░░░ INSOLVENCY INTERFACE – Page 2 – An open forum for news and views on Australian insolvency laws, best practice and policy.

Package of reforms to address illegal phoenixing

Corporate Insolvency, Insolvency Law, Phoenix company activity, Regulation, White collar crime Comments Off

Sep 132017

Phoenix

Media release, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, 12 September 2017:

The Turnbull Government is taking action to crack down on illegal phoenixing activity that costs the economy up to $3.2 billion per year to ensure those involved face tougher penalties, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced today.

Phoenixing – the stripping and transfer of assets from one company to another by individuals or entities to avoid paying liabilities – has been a problem for successive governments over many decades. It hurts all Australians, including employees, creditors, competing businesses and taxpayers.

The Government’s comprehensive package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity.

The DIN will identify directors with a unique number, but it will be much more than just a number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.

In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers. These include: Continue reading »

ASIC reissues some of its insolvency information sheets

ASIC, Checklists and guides, Corporate Insolvency, External administration, Insolvency Law, Insolvency practices, Regulation Comments Off

Sep 112017

Logo with border

With the commencement on 1 September 2017 of the delayed parts of the Insolvency Law Reform Act 2016 (the ILRA), the Australian Securities and Investments Commission (ASIC) has updated some of the Information Sheets which it makes available on its website to the general public.

ASIC says that “Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.”

Over time ASIC has issued about 36 insolvency information sheets and flow charts (click here for my list). Below is a list of 15 which have recently been reissued.

In the past, nearly all ASIC’s information sheets have been available to download as printable sheets in PDF file format. However, this facility has not (yet) been provided with the updated/reissued sheets, which are only available as text on ASIC web pages. The links below are to the relevant website pages.

ASIC INSOLVENCY INFORMATION SHEETS – REISSUED 1 SEPTEMBER 2017
Form Number	Title of Sheet	Date Updated	Link to ASIC site
INFO 39	Insolvency information for directors, employees, creditors and shareholders	1/9/2017	INFO 39
INFO 41	Insolvency: A glossary of terms	1/9/2017	INFO 41
INFO 42	Insolvency: a guide for directors	1/9/2017	INFO 42
INFO 43	Insolvency: a guide for shareholders	1/9/2017	INFO 43
INFO 45	Liquidation: a guide for creditors	1/9/2017	INFO 45
INFO 46	Liquidation: a guide for employees	1/9/2017	INFO 46
INFO 53	Providing assistance to external administrators – Books, records and RATA	1/9/2017	INFO 53
INFO 54	Receivership: a guide for creditors	1/9/2017	INFO 54
INFO 55	Receivership: a guide for employees	1/9/2017	INFO 55
INFO 74	Voluntary administration: a guide for creditors	1/9/2017	INFO 74
INFO 75	Voluntary administration: a guide for employees	1/9/2017	INFO 75
INFO 84	Independence of external administrators: a guide for creditors	1/9/2017	INFO 84
INFO 85	Approving fees: a guide for creditors	1/9/2017	INFO 85
INFO 152	Public comment on ASIC’s regulatory activities	1/9/2017	INFO 152
INFO 212	Illegal phoenix activity	1/9/2017	INFO 212

Practitioners’ association updates insolvency information for stakeholders

Checklists and guides, Corporate Insolvency, Insolvency Law, Insolvency practices, Personal Bankruptcy, Practitioners Association (ARITA) Comments Off

Sep 052017

With the commencement on 1 September 2017 of the delayed parts of the Insolvency Law Reform Act 2016 (the ILRA), the Australian Restructuring Insolvency & Turnaround Association (ARITA) has updated the Insolvency Explained section of its website which provides information to stakeholders in the insolvency process, and has developed a range of information sheets designed to assist creditors with understanding insolvency processes.

This is a guide to ARITA’s information, with links to the relevant website pages.

1. Insolvency explained CLICK HERE

What is insolvency? CLICK HERE
- Overview of insolvency – corporate
What is bankruptcy? CLICK HERE
- Overview of insolvency – personal
How does insolvency work? CLICK HERE
Insolvency and creditors CLICK HERE
Insolvency and employees CLICK HERE
Insolvency and shareholders CLICK HERE
Insolvency and company directors CLICK HERE
Insolvency information sheets see section 2 below
Glossary of terms CLICK HERE

2. ARITA insolvency information sheets

The ARITA insolvency information sheets listed below may be downloaded from the page headed “Insolvency information sheets”. They are all in PDF format. ….. CLICK HERE

Company insolvency

Creditor rights (liquidation)
Creditors rights (voluntary administration)
Remuneration of an external administrator
Proposals without meetings
Committees of Inspection
Offences and recoverable transactions in a voluntary administration

Personal insolvency (including bankruptcy)

Creditor rights
Proposals without meetings
Committees of Inspection.

A short history of the ILRA

The ILRA reform provisions relating to the rules and conduct of external administrations, commenced on 1 September 2017. This followed ILRA reform provisions relating to the registration and discipline of registered liquidators, and provisions relating to matters such as notification of contravention of a Deed of Company Arrangement and lodgement of a declaration of relevant relationships and declaration of indemnities in a voluntary administration, which commenced on 1 March 2017.

Parliament passed the Insolvency Law Reform Act 2016 (the ILRA) on 22 February 2016. The government registered the related Insolvency Practice Rules (Corporations) 2016 (the Rules) in December 2016. The ILRA and Rules change the law relating to the registration and discipline of liquidators and the conduct of external administrations.

It’s not the Court’s function to apply or interpret ARITA’s code – Judge

Corporate Insolvency, court decisions, Insolvency Law, Insolvency practices Comments Off

Aug 132017

In a recent judgment in the Federal Court the judge, the Honourable David John O’Callaghan, discusses the part that ARITA’s code of professional conduct plays in determining questions concerning the independence and impartiality of an external administrator’s conduct.

What His Honour said – extracts:

There is no doubt that the code is a useful document in assisting practitioners; …. it is “a useful guide to the common practice in such matters, and to the profession’s own view of proper professional standards”; …. it is “… permissible for the Court to take [it] into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner’s conduct in the case before it”; …. On the other hand, the code “has no legal status”; …. Any question relating to the appearance of impartiality must be determined according to law. It is not the Court’s function in a case such as this to either apply or interpret the code.

For more, see his complete comments below.

The Hon David John O’Callaghan

Judgment published 11 August 2017 … In Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 914

….

The code of professional practice

92. I should also say something briefly about the Code of Professional Practice of The Australian Restructuring Insolvency and Turnaround Association (ARITA) (the code), because the administrators sought to rely on the code as providing an independent basis upon which they might be permitted to continue to act as administrators. In particular, submissions were made on behalf of the administrators about those parts of the code which define “exceptions” to the “rule” that, relevantly, practitioners must not take an appointment if they have had a professional relationship with the insolvent company during the previous two years: see section 6.8 of the third edition of the code.

93. There is no doubt that the code is a useful document in assisting practitioners, including with respect to questions of whether, in accepting or retaining an appointment as an administrator, the practitioner is, and is seen to be, independent: see chapter 6 of the third edition of the code. The code is intended to provide guidance on standards of practice and professional conduct expected of ARITA members.

94. In Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; 45 ACSR 612, Austin J described (at [163]) the Code of Professional Conduct published by the Insolvency Practitioners Association of Australia (as ARITA was previously known) as “a useful guide to the common practice in such matters, and to the profession’s own view of proper professional standards”. Accordingly, his Honour held that “[i]t is permissible for the Court to take [it] into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner’s conduct in the case before it”: see Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; 45 ACSR 612 at [163]; comparing National Roads and Motorists’ Association Ltd v Geeson [2001] NSWSC 832; 39 ACSR 401 at 403 and Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735 at 738.

95. On the other hand, the code “has no legal status”, as Sanderson M stated in Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201. Relevantly, Sanderson M observed in that case, “a failure to comply with the terms of the code would not render a practitioner liable for prosecution under the Corporations Act or any other statute … Nor does a failure to comply with the provisions of the code mean that there has been a failure to comply with what is required in the DIRRI”: see Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201 at [37].

96. Any question relating to the appearance of impartiality must be determined according to law. It is not the Court’s function in a case such as this to either apply or interpret the code.

ASIC catalogues where a liquidator failed to perform his duties

ASIC, Checklists and guides, Corporate Insolvency, Duties of External Administrators, External administrators, Insolvency practices, Regulation, Standards Comments Off

Jun 292017

In reporting on the results of an investigation into the conduct of a Victorian registered liquidator operating as a sole practitioner, the Australian Securities and Investments Commission (ASIC) has provided a list of procedures which the liquidator failed to carry out.

The catalogue serves both as a guide to some of the duties that ASIC regards as important, and as a reminder to liquidators.

Extract from ASIC Media Release 28 June 2017

ASIC’s concerns centred on alleged failures to:

conduct pre-appointment independence reviews;

send to third parties adequate ‘Day One’ correspondence;

properly investigate company affairs;

take steps to protect and secure assets in a timely manner;

adequately investigate potential illegal phoenix activities and taxation offences of directors and their advisors;

make sufficient requests of company officers for books and records;

seek prompt assistance from ASIC under the Liquidator Assistance program where the company director or accountant failed to provide adequate books and records;

undertake adequate review of voidable transactions, including unfair preferences and uncommercial transactions;

lodge complete reports with ASIC;

provide creditors with adequate reporting to enable informed assessment of remuneration requests and may have drawn remuneration he was not entitled to; and

comply with legal requirements to document work undertaken.

Not each and every one of ASIC’s concerns were found in all of the external administrations reviewed.

ASIC Commissioner John Price said, ‘ASIC continues its focus on registered liquidators who fail to carry out their legal obligations to carry out adequate investigations and report fully to creditors, including in circumstances suggesting pre-appointment illegal activity.

‘Creditors have every right to expect registered liquidators to act independently and competently – especially given their role as a fiduciary. The community needs to have trust and confidence in the administration of insolvent companies.

‘ASIC will continue to review and take action against liquidators whom ASIC believes fall short of meeting legal and professional standards.’

Penalties for White Collar Crime: Senate Report of March 2017

ASIC, Offences, Regulation, White collar crime Comments Off

May 292017

crime-cloud

Inquiries by Parliamentary committees can be a waste of everyone’s time. The Senate’s Inquiry into criminal, civil and administrative penalties for white collar crimes is a good example.

It began in November 2015 and ended in March 2017 (after pausing for 5 months because of the election). It received 139 submissions, 2 lots of “additional information”, and had a public hearing at which 23 witnesses appeared. It’s report, which carries the grandiose title “Lifting the fear and suppressing the greed” (23 March 2017), runs to 108 pages. The committee said:

“A clear message to the committee from inquiry participants was that white-
collar crime and misconduct can cause serious harms, both at the individual level and
in the community as a whole.”

But despite this statement and the enormous amount of work that went into making submissions, conducting the inquiry and writing the report, media coverage has been almost non-existent. Perhaps news editors thought the subject matter was fairly dry, and/or that the report’s recommendations were not particularly noteworthy or inspiring or controversial. Such a conclusion would be understandable. To which I would add, that the report is unlikely to have much of an impact on how we deal with white collar crime.

THE COMMITTEE’S RECOMMENDATIONS
Recommendation 1	That the government consider reforms to provide greater clarity regarding the evidentiary standards and rules of procedure that apply in civil penalty proceedings involving white-collar offences.	paragraph 3.52
Recommendation 2	That the Australian Securities and Investments Commission (ASIC) consider ways in which the accessibility and usability of the banned and disqualified register might be enhanced, in order to create greater transparency regarding banning and disqualification orders.	paragraph 5.24
Recommendation 3	That the government consider making infringement notices available to the ASIC to respond to breaches of the financial services and managed investments provisions of the Corporations Act.	paragraph 5.34
Recommendation 4	That the government amend the Corporations Act 2001 to increase the current level of civil penalties, both for individuals and bodies corporate, and that in doing so it should have regard to non-criminal penalty settings for similar offences in other jurisdictions.	paragraph 6.55
Recommendation 5	That the government provide for civil penalties in respect of white-collar offences to be set as a multiple of the benefit gained or loss avoided.	paragraph 6.56
Recommendation 6	That the government introduce disgorgement powers for the ASIC in relation to non-criminal matters.	paragraph 6.57

The committee’s full report is available for viewing and download at the committee’s Parliament of Australia website.

Incidentally, insolvency practitioners will be disappointed that there are so few references in the report to insolvency and liquidation, although potentially recommendation 4 could have an impact in corporate insolvency.

The next part of this blog post contains extracts which reveal “The Committee’s Views” and the “Table of Contents of Report”.

New insolvency practitioners association emerging

Corporate Insolvency, Industry People, Personal Bankruptcy, Regulation Comments Off

May 182017

professional-association A new professional association for Australian insolvency practitioners – named the Association of Independent Insolvency Practitioners (AIIP) – has been formed and is currently endeavouring to recruit as members those registered liquidators and trustees in bankruptcy who work as sole practitioners or in small firms.

In an email circular on 4 May 2017 (see below), Nicholas Crouch, a Sydney liquidator and registered trustee in bankruptcy, acting for the AIIP, stated that “80 of the 350 small firm liquidators and trustees in Australia have joined AIIP”. The annual membership fee has been set at just $20.

Also, the AIIP plans to create – for use in company liquidations, voluntary administrations and receiverships and in personal bankruptcy – sets of precedent or pro forma letters, forms, checklists, etc., that fulfil the requirements of the new insolvency legislation. It estimates that the price per practitioner will be about $2,000. This is far less than amounts charged by existing suppliers (CORE IPS and CCH).

It is not clear whether the AIIP sees itself as an alternative or an adjunct to the Australian Restructuring Insolvency and Turnaround Association (ARITA), which is the peak body representing insolvency practitioners. ARITA describes itself as “Australia’s leading organisation for restructuring, insolvency and turnaround professionals.” Recently ARITA has greatly enhanced its power and prestige as a result of insolvency legislation classing it as an “industry body” and giving it an important role in the official registration of liquidators and bankruptcy trustees.

But it seems a significant number of insolvency practitioners are not happy with the direction that ARITA has taken. Dissatisfaction with the association relates to a perception that it is dominated by large insolvency firms (supposedly leading to a focus on issues that are of interest to them), its decision to admit lawyers, bankers and academics as members, and its high membership fee.

Text of AIIP email to liquidators and trustees in bankruptcy

Dear Fellow Liquidator/Trustee in Bankruptcy

A new liquidator’s club has been established. The objective of the Association of Independent Insolvency Practitioners (“AIIP”) is to encourage small insolvency firms to collaborate and develop best practice procedures and precedents for its members.

To date, 80 of the 350 small firm liquidators and trustees in Australia have joined AIIP.

AIIP is a not for profit association.

Membership of AIIP is limited to registered liquidators and bankruptcy trustees.

I invite you to join AIIP by contacting Stephen Hathway or Ginette Muller as follows:
[deleted]

The annual membership is $20 and an application form is attached.

Discussion groups have been established in Sydney & Brisbane and AIIP hopes to roll out new discussion groups in each capital city as soon as practicable.

New Precedents For Your Firm

AIIP has a committee that is developing a set of liquidation, VA, receivership & bankruptcy precedents that will be compliant with the new laws.

AFSA & ASIC have agreed to consider, but not endorse, the AIIP precedents when they are finalised.

AIIP members will be able to purchase and immediately use the new precedents or use the AIIP precedents as a guide when amending their own existing precedents.

The projected cost of the precedents is uncertain, but my preliminary estimate is about $2k per member.

I am hopeful the costs can be reduced through increasing the AIIP’s membership. I encourage you to invite other small firm insolvency practitioners to join AIIP.

If you wish to offer assistance to this project please advise me.

ASIC & AFSA Review Of AIIP Precedents

On 25 November 2016, Senator Williams assisted the AIIP by asking the ASIC Chairman and 3 ASIC Commissioners who were present at the Federal Government’s Joint Parliamentary Committee on Corporations and Financial Services, if ASIC would assist AIIP with our precedents project.

Senator WILLIAMS: I have a couple of questions, Mr Price, on insolvency. With the new insolvency laws, every insolvency firm must update its precedents and templates. This is a massive and costly task. I know of a group of 40 independents, a small firm of liquidators. Small firms are creating one set of documents that they will all use as templates. It is an industry first. This will save ASIC work. Is ASIC prepared to work with this group to develop these templates?

ASIC Commissioner Price responded as follows:

Mr Price: Certainly. We would be happy to discuss with groups that are thinking about that.
….
AIIP is very grateful for the assistance of Senator Williams, ASIC & AFSA.

AIIP recognises this is a historic opportunity for all small firm Insolvency practitioners to work with the regulators to produce best practice documents which will assist both the regulators and the small firm insolvency practitioners by raising the standard of practice and reducing the cost of compliance.

ARITA has declined to work with AIIP on this project.

CCH is in preliminary discussions with AIIP and they may offer their assistance with the precedent project.

Expressions of Interest

Kindly advise me by return email if you are interested in purchasing the AIIP precedents ….

Those regulated by ASIC are to pay ASIC for the privilege

ASIC, Corporate Insolvency, External administration, Insolvency Law, Regulation Comments Off

May 102017

An idea put forward by the Australian Government about a year ago has almost become a reality with the introduction into Parliament on 30 March 2017 of the ASIC Supervisory Cost Recovery Levy Act 2017 to establish an industry funding model for the Australian Securities and Investments Commission (ASIC) and with the release on 4 May 2017 of draft regulations for consultation.

The idea – to enable the recovery of the regulatory costs of ASIC by imposing a levy on persons regulated by ASIC – was described in Parliament by the Assistant Minister to the Treasurer (Mr Sukkar) as follows:

Industry funding of ASIC will mean that … those entities that create the need for that regulation will be the ones who pay for it—as opposed to Australian taxpayers—who too often bear the cost of financial sector misconduct. Further, because each regulated subsector will only ever pay an amount equal to its costs of supervision, industry funding will promote equity between different regulated entities. This is because certain industry subsectors will no longer cross-subsidise the costs of the regulation of other sectors.

The laws are due to take effect on 1 July 2017. General news article: “Companies face levy in ASIC funding overhaul”.

ASIC Supervisory Cost Recovery Levy Regulations 2017

The closing date for submissions regarding the proposed Regulations is 26 May 2017.

In releasing its consultation paper for the Regulations the Treasury department said:

The Government is seeking stakeholder views on the draft regulations necessary to support the industry funding model, which will recover (the Australian Securities and Investments Commission’s) regulatory costs though annual levies and fees-for-service. The proposed regulations are to establish the mechanisms that will be used to calculate the levies payable by each class of regulated entity, each financial year.

There are 6 industry sectors covered by the Regulations. Each sector has several industry subsectors. In all there are 48 industry subsectors. Each subsector describes the “leviable entity” that is included in the industry subsector.

Registered liquidators levy

Registered liquidators are in the industry sector named Corporate, and are leviable entities in a subsector named, not surprisingly, registered liquidators.

The levy to be imposed on each registered liquidator in a financial year is the sum of:

(a) the minimum levy component (which is proposed to be $2,500); and

(b) the graduated levy component. The graduated levy component is a variable amount depending on each entity’s share of the total number of notifiable events for the subsector. The Regulations define what constitutes a notifiable event (see below). ASIC will prescribe its regulatory costs and the total number of these notifiable events for the subsector as part of its annual legislative instrument. Continue reading »

Law change is significant win for insolvency practitioners

Corporate Insolvency, External administration, Insolvency Law, Insolvency practices, Law reform proposals, Practitioners Association (ARITA) Comments Off

May 082017

Before it is due to come into effect on 1 September 2017, section 60-20 of the Insolvency Practice Schedule (Corporations) (Australia) is to be amended.

Under the heading “Refining the Insolvency Law Reform Act 2016”, the Minister for Revenue and Financial Services has released draft legislation of amendments to the Corporations Act 2001 and Bankruptcy Act 1966.

The professional association representing insolvency practitioners has welcomed the amendments. The Australian Restructuring Insolvency & Turnaround Association (ARITA) says (on its website 5/5/2017):

The section would (have) require(d) external administrators and trustees to obtain consent from creditors prior to related entities obtaining any profit or advantage from any administration or estate – effectively requiring Insolvency Practitioners to seek creditor approval for their own firms to work on an appointment. We are delighted that Treasury have announced draft legislation specifically to resolve this issue. It is now clear that once remuneration is approved, further approval to share that remuneration with related parties (e.g. an Insolvency Practitioner’s firm or partners) is not required …. ARITA has been working very hard behind the scenes on this under strict confidentiality. The draft legislation is on The Treasury’s website for consultation. This is a significant win for the profession, achieved by ARITA.

Illustration of Change to Corporate Insolvency Law

I have set out below an illustration of the changes that are being made to section 60-20 of the Insolvency Practice Schedule (Corporations). Although “interested parties” have been invited to make a submission regarding the draft legislation by 17 May 2017, it is doubtful whether there will be any change to the draft. Continue reading »

Index to Schedule 2—Insolvency Practice Schedule (Corporations)

Corporate Insolvency, External administrators, Insolvency Law, Regulation Comments Off

Apr 282017

Issues impacted upon by this new legislation

Schedule 2 is now part of the Corporations Act 2001. The Act is available for viewing/download from www.legislation.gov.au. Schedule 2 is in Volume 6, and follows section 1637 of the Act. To see Schedule 2 only, go to this page at austlii.ed.au

Older Entries Newer Entries

Media release, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, 12 September 2017:

ASIC INSOLVENCY INFORMATION SHEETS – REISSUED 1 SEPTEMBER 2017

Form Number

Title of Sheet

Date Updated

Link to ASIC site

1. Insolvency explained CLICK HERE

What is insolvency? CLICK HERE

What is bankruptcy? CLICK HERE

How does insolvency work? CLICK HERE

Insolvency and creditors CLICK HERE

Insolvency and employees CLICK HERE

Insolvency and shareholders CLICK HERE

Insolvency and company directors CLICK HERE

Insolvency information sheets see section 2 below

Glossary of terms CLICK HERE

2. ARITA insolvency information sheets

Company insolvency

Personal insolvency (including bankruptcy)

A short history of the ILRA

Extract from ASIC Media Release 28 June 2017

Text of AIIP email to liquidators and trustees in bankruptcy

Registered liquidators levy

Illustration of Change to Corporate Insolvency Law

Issues impacted upon by this new legislation