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 ….

 


Australian Bankruptcy Laws commencing 1 March 2017

 Insolvency Law, Insolvency practices, Personal Bankruptcy, Regulation  Comments Off on Australian Bankruptcy Laws commencing 1 March 2017
Feb 172017
 

Some of the changes to the Australia’s bankruptcy legislation approved when the Insolvency Law Reform Act was passed in 2016 will commence on 1 March 2017. The Australian Financial Security Authority (AFSA), the regulator of the Bankruptcy Act, has issued a table listing those changes and comparing them with the existing provisions. Set out below is a copy of that table. (The original is available for download from AFSA.)

————————————————————————————

Comparative Table (Bankruptcy tranche 1 – commencement date 1 March 2017) re Insolvency Law Reform Act.

Table comparing the provisions of the Insolvency Practice Schedule (Bankruptcy) that are to commence on 1 March 2017 with existing provisions of the Bankruptcy Act

Schedule provision
Current Bankruptcy Act provision
Comment

10-5: Inspector-General (IG) must work cooperatively with Australian Securities and Investment Commission (ASIC) in performing functions and exercising powers

No equivalent

Requirement for the IG to work cooperatively with ASIC applies in relation to persons who are, have been or may become both registered trustees under the Bankruptcy Act and registered liquidators under the Corporations Act.

15-1: IG must establish a register of trustees

No direct equivalent

– some trustee information is currently entered on the National Personal Insolvency Index (NPII)

The register will contain information relating to the trustee’s registration, as well as contact details and certain disciplinary action taken against trustees. The information on the register will be publicly available.

20-5: Application to IG for registration as a trustee

154A

An application must be in the approved form and accompanied by the application fee.

20-10: IG may convene committee to consider registration application

155

The committee to consist of the IG; a registered trustee chosen by a prescribed body; and a person appointed by the Minister. The ‘prescribed body’ is the Australian Restructuring Insolvency & Turnaround Association (ARITA).

20-15: IG must refer applications to the committee

No equivalent – 155 assumes referral of applications

The IG must refer an application within two months of receiving it.

20-20: Committee to consider applications

155A

The committee must decide within 45 business days of interviewing an applicant whether he/she should be registered.

20-25: Committee to report

155A(6)

A report must be given to the applicant and the IG.

20-30: Registration as a trustee

155B and 155C

The IG must register an applicant if the committee recommends it and if the applicant has produced evidence in writing that he/she has taken out adequate and appropriate professional indemnity and fidelity insurance, and has paid the registration fee. Registration has effect for three years, and the IG must give the trustee a certificate of registration (may be given electronically).

20-35: Insolvency Practice Rules (IPRs)4 may impose conditions on all registered trustees or on specified class of trustee

No equivalent

Provides for imposition of industry-wide conditions, or conditions limiting the kinds of activity in which a trustee may engage.

Conditions include undertaking at least 40 hours of continuing professional education each year (10 hours of which must be capable of being objectively verified by an competent source) and maintaining adequate professional indemnity and fidelity insurance during any period of suspension of registration in relation to work carried out prior to the suspension taking effect. (see IPR 20-5)

20-40: Application to IG to vary or remove condition on registration

155E(1) to (3)

An application must be made in the approved form, but cannot be made if the trustee’s registration is suspended; if the condition is of a prescribed kind; or in prescribed circumstances.

20-45: IG may convene committee to consider application to vary or remove condition

155E(4) & (5)

The committee to consist of the IG; a registered trustee chosen by a prescribed body, and a person appointed by the Minister. The ‘prescribed body’ is ARITA.

20-50: IG must refer application to the committee

No equivalent – 155E assumes referral of applications

The IG must refer an application within two months of receiving it.

20-55: Committee to consider application

155E(6) & 155F(1)

The committee must interview an applicant unless the applicant agrees otherwise, and within 20 business days thereafter decide whether the condition should be varied or removed.

20-60: Committee to report

155F(2)

A report is to be given to the applicant and the IG.

20-65: Committee’s decision given effect

155F(4)

If the committee recommends removal or variation of condition, the condition is removed or varied in accordance with the decision.

20-70: Application for renewal of registration

155D(2) & (3)

Applications for renewal under 20-70 must be made in the approved form.

20-75: Renewal

155D(1)

The IG shall give a trustee a certificate of registration upon renewal.

20-80: False representation that a person is a registered trustee

No equivalent

A new offence that carries a maximum penalty of 30 penalty units (1 penalty unit = $180).

25-1: Registered trustees to maintain adequate insurance

No equivalent, however undertaking to maintain adequate insurance is a requirement for registration  and failure to do so can be grounds for the IG to issue a ‘show cause’ notice

New offences introduced for failing to maintain adequate professional indemnity and fidelity insurance. Maximum penalty of 1,000 penalty units (for false or reckless failure); or 60 penalty units (for failure in other circumstances – e.g. inadvertent failure). The IG may, by legislative instrument, determine what constitutes adequate insurance.

•  No legislative instrument is currently proposed. Requirements relating to insurance will be outlined in Inspector-General Practice Statement (IGPS) 13

30-1: Annual trustee return

No equivalent

A new requirement for trustees to lodge annual return in the approved form, including evidence that adequate insurance has been maintained. The return must be lodged annually within one month of the anniversary of the date of a trustee’s registration. Maximum penalty for failure to lodge, 5 penalty units.

35-1: Notice of significant events to IG

161A

Introduction of new notifiable events that include:

•  being issued with a bankruptcy notice

•  disqualification from managing a corporation

•  ceasing to have adequate insurance

•  being issued a ‘show cause’ notice in relation to registration as a liquidator, or having registration as a liquidator suspended or cancelled.

The notice must be filed in the approved form within five business days after the trustee could reasonably be expected to be aware that the event has occurred. Maximum penalty for failure to notify is 100 penalty units.

35-5: Notification of other events to IG

No equivalent

Introduction of an obligation to notify in the approved form if information in the annual trustee return or annual administration return is, or becomes, inaccurate in a material particular, and any other events prescribed (in the IPRs). The notice must be lodged within 10 business days after the trustee could reasonably be expected to be aware that the event has occurred. Maximum penalty for failure to notify is 5 penalty units.

40-5: Registered trustee to remedy failure to lodge documents or give

information or documents

No equivalent

The IG may direct a trustee in writing to comply with the requirement to lodge any document or give any information or document required to be given to a person under the Act or to be lodged with the IG. If a trustee fails to comply, the IG can direct the trustee not to accept further appointments and/or apply to the court for an order for compliance.

40-10: Registered trustee to correct inaccuracies etc.

No equivalent

If the IG suspects information provided by a trustee is incomplete or incorrect, the IG can direct the trustee in writing to confirm information is complete or correct, or to provide complete or correct information and/or notify persons of the addition or correction. If a trustee fails to comply, the IG can direct the trustee not to accept further appointments and/or apply to the court for an order for compliance.

40-15: Direction not to accept further appointments

No equivalent

The IG may direct a trustee in writing not to accept further appointments if:

•  the trustee has failed to comply with a direction under 40-5 or 40-10

•  a committee convened to consider the trustee’s ongoing registration decides the IG should give the direction

•  the trustee has failed to comply with a direction under 7070 (to give information to debtor or creditors) or

•  the trustee has failed to comply with a direction under 75-20(1) or (2) to convene a meeting of creditors

–  note 70-70 and 75-20 commence on 1 September 2017.

When given, a direction not to accept further appointments becomes a condition on the trustee’s registration.

40-20: Automatic cancellation of registration

182

Cancellation of registration occurs on the death of a trustee or if he/she becomes an insolvent under administration.

40-25: IG may suspend registration

No equivalent

The IG may suspend a registration where the trustee:

•  is disqualified from managing a corporation

•  ceases to have adequate insurance

•  has had his/her registration as a liquidator suspended or cancelled (other than on request)

•  owes more than the prescribed amount of estate charges

•  fails to comply with a court order to repay remuneration to an estate

•  has been convicted of an offence involving fraud or dishonesty or

•  requests the IG to suspend the registration.

40-30: IG may cancel registration

No direct equivalent (155G provides

a trustee may request the IG that registration cease)

The IG may cancel a registration where a trustee requests it, or in circumstances equivalent to those mentioned in relation to the suspension of a registration under 40-25 (except registration as a liquidator must be cancelled, not merely suspended).

40-35: Notice of suspension or cancellation

No equivalent

If the IG decides to suspend (under 40-25) or cancel (under 40-30) a trustee’s registration, the IG must give notice of the decision, along with reasons, to the trustee within 10 business days. The decision comes into effect the day after the notice is given. Failure to give the notice within 10 business days does not affect the validity of the decision.

40-40: IG may give a show- cause notice

155H(1)

A show-cause notice may be issued by the IG where the trustee:

•  no longer has the requisite qualifications, experience, knowledge and abilities

•  has committed an act of bankruptcy

•  is disqualified from managing a corporation

•  ceases to have adequate insurance

•  has breached a condition of registration

•  has breached a provision of the Bankruptcy Act

•  has had his/her registration as a liquidator cancelled or suspended (other than on request)

•  owes more than the prescribed amount of estate charges

•  fails to comply with a court order to repay remuneration to an estate

•  has been convicted of an offence involving fraud or dishonesty

•  is permanently or temporarily unable to perform the functions of a trustee due to physical or mental incapacity

•  fails to carry out adequately and properly the duties of a trustee

•  fails to carry out adequately and properly the duties of the administrator of a debt agreement

•  is not a fit and proper person

•  is not resident in Australia or

•  has failed to comply with a standard prescribed in the IPRs.

40-45: IG may convene a committee

155H(2) & (3)

The committee is to consist of the IG; a registered trustee chosen by a prescribed body, and a person appointed by the Minister. The ‘prescribed body’ is ARITA.

40-50: IG may refer matter to a committee

155H(2)

The IG may refer a matter to the committee if no explanation is received within 20 business days after a show-cause notice is given; or if not satisfied by the explanation.

40-55: Decision of the committee

155I(1), (2) & (3)

The committee can decide one or more of the following:

•  the trustee continue to be registered

•  the trustee’s registration be suspended or cancelled

•  the IG direct the trustee not to accept further appointments

•  the trustee be publicly admonished or reprimanded

•  a condition be imposed on the trustee’s registration

•  a condition be imposed on the registration of all other trustees that they not allow the trustee in question to exercise powers or perform functions on their behalf

•  the IG publish specified information in relation to the committee’s decision.

40-60: Committee to report

155I(4)

A report must be given to the registered trustee and the IG.

40-65: IG must give effect to committee’s  decision

155I(6)

The IG must give effect to the decision made by the committee.

40-70: Application to lift or shorten suspension

No equivalent

A trustee may lodge an application with the IG in the approved form to lift, or shorten the period of a suspension.

40-75: IG may convene a committee to consider applications

No equivalent

The committee is to consist of the IG; a registered trustee chosen by a prescribed body; and a person appointed by the Minister. The ‘prescribed body’ is ARITA.

40-80: IG must refer applications to a committee

No equivalent

The IG must refer an application within two months of receiving it.

40-85: Committee to consider applications

No equivalent

The committee must interview an applicant unless the applicant agrees otherwise, and within 10 business days thereafter, decide whether the suspension should be lifted or shortened.

40-90: Committee to report

No equivalent

A report must be given to the applicant and the IG.

40-95: Committee’s decision given effect

No equivalent

If the committee decides to lift or shorten the suspension, the suspension is lifted or shortened in accordance with that decision.

40-100: Notice by industry bodies of possible grounds for disciplinary action

No equivalent

An industry body may lodge with the IG a notice in the approved form stating that it reasonably suspects there are grounds for the IG to impose a condition on, or

suspend or cancel the registration of, a trustee, or issue a show-cause notice to the trustee. The IG must consider the information but is not bound to act on it.

40-105: No liability for notice given in good faith etc.

No equivalent

An industry body is not liable civilly, criminally or under any administrative process for a notice given in good faith and where the suspicion that is the subject of the notice is a reasonable suspicion. That protection extends to persons who give information to the industry body that is contained in a notice to the IG and to persons who make a decision as a result of which the industry body gives a notice.

40-110: Meaning of industry body

No equivalent

The IPRs may prescribe industry bodies–ARITA and the peak accounting and legal professional bodies are prescribed (see IPR 40-1).

45-1: Court oversight of registered trustees

No direct equivalent (some of the same subject matter is contained in 176 and

179. Other provisions of the ILRA also partially replicate 179

– e.g. 9015)

A Court may make such orders as it thinks fit in relation to a registered trustee, either on its own initiative, or on application by the IG or the trustee. In making orders the court may take into account:

•  whether the trustee has faithfully performed his/her duties

•  whether an action or failure to act by the trustee complies with the Act or IPRs, or the order of the court

•  whether any person has suffered, or is likely to suffer, loss or damage as a result of the trustee’s act or failure to act

•  the seriousness of the consequences of any act or failure to act by the trustee, including the effect on public confidence in registered trustees as a group.

45-5: Court may make orders about costs

No direct equivalent, but some overlap with 176

Without limiting 45-1, the Court may make orders in relation to a registered trustee that deal with the costs of a matter considered by the Court.

50-5: Prescribed body appointing a person to a committee

No equivalent

The IPRs may prescribe knowledge and experience requirements for members of a committee chosen by a prescribed body (at least 5 years’ experience as a registered trustee is prescribed – see IPR 50-15). The ‘prescribed body’ is ARITA.

50-10: Minister appointing a person to a committee

No equivalent

The Minister must be satisfied that a person is qualified by virtue of his or  her knowledge of, or experience in, one or more of: business; law; economics; accounting; public policy relating to bankruptcy.

50-15: Single committee may consider more than one matter

No equivalent

A single committee may consider one or more of the following:

•  matter(s) relating to one application for trustee registration

•  matter(s) relating to more than one applicant for registration

•  matter(s) relating to one or more registered trustees.

50-20: Ongoing consideration of matters by committee

No direct equivalent (but similar in some respects to the subject matter in Bankruptcy Regs 8.05G and 8.23)

The committee’s powers are not affected by a change in membership of the committee; the committee may adjourn consideration of a matter (and may do so more than once). A matter may be transferred to another committee.

50-25: Procedure and other rules relating to committees

No equivalent

The IPRs may provide for (see division 50 of the IPRs):

•  the manner in which committees perform their functions including:

(i) meetings (ii) quorum requirements (iii) disclosure of interests and (iv) how questions are decided

•  the reconstitution of a committee and

•  the termination of consideration of a matter by a committee and the transfer of matters to another committee.

50-30: Remuneration of committee members

No equivalent

Committee members are entitled to receive remuneration as determined by the Remuneration Tribunal. If no Tribunal Determination is in place, the members are entitled to receive such remuneration as the Minister determines in writing.

50-35: Committee must only use information etc. for purposes for which disclosed

No equivalent

A committee member commits an offence if he/she uses or discloses information or a document that was disclosed to him/her for the purposes of serving on

the committee (50 penalty unit maximum penalty). Exceptions apply where the document or information is disclosed to: ASIC; other committees under this Part or the corresponding Part of the Insolvency Practice Schedule (Corporations); prescribed bodies; authorities in States, Territories or overseas exercising similar functions to the committee or the IG; or a court or tribunal.

96-1: Review by the Administrative Appeals Tribunal (AAT)

155A(7) – registration application

155F(3) – application to vary/remove condition

155I(5) – disciplinary action by committee

The following decisions are reviewable by the AAT:

•  a committee decision under 20-20 (registration application)

•  a committee decision under 20-55 (application to vary or remove condition on registration)

•  IG decision under 40-15 (directing trustee not to accept further appointments)

•  IG decision under 40-25 (suspending registration)

•  IG decision under 40-35 (cancelling registration)

•  Committee decision under 40-55 (disciplinary action by committee)

•  Committee decision under 40-85 (application to lift or shorten a suspension).

105-1: The Insolvency Practice Rules

No equivalent

The Minister may, by legislative instrument, make rules providing for matters required or permitted by the Bankruptcy Act to be made by the Rules, or necessary or convenient to be provide for in order to carry out or give effect to the Act.

Endnote (edited)

This table deals only with provisions in Parts 1 and 2 of the Schedule (and sections 96-1 and 105-1 in Part 4, to the extent those provisions relate to Parts 1 and 2).

Transitional arrangements apply in respect of some new provisions – the transitional arrangements are not covered in this table.

This table does not present a full description of the new provisions, but highlights their main features and/or how they differ from existing.

A reference to the IPRs is a reference to the Insolvency Practice Rules, which underpin the Insolvency Practice Schedule (Bankruptcy) and provide greater detail in relation to various requirements of the Parts 1 and 2 of the IPRs commence on 1 March 2017.

————————————————————————————
End of table

Laws governing insolvency practitioners to change

 ASIC, Corporate Insolvency, Insolvency Law, Regulation  Comments Off on Laws governing insolvency practitioners to change
Dec 152011
 

On 14 December 2011 a new paper proposing changes to laws governing Australia’s insolvency practitioners was released by the departments of the Treasurer and the Attorney-General.  The paper’s introduction describes the intention and aims of the changes:

“The reforms are intended to improve value for money for recipients of insolvency services and to address cases of misconduct in the insolvency profession …. The reforms are aimed at ensuring the framework for insolvency practitioners promotes a high level of professionalism and competence by practitioners; promotes market competition on price and quality; provides for increased efficiency in insolvency administration; and enhances communication and transparency between stakeholders.”

The paper provides the following overview of the proposals:

  1. Reforms to the standards of entry into the insolvency profession are proposed to improve the balance between the need to protect consumers of insolvency services with the need for a competitive market that provides the best opportunity for maximising returns to creditors. 

  2. The qualification and experience requirements for insolvency practitioners would be aligned across the personal and corporate regimes. The requirements would include a prescribed level of formal studies in insolvency administration, adequate insurance cover, a fit and proper person test, and the requirement that the person has not been convicted of an offence involving fraud and dishonesty in the past 10 years.

  3. The framework for standards of entry would also be adjusted to allow conditions to be placed upon insolvency practitioners. This would include conditions on the registration of a particular practitioner and industry‑wide conditions. Standard conditions would be able to be imposed in relation to continuing education, quality assurance or review programs, insurance, complaint handling, residency, and inactive practice.

  4. The registration of practitioners would be aligned in a manner similar to the current personal insolvency process. Applications for registration would be determined by Committees composed of a regulator representative, an industry representative and a third person selected from a panel appointed by the Minister. Practitioners would be required to renew their registration every three years. 

  5. Reforms to remuneration arrangements are also proposed, including mandated caps on prospective fee approvals; restrictions on payments of disbursements to related entities; amendments to minimum fee entitlements; and the introduction of mechanisms for independent investigations into costs for corporate insolvency. Given recent substantial changes to remuneration arrangements in personal insolvency, there would be limited amendments to the rules regarding practitioner remuneration as part of this package.

  6. Significant communication and monitoring reforms are proposed to better empower creditors to monitor administrations and obtain information from practitioners. The laws governing committees of inspection would be aligned and consolidated, with committees of inspection being given expanded functions and rights. Creditors would have improved abilities to make reasonable requests for information; to set reporting requirements and to require meetings to be convened. Changes would also be made to allow resolutions to be passed without meetings in order to streamline the operation of administrations and reduce costs.

  7. Funds handling and record keeping rules would be aligned and made more efficient. Rules regarding the audit of accounts would be reformed and the ability of the regulators to appoint a person to audit the financial statements of an insolvency administration would be aligned. Mechanisms to enable third party reviews by insolvency practitioners of corporate administrations would also be introduced.

  8. Insurance rules would be revised and penalties for not taking out appropriate cover significantly increased. A practitioner would be required to take all reasonable steps to maintain adequate and appropriate professional indemnity insurance and adequate and appropriate fidelity insurance, with an increase in the offence from 5 penalty units ($550) to up to 1000 penalty units ($110,000) for a breach of this duty.

  9. There would be significant reforms to discipline and deregistration mechanisms. The regulators would be empowered to take direct action in relation to certain breaches. Liquidators would no longer be subject to the Companies Auditors and Liquidators Disciplinary Board’s (CALDB’s) jurisdiction. Personal and corporate insolvency practitioners would be subject to Committees modelled on the current personal insolvency disciplinary mechanisms, with an expansion in Committees’ powers. Recognised professional bodies would be able to make referrals to the Committee in the same way as regulators.

  10. Reforms are also proposed to provide creditors with powers regarding the removal and replacement of insolvency practitioners. Creditors would be given the power to remove practitioners by resolution, subject to protections against actions that amount to an improper use of the power. Amendments would provide for the efficient transfer of records from outgoing to incoming practitioners.

  11. Regulators’ powers would be amended in relation to information gathering, information provision to stakeholders, and their ability to require meetings to be called. The ability of the regulators to gather information would be clarified and enhanced. The reforms would facilitate cooperative arrangements between the personal insolvency regulator and corporate insolvency regulator. Mechanisms would be introduced to ensure transparency in relation to regulator resourcing, the levels of complaints and referrals, regulator activity and regulatory outcomes.

  12. Specific reforms are also proposed to ensure that the insolvency framework works for small businesses. It is proposed that reforms would be introduced to ensure compliance by directors with filing and record provision obligations; allow practitioners to assign causes of action; facilitate greater co‑operation between the Australian Securities and Investments Commission (ASIC) and the Insolvency and Trustee Service Australia (ITSA) on connected insolvencies; and improve the utilisation of the existing Assetless Administration Fund (AA Fund).

  13. The Government’s 2010 Corporate Insolvency Reform Package has also been revised to ensure it is consistent and complements the proposed reforms set out in the Proposals Paper.

 The paper – titled ‘A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia’ –  may be viewed and downloaded from the following links

Interested parties have been invited to comment on the paper by 3 February 2012.  Written submissions are to be sent to:

The Manager
Governance and Insolvency Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
Email: insolvency@treasury.gov.au

Phone enquiries may be made by calling Alix Gallo on (02) 6263 2870.

When should liquidators apply to court for approval and directions?

 Checklists and guides, Industry People, Insolvency practices, Legal opinion, Regulation  Comments Off on When should liquidators apply to court for approval and directions?
Sep 212011
 

 Michael J Galvin, barrister and insolvency law expert from Melbourne, has kindly contributed the following article for insolvency practitioners on applications for Court approval and directions, and the powers of administrators and liquidators.

 

 Applications for Court approval and directions

In addition to cases where liquidators and administrators are obliged to seek directions (see later in this paper), there are many circumstances where it may be thought desirable to apply for Court approval.  

This will be so where the liquidator or the administrator is uncertain as to the course he or she should adopt in relation to a matter (e.g. Re Mento Developments (2009) 73 ACSR 622).  It is particularly so where it is anticipated that a decision is likely to be controversial or where there is likely to be a complaint about a transaction which a liquidator or administrator proposes entering into, or has entered into (e.g. see Handberg (in his capacity as liquidator of S & D International Pty Ltd) (in liq) v MIG Property Services Pty Ltd (2010) 79 ACSR 373; Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111).

Section 479(4) of the Corporations Act 2001 provides that a liquidator may apply to the Court for directions regarding any matter arising in the winding up.  Section 511 makes similar provision for liquidators in creditors’ voluntary windings up, including liquidations which have ensued from a voluntary administration. Whilst they are expressed in different terms, it has been held that there is no material difference between the provisions.

Section 447D gives the Court power to give directions to administrators, and deed administrators, about matters arising in connection with the performance or exercise of their functions and powers.

Sections 479(4), 511 and 447D have a common pedigree.  The history of s 479(4) and its relationship to applications by trustees (particularly of deceased estates) for judicial advice were considered in detail by McClelland J. in GB Nathan & Co Pty Ltd (in liq) (1991) 24674 (see also Macedonian Orthodox Community Church St Petka Inc (2008) 249 ALR 250; see also Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111 (Mansfield, Besanko and Flick JJ).

The primary purpose of the court’s power to give judicial advice is the protection of those appointed by the Court to administer estates from allegations that they have acted improperly (Southern Cross Airlines Holdings Ltd (1998) 1 Qd R 84 at 93).  It is also aimed at protecting the interests of trusts (Macedonian Orthodox Community Church St Petka Inc at [71] & [72]).

That is not to say that the court will grant a direction or approval whenever sought (Southern Cross Airlines Holdings Ltd at 92).  It is important that the proposed direction:

  • relates to the manner in which the liquidator should act in carrying out the liquidator’s functions; and
  • will not adversely affect the legal rights or interests of other persons (or allow the liquidator to do so with impunity) (Southern Cross Airlines Holdings Ltd at 92).

However, an application for directions may be readily converted to an adversarial proceeding where the circumstances warrant it (Re Mento Developments (2009) 73 ACSR 622).

The power to give judicial advice extends to whether or not a liquidator is justified in prosecuting or defending proceedings (particularly having regard to the associated costs of doing so) (Macedonian Orthodox Community Church St Petka Inc at [71] & [72]).

The court may exercise its power to give judicial advice even with respect to and the liquidator’s proposal to enter into a commercial arrangement (Re Timbercorp Securities Ltd (in liq) (2009) 74 ACSR 626).

Further:

A liquidator is entitled to seek directions on the administration of the winding up even though the issue about which he seeks a direction may be or become an adversarial issue in other proceedings;

The direction or advice is to be directed to advising the liquidator on whether or not he or she is justified in conduct and winding up in a certain way and not deciding disputes between competing parties;

The direction or advice should not seek to resolve an issue between competing parties, but the fact that the advice may tend to foreclose an issue in other disputed proceedings is not of special significance in the court exercising its discretion to give private advice to the liquidator; and

Where a liquidator seeks advice on an issue which may be contested between competing parties, the court should be alert to not going further than is necessary to give the advice sought (Re Mento Developments (2009) 73 ACSR 622 at [49]).

It is common, for the applicant liquidator to nominate willing parties to act as contradictors in the proceeding. These are usually persons, such as creditors or classes of creditors, who have an interest in the outcome of the application. The identification of such persons is helpful because they are usually able to promote counter arguments that assist the Court in resolving the relevant issue or issues. The costs of such persons are usually agreed in advance to be met out of the assets of the liquidation.

Opinions differ as to the appropriate wording of a direction. Some judges prefer to give a direction that a liquidator is “justified” in taking a particular action. Others prefer to direct that the liquidator would be acting “reasonable” were he or she to adopt a particular course.

As to the equivalent law governing trustees in bankruptcy, see Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111.

 When is Court/creditor approval required

A. Liquidators

As to liquidators’ powers generally, see s 477 Corporations Act 2001.

Liquidators are prohibited from doing any of the following unless they have the approval of the Court (Federal or Supreme), the approval of the committee of inspection (if there is one) or a resolution of creditors:

  • compromise a debt due to the company which is greater than $100,000 (s 477(2A));
  • enter into an agreement on the company’s behalf (such as a lease or a charge) which may remain on foot or involve the performance of obligations beyond three months from the date of the agreement (s 477(2B)).

Quaere whether settlement of a claim against a director for insolvent trading, which according to the terms of s 459M is a debt due to the company, requires Court or creditor approval.

A liquidator in a creditors’ voluntary winding up is prohibited from doing any of the following without the leave of the Court, unless and until the initial meeting of creditors under s 497 has been held:

  • pay any class of creditors in full (subjection to s 556) (ss 477(4) and 477(l)(b);
  • compromise or make any arrangement with creditors, or persons claiming to be creditors, of the company, or whereby the company may be rendered liable (s 477(4) and s 477(l)(c)); and
  • do anything necessary for the winding up of the company and distributing its property (ss 477(4) and 477(2)(m)).

The exercise by a liquidator of the powers conferred by s 477 is always subject to the control of the Court. Any creditor or contributory, or ASIC, may apply to the Court with respect to any exercise, or proposed exercise, of any of those powers (s 477(6); note also the power of the Court to review the actions, decisions and omissions of liquidators under s 1321).

A liquidator must have regard to any directions given by resolution of the creditors or by the committee of inspection. A direction by the former will override a direction by the latter (s 479(1)). The liquidator may convene meetings of creditors to ascertain their wishes, and is obliged to convene a meeting if required to do so by creditors having one tenth of the company’s debt (s 479(4)).

B. Administrators

While a company is under administration, the administrator:

  • has control of the company’s business, property and affairs;
  • may carryon the company’s business and manage its property and affairs;
  • may terminate or dispose of all or part of the business, and may dispose of any of the property; and
  • may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration (s 437A(l)).

The administrator has additional powers:

  • to remove a director from office;
  • to appoint a director;
  • to execute a document, bring or defend proceedings, or do anything else, in the company’s name and on its behalf; and
  • whatever else is necessary to the purposes of part 5.3A (s 442A).

A transfer of shares in a company during administration is void, unless:

  • the administrator has given written and unconditional consent to the transfer;
  • the administrator gives written consent and any conditions have been satisfied; or
  • the Court authorises the transfer (s 437F(1)).

An administrator’s consent to a transfer of shares is subject to review by the Court (s 437F(5) and (6). The Court will only authorise the transfer under s 437F(l)(c) if it is satisfied the transfer is in the best interests of the company’s creditors as a whole.

An administrator is prohibited from disposing of property subject to a charge, or property used by the company but owned by someone else (e.g. property leased by the company), unless:

  • the disposal is in the ordinary course of business;
  • the charge or owner consents; or
  • the administrator obtains the leave of the Court (s 442C).

The Court will only grant leave if it is satisfied that the chargee’s or owner’s rights are adequately protected (s 442C(3».

As in the case of liquidators, the actions, decisions and omissions of administrators, and deed administrators, are subjection to review by the Court (s 1321).

Author: Michael J Galvin 5 September 2011

Michael’s Profile

 From the date of his admission in 1989 until commencing the Readers’ Course earlier in 1999, Michael worked with Gadens Lawyers, formerly J M Smith & Emmerton.  He became an associate in 1991 and then a partner in 1994.  He conducted an extensive insolvency practice as a solicitor for ten years advising liquidators, receivers, voluntary administrators, company directors, debtors, creditors, trustees and the Insolvency and Trustee Service Australia.  He appeared in a variety of proceedings as a solicitor advocate including commercial hearings and trials in the Magistrates’, County, Supreme and Federal Courts and public examinations under the Corporations Law and Bankruptcy Act. Michael is co-author of the recently published Butterworth’s loose-leaf service “Bankruptcy Law and Practice”.

Telephone: (03) 9225 8235 Secretary: (03) 9225 6059 Chambers: Lonsdale Chambers, Level 5, 530 Lonsdale Street, Melbourne Vic 3000.  Clerk: Michael Green (03) 9225 7222.