency laws scattered throughout the Corporations Act and its Rules and Regulations. Perhaps our corporate insolvency laws need a real clean up, like gathering all existing provisions together and moving the lot (with amendments and additions) out of the Corporations Act and into a new, specific Act, such as a Corporate Insolvency Act. But that’s a discussion for another day.

However, one of the changes proposed by the Insolvency Law Reform Bill will take us a little in this direction. Several rules that are currently scattered throughout the Corporations Act will be encompassed in a new Division 4 – which is to be called the Insolvency Practice Schedule (Corporations). It will be added to Part 5.9 (Miscellaneous) of Chapter 5 (External Administration) of the Corporations Act 2001. The table below shows the layout of this new Division and points to the pages of the Bill’s Exposure Draft where the text of the laws is set out. I hope it’s of some help to those trying to understand the proposed changes.

Division 4—Insolvency Practice Schedule (Corporations)

Part	Division	Exposure Draft – pages
1-Introduction	1-Introduction	151 to 152
	5-Definitions	153 to 158
2-Registering and disciplining practitioners	10-Introduction	158 to 159
	15-Register of liquidators	159 to 160
	20-Registering liquidators	160 to 168
	25-Insurance	169
	30-Annual liquidator returns	170
	35-Notice requirements	171 to 172
	40-Disciplinary and other action	172 to 189
	45-Court oversight of registered liquidators	189 to 190
	50-Committees under this Part	190 to 195
3-General rules relating to external administrations	55-Introduction	195
	60-Remuneration and other benefits received by external administrators	196 to 208
	65-Funds handling	208 to 215
	70-Information	216 to 234
	75-Meetings	235 to 244
	80-Committees of inspection	244 to 256
	85-Directions by creditors	256 to 257
	90-Review of the external administration of a company	257 to 269
4-Other matters	95-Introduction	270
	100-Other matters	270 to 271
	105-The Insolvency Practice Rules *******	271 to 272. (Note: To be made by the Minister.)

*** The Bill’s Exposure Draft mentions the Insolvency Practice Rules many times, stating how and where they may be used to clarify, interpret, amplify, refine and flesh out the insolvency laws. A separate document – a 27 page Proposals Paper for Insolvency Practice Rules – has been released for comment (closing date 19/12/2014). The part of the Paper that applies to Corporate Insolvency is pages 16 to 27.

Note: There is an official Explanatory Material to the exposure draft of the Bill. It is 228 pages long, but only 115 pages concern changes to corporate insolvency laws!

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2014 version of Bill to amend corporate and personal insolvency laws

ASIC, Corporate Insolvency, Insolvency Law, Personal Bankruptcy, Regulation Comments Off

Nov 172014

On 7 November 2014 an exposure draft of the Insolvency Law Reform Bill 2014 (ILRB 2014) was released by the Australian Treasury for comment.

The Treasury Crest

Summaries:

The Treasury’s summary/promotion of the legislation is as follows:

“The draft Bill comprises a package of proposals to amend and streamline the Bankruptcy Act 1966 and the Corporations Act 2001. The proposed amendments will:

•remove unnecessary costs and increase efficiency in insolvency administrations;
•enhance communication and transparency between stakeholders;
•promote market competition on price and quality;
•boost confidence in the professionalism and competence of insolvency practitioners; and
•remove unnecessary costs from the insolvency industry resulting in around $55.4 million per annum in compliance cost savings.”

The Explanatory Material issued with the Bill opens with this outline:

“The Insolvency Law Reform Bill 2014 (Bill) amends the Corporations Act 2001 (Corporations Act), the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Bankruptcy Act 1966 (Bankruptcy Act) to create common rules that would:
• remove unnecessary costs and increase efficiency in insolvency administrations;
• align and modernise the registration and disciplinary frameworks that apply to registered liquidators and registered trustees;
• align and modernise a range of specific rules relating to the handling of personal bankruptcies and corporate external administrations;
• enhance communication and transparency between stakeholders;
• promote market competition on price and quality;
• improve the powers available to the corporate regulator to regulate the corporate insolvency market and the ability for both regulators to communicate in relation to insolvency practitioners operating in both the personal and corporate insolvency markets; and
• improve overall confidence in the professionalism and competence of insolvency practitioners.”

Links to government material:

The draft Bill (ILRB 2014) in PDF format

The Explanatory Material in PDF format

The Insolvency Practice Rules – Proposals Paper in PDF format

Coversheet for a submission by post

The Treasury website page

Previous Bill and background material:

The first version of ILRB 2014 appeared on 19/12/2012 as Insolvency Law Reform Bill 2012, but it never became law. However, the 2012 Explanatory Memorandum and the 2012 Exposure Draft contains valuable background information related to the current Bill. (Sixteen submissions were made for this 2012 consultation.)

Further background information regarding ILRB 2014 is available in the June 2011 Treasury Options Paper titled “A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia”. (Thirty three submissions were made for this consultation.)

The 2011 options paper was followed in December 2011 by a Proposals Paper with the same title. (Twenty nine submissions were made for this consultation.)

Submissions regarding ILRB 2014:

Closing date for submissions: Friday, 19 December 2014.

Email submissions are to be done online at:

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/Submission-Form?parent={34029467-07BE-46D9-AA9E-86DAC3715DFF}

Address for written submissions:

Manager
Corporations and Scheme Unit
Financial System and Services Division
The Treasury
Langton Crescent
PARKES ACT 2600

For enquiries call Peter Levy at The Treasury on (02) 6263 3976.

Further posts on this site:

Further posts will be made on this blog site in the coming days with details of some of the proposed changes to corporate insolvency laws.

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