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.


 

Judge OCallaghan

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.


 

New insolvency practitioners association emerging

 Corporate Insolvency, Industry People, Personal Bankruptcy, Regulation  Comments Off on New insolvency practitioners association emerging
May 182017
 

professional-associationA 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 ….

 


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 »

Regulating insolvency practitioners: what ASIC aims to achieve in 2016-17

 ASIC, Corporate Insolvency, External administrators, Regulation  Comments Off on Regulating insolvency practitioners: what ASIC aims to achieve in 2016-17
Dec 202016
 

The Australian Securities and Investments Commission (ASIC) has a business plan to guide its regulation of insolvency practitioners. In 2016-17 two new projects have been added to the ongoing ones. Here is ASIC’s summary of the plan as published recently on its website …

2016-17 ASIC Business Plan Summary by Sector: Insolvency Practitioners

ASIC Key Projects

ASIC Focus

Stakeholder engagement
Communicating with industry and individual firms to reinforce and articulate standards and expectations (ongoing project)
⚬ Communicating with stakeholders (e.g. through media releases, journal articles, ad-hoc bulletins, regular newsletters), including in relation to surveillance outcomes, to reinforce and articulate standards and expectations

⚬ Releasing key communications, such as:
– Annual report on supervision of registered liquidators
– Monthly insolvency statistics
– Annual report on insolvency statistics

⚬ Engaging with stakeholders, including meeting with individual firms and industry bodies (such as the Australian Restructuring, Insolvency and Turnaround Association (ARITA), Chartered Accountants Australia and New Zealand, CPA Australia, and Australian Financial Security Authority, and other government agencies such as the Australian Taxation Office, Department of Employment and Fair Work Ombudsman

⚬ Participating in and contributing to the Phoenix Taskforce and the Serious Financial Crime Taskforce

Information for registered liquidators and other stakeholders (new project) ⚬ Working closely with industry to further develop guidance and lift standards of conduct

⚬ Reviewing existing ASIC guidance to reflect law reform and improving existing creditor and other stakeholder information published by ASIC

⚬ Reviewing and improving what information registered liquidators currently report to facilitate the assessment and, where appropriate, investigation of reports of alleged misconduct

Registered liquidators’ independence and remuneration (new project) ⚬ Independence (including referral relationships with pre-insolvency advisors) and remuneration (including adequacy of disclosure and reasonableness); anticipated to continue into 2017-18
Surveillance of high-risk registered liquidators (ongoing project) ⚬ Misconduct resulting from conflicts of interest, incompetence and improper gain
Ensuring compliance with statutory lodgements obligations and publication of notices requirements (ongoing project) ⚬ Reviewing registered liquidator outstanding statutory lodgements and publication of notices (including insolvency and external administration related notices) on the ASIC published notices website to identify systemic non-compliance
Lodgement of annual statements (ongoing project) ⚬ Reviewing all annual statements from registered liquidators to detect non-compliance with the requirements to maintain registration, including identification of potential competence concerns
Transactional reviews (ongoing project) ⚬ Undertaking reviews identified through referrals, and responding to identified concerns including:
– inappropriate relationships between registered liquidators and pre-insolvency advisers
– inadequate declarations of relevant relationships and indemnities
– inadequate remuneration disclosure
Investigate and where appropriate take administrative or court action (ongoing project) ⚬ Investigating and taking action against registered liquidator misconduct, as identified through surveillances and referrals
Policy advice
Support development and implementation of key Government law reforms and other initiatives (ongoing project)
⚬ Advising Government on proposed insolvency reforms (including proposed reforms in the Government’s National Innovation and Science Agenda) and implementing the Insolvency Law Reform Act 2016, including engaging with Treasury, industry and professional bodies, introducing new guidance and implementing IT and business process changes

⚬ Delivering an enhanced ASIC Form 507 Report as to Affairs (RATA), including stakeholder consultation, to provide better information to facilitate the conduct of external administrations and improve reporting to creditors

⚬ Liaising with Treasury and industry/professional bodies regarding the Government’s proposals/reforms to facilitate corporate restructure (a ‘safe harbour’ and voiding of ipso facto clauses) from the Productivity Commission (in recommendations from its inquiry report into business set-up, transfer and closure) and the Government’s National Innovation and Science Agenda

Insolvency practitioners granted more time to prepare for law reforms

 Corporate Insolvency, Insolvency Law, Law reform proposals, Regulation  Comments Off on Insolvency practitioners granted more time to prepare for law reforms
Aug 242016
 

The Australian Restructuring Insolvency & Turnaround Association (ARITA) and The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced on 23 August 2016 that many of the changes to insolvency law that were to be implemented under the Insolvency Law Reform Act 2016 have been postponed from March 2017 to September 2017.


ARITA Announcement

ARITA logo

IPs get more time to prepare for Insolvency Law Reform Act

In a major win by ARITA, the Minister for Revenue and Financial Services has agreed to delay the commencement of a portion of the Insolvency Law Reform Act (ILRA).

This decision will avoid the situation where the profession simply would not have enough time to become compliant with the Act by the scheduled commencement date of 1 March 2017.

We understand that while Parts 1 and 2 of the two new Insolvency Practice Schedules (for Corporations and Bankruptcy) will still commence on 1 March 2017, these parts of the legislation are largely concerned with registration and discipline, and can be easily implemented by the profession.

The Minister has agreed to delay Part 3 of the new Insolvency Practice Schedules which relate to the general rules for the conduct of external administrations and bankruptcies. These provisions will not commence until 1 September 2017.

We also understand that parts of Schedule 3 of the ILRA (very specific provisions dealing with matters such as termination of a DOCA and the relation back day) will also still commence on 1 March 2017.

The Government’s caretaker period during the lengthy election stopped all work on the all-important Insolvency Practice Rules, which is likely to push out their formalisation until December 2016.

This would have meant there was no way firms could adjust their IT systems or complete the necessary extensive staff retraining before the scheduled commencement. This extension simply provides a more reasonable time period for compliance.

These issues were first flagged with Government, agencies and regulators by ARITA prior to the election, and have been the subject of sustained action on our part to drive for a more acceptable commencement time frame.


Minister’s Announcement

Kelly-ODwyer-MP
The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP today announced that the industry is being given more time to implement the Insolvency Law Reform Act 2016 reforms.

This major reform will increase confidence in Australia’s insolvency regime by:

  • improving practitioner registration and disciplinary processes;
  • providing new regulatory powers to ASIC;
  • increasing practitioner insurance requirements;
  • introducing new review and audit processes; and
  • addressing conflicted remuneration and ensuring that offences and penalties are appropriate and proportionate.

“The reforms also ensure that our insolvency processes are modern and efficient – reducing costs, improving timeliness of administrations and improving returns to creditors,” Minister O’Dwyer said.

“Most importantly, the changes will enhance the ability of creditors to terminate underperforming practitioners.

“Given the scale of these reforms industry is being given time to upskill and to update their software systems and business processes before commencement.

“The reforms to insolvency administration processes, to enhance efficiency, improve communication and increase competition, are now scheduled to commence on 1 September 2017.

“We will not defer commencement of those reforms directed at promoting competency and professionalism in the insolvency industry. The practitioner registration and discipline provisions, and enhancements to the ASIC’s powers will commence on 1 March 2017, as planned.

“The Insolvency Law Reform Act represents the Government’s first tranche of insolvency reforms, directed at improving the integrity and efficiency of Australia’s insolvency laws.

“The Government’s second tranche of insolvency reforms will enhance business rescue and support entrepreneurship, and are being progressed as part of the Government’s National Innovation and Science Agenda,” Minister O’Dwyer said.


END OF POST

Jun 112015
 

Tax Checklist for IPs
The Australian Restructuring Insolvency and Turnaround Association (ARITA), with the help of professional services firm PricewaterhouseCoopers Australia (PWC), has published a tax guidance checklist to assist insolvency practitioners with identifying tax issues and their obligations on taking insolvency appointments. (Publication date 10 June 2015)

The checklist has 57 questions, alerts, recommendations and tasks concerning income tax, goods and services tax, fringe benefits tax, PAYG withholding, and superannuation guarantee.

ARITA suggests that “Members should note that while ARITA will endeavour to ensure that this guidance is kept up to date, tax is an area subject to constant change and the guidance is current, to the best of our knowledge, as at the date included in the footer of the document. Members should ensure that they are always using the most current version of the guidance”.

The checklist is intended to provide assistance and help to insolvency practitioners in the complicated field of tax compliance. There is no suggestion from ARITA that use of their tax guide is mandatory or necessary or even recommended.

Tax Guide part

Extract from ARITA tax guide

Access to the full guide is available through the ARITA website: CLICK HERE.


Update 14 July 2015:

From ARITA on 13 July:

ARITA has received a number of queries from members regard the relevant PAYG Withholding Rates for dividends paid to employees by external administrators in light of the increase to the Medicare Levy.

On consultation with the ATO, we have been advised that the 2005 Notice of Variation is still current and the 31.5% standard rate still applies and will continue to do so until the notice of variation ceases on 1 October 2015.

The ATO further advises that it is looking to renew the notice but before that occurs will consult with relevant stakeholders, including ARITA and external administrators, about whether changes need to or should be made to the current notice, including any changes to the rates on the notice.


 

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.


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
Oct 222014
 

” Working at the coal face of insolvency and restructuring, our members have a unique view of the effectiveness of our legislative framework in restoring the economic value of underperforming businesses. For the optimum operation of markets, it’s vital that their expertise is utilised to ensure our legislative framework is the best that it can be.”

This statement from the Australian Restructuring Insolvency and Turnaround Association (ARITA) – the professional body to which most insolvency practitioners belong – accompanies publication (14-10-2014) of its discussion paper on dealing with corporate financial distress in Australia.

ARITA says that its discussion paper – “A Platform for Recovery” – identifies seven current issues in the insolvency regime and proposes law and practice reforms to remedy them.  The paper’s Executive Summary is as follows:

ARITA executive summary

The following are further statements made by ARITA on the launch its plans:

“As Australia’s insolvency and recovery professional body, we must have a clear and well-articulated policy position across the full gambit of issues that we cover, that all key stakeholders are aware of.  Our new discussion paper … identifies seven current issues in the insolvency regime and proposes law and practice reforms to remedy them.  The discussion paper does not go into the detail of specific legislative change, but concentrates on concepts and their merits …. The goal of the discussion paper is to stimulate active and informed discussion of the issues that are raised. This will inform ARITA’s final policy position …. A foundation of our thinking is that the current “one size fits all” approach to dealing with companies in financial distress is flawed.”

A copy of  A Platform for Recovery may be viewed and obtained at this location on the ARITA website.

ARITA is inviting contributions to the debate. To go to their discussion forum, go to ….   www.arita-forums.com.au

Oct 102014
 

The Federal Court of Appeal has dismissed an appeal by the Australian Taxation Office against a court ruling that where a tax assessment has not been issued liquidators have no obligation under s 254(1)(d) of the Income Tax Assessment Act to retain from the proceeds of sale an amount sufficient to pay an apparent Capital Gains Tax liability . (Judgment dated 8/10/2014, Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133.)

The liquidators of Australian Building Systems Pty Ltd entered into a contract of sale of real property in Creastmead, Qld. The ATO argued that a tax liability for the capital gain arising from the sale arose when the sale occurred, and, accordingly, on receipt of the proceeds of sale, the liquidators were obliged under s 254(1)(d) to retain from the proceeds of sale an amount sufficient to pay that tax liability regardless of whether a tax assessment had been issued.

ATO-logoARITA logo

A couple of years ago the Australian Restructuring Insolvency & Turnaround Association (ARITA) (then the IPAA) and the ATO decided to run a test case on the obligations of liquidators upon the occurrence of a CGT event.

Justice-Blind-Scales

 

The decision in the first instance by Justice Logan of the Federal Court (in March 2013) has been confirmed by Justices  Edmonds, Collier and Davies.  Davies J summed up the decision as follows (paragraphs 34 and 35):

“Section 254(1) of the Income Tax Assessment Act 1936 (Cth) (“ITAA36”) applies to liquidators because liquidators are deemed to be “trustees” for the purposes of the taxation laws: see definition of “trustee” in s 6(1) of the ITAA36. As the consequence, a liquidator is “answerable as taxpayer” in respect of income, profits or capital gains derived by the liquidator in his or her representative capacity (s 254(1)(a)), and is required to lodge returns of such income, profits or capital gains and liable to “be assessed thereon”, but in his or her representative capacity only (s 254(1)(b)). Section 254(1)(d) then requires the liquidator to retain “out of any money” which comes to the liquidator in his or her representative capacity, sufficient money to pay tax that “is or will become due” in respect of such “income, profits or gains”, and s 254(1)(e) makes the liquidator personally liable for the tax payable to the extent of the amount retained, or which “should have been retained”. On its proper construction, it seems to me that the section contemplates that in the circumstances where the section is engaged, a post appointment tax liability, if any, will be assessed to the liquidator in his or her representative capacity, rather than to the company. That said, the analysis serves in my view to confirm that any personal liability falling upon the liquidator arises only if, and where, an assessment has issued, and there is an amount of tax that “is or will become due” in the sense of “assessed as owing”. For the reasons expressed by Edmonds J, the Commissioner’s construction of the phrase “is or will become due” as it is used in s 254(1)(d) is to be rejected. In my view the primary judge was correct to hold that the reasoning in Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54; (2007) 232 CLR 598 in respect of the proper construction of s 255 of the ITAA36 applies equally to the proper construction of s 254, and that s 254(1)(d) is to be read as referring to an amount of tax that has been assessed. “

Interestingly, the appeal judges did not comment on Justice Logan’s cautionary advice to liquidators at the first hearing, which was:

“… Even though, for the reasons given, s 254 does not require retention upon the mere happening of a CGT event, that does not mean that a liquidator is obliged immediately to distribute the resultant gain or part thereof as a dividend to creditors in the course of the winding up. A prudent liquidator, like a prudent trustee of a trust estate or executor of a will, would be entitled to retain the gain for a time against other expenses which might arise in the course of the administration. Further, in relation to income tax, the liquidator would at the very least be entitled to retain the gain until the income tax position in respect of the tax year in which the CGT event had occurred had become certain by the issuing of an assessment or other advice from the Commissioner that, for example, no tax was payable in respect of that income year….” __________________________________________________________________________________

For my other posts on this topic see: “Post-appointment income tax debts of liquidator” 10 October 2010 “Decision only partly resolves tax puzzle for liquidators” 7 March 2014 “ATO appeals against decision in Australian Building Sysytems case” 19 March 2014