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
The Senate Economics References Committee has criticised the contempt that some directors show for company laws, the “mild” consequences of non-compliance and the low likelihood that unlawful conduct will be detected.
In its report “Insolvency in the Australian construction industry: I just want to be paid” – published 3 December 2015 – the Senate Committee states:
The committee considers that the estimates of the incidence of illegal phoenix activity detailed in this report suggest that construction industry is being beset by a growing culture among some company directors of disregard for the corporations law. This view is reinforced by the anecdotal evidence received by the committee which indicates that phoenixing is considered by some in the industry as merely the way business is done in order to make a profit.
The committee is particularly concerned at evidence that a culture has developed in sections of the industry in which some company directors consider compliance with the corporations law to be optional, because the consequences of non-compliance are so mild and the likelihood that unlawful conduct will be detected is so low.
This culture is reflected in the number of external administrator reports indicating possible breaches of civil and criminal misconduct by company directors in the construction industry. Over three thousand possible cases of civil misconduct and nearly 250 possible criminal offences under the Corporations Act 2001 were reported in a single year in the construction industry. This is a matter for serious concern. It suggests an industry in which company directors’ contempt for the rule of law is becoming all too common.
[from Executive summary, Phoenixing (page xix) and paragraph 5.100 (page 87)]
Continue reading »
Transcripts have now been published for all of the public hearings of the Senate inquiry into insolvencies in construction industry. Phoenixing of companies is the main topic discussed. Several insolvency practitioners have given evidence, and at the hearing in Sydney on 28th September the insolvency profession was criticised by the leading participant, Senator Doug Cameron. At the public hearing in Melbourne on 29th September the Walton Constructions case was discussed in detail by the insolvency practitioners initially appointed as external administrators.
A list of the public hearings and those who appeared as witnesses is provided below. Continue reading »
During the June 2015 hearing in Canberra of the Senate Economics References Committee’s inquiry into “Insolvency in the Australian construction industry”, Mr Dave Noonan, a national secretary in the Construction, Forestry, Mining and Energy Union (CFMEU), listed what he thought were the main causes of business failure in the construction industry. In doing so he was drawing largely on figures published by the Australian Securities and Investments Commission (ASIC), which gathers that information from liquidators and other external administrators.
It’s the latest example of these ASIC statistics being quoted as if they were accurate and credible. In the CFMEU’s case, Mr Noonan took delight in agreeing with a Dorothy Dixer from a friend in the Senate (Senator Doug Cameron) that “the CFMEU was not named as one of the major reasons for corporate failure in the construction industry”. The inference was, of course, that the statistics proved that the CFMEU was not a problem for the industry.
What some of those who quote these ASIC statistics may not know is that the categories of causes from which external administrators must choose are predetermined. In other words, in nominating causes of failure external administrators must select from a list of categories created by the ASIC. Also, one of those categories – one which gets a large number of ticks – is labelled merely “Other”.
Furthermore, and curiously, the information given to the ASIC by external administrators appears, on the face of it, to be at odds with the widespread belief amongst the insolvency community, unions and regulators that many business failures, especially in the construction industry, are the result of fraudulent phoenix activity. Which raises the question of whether the number of permitted categories of causes need to be increased, and/or whether the categories need to be modernised, broadened and clarified.
The ASIC compiles its statistics on the causes of failure from information supplied by external administrators when they fill out their statutory reports online (Form EX01, Schedule B of ASIC Regulatory Guide 16). In filling out these reports – i.e., in nominating the causes of a particular corporate insolvency – external administrators must select from 13 categories of causes, which are shown below in the order established by the ASIC and using its exact words. This list of categories has existed for at least thirteen years. The only change since 2002 has been to alter the name of cause number 13, from “None of the above” to “Other, please specify”.
Select from these causes of failure
1. Under capitalisation
2. Poor financial control, including lack of records
3. Poor management of accounts receivable
4. Poor strategic management of business
5. Inadequate cash flow or high cash use
6. Poor economic conditions
7. Natural disaster
8. Fraud
9. DOCA (Deed of Company Arrangement) failed
10. Dispute among directors
11. Trading losses
12. Industry restructuring
13. Other, please specify
For those with business savvy, a rough definition of most of these ASIC categories can be deduced from their titles. (Which is just as well, because there is no official explanation.) But some categories – particularly “Fraud” (ASIC cause 8) – are vague and broad, and would benefit from the ASIC stating exactly what they mean.
The ASIC’s latest report on this subject [1.] shows that in 2013-14 the “nominated causes of failure” – for all industry types, not just the construction industry – from highest to lowest, were:
| CAUSES OF FAILURE |
NUMBER
|
| Inadequate cash flow or high cash use |
4,031
|
| Poor strategic management of business |
3,975
|
| Trading losses |
3,078
|
| Poor financial control including lack of records |
2,908
|
| Other |
2,726
|
| Poor economic conditions |
2,312
|
| Dispute among directors |
1,743
|
| Poor management of accounts receivable |
1,017
|
| Dispute among directors |
271
|
| Industry restructuring |
222
|
| Fraud |
146
|
| Natural disaster |
122
|
| Deed of Company Arrangement failed |
55
|
| TOTAL |
22,606
|
An external administrator may nominate as many of the prescribed causes as he or she likes. According to the ASIC, external administrators nominated an average of between two and three causes of failure per report in 2013–14. So in its summary the ASIC highlights the top three nominated causes of failure for companies and provides figures on the percentage of reports by external administrator in which these nominated causes appear:
| CAUSES OF FAILURE |
2013-14
|
| Inadequate cash flow or high cash use (ASIC cause 5) |
in 42.6% of reports
|
| Poor strategic management of business (ASIC cause 4) |
in 42.0% of reports
|
| Trading losses (ASIC cause 11) |
in 32.5% of reports
|
These top three nominated causes have been the same for the past four years. It appears that “Other” (ASIC cause 13) may be a close fourth.
The following explanation of phoenix activity comes from “Defining and Profiling Phoenix Activity”, a paper published in December 2014 as part of a research project (still going) by Associate Professor Helen Anderson, Professor Ann O’Connell, Professor Ian Ramsay, Associate Professor Michelle Welsh and Hannah Withers of the University of Melbourne Law School and the Monash Business School: [2.]
“The concept of phoenix activity broadly centres on the idea of a second company, often newly incorporated, arising from the ashes of its failed predecessor where the second company’s controllers and business are essentially the same. It is important to note that phoenix activity can be legal as well as illegal. Legal phoenix activity covers situations where the previous controllers start another similar business when their earlier entity fails in order to rescue its business. Illegal phoenix activity involves similar activities, but the intention is to exploit the corporate form to the detriment of unsecured creditors, including employees and tax authorities.
In a typical phoenix activity scenario, a company in financial difficulties, ‘Oldco’, is placed into liquidation or voluntary administration, or is simply left dormant (and may then be deregistered). Prior to this occurring, Oldco’s assets may be transferred either to a newly incorporated entity, ‘Newco’, or to an existing entity, such as a related company in a corporate group. “
Estimates of losses incurred by the Taxation Office, employees, the Fair Entitlements Guarantee (FEG) scheme, sub-contractors, trade creditors , etc. as a result of phoenix activity vary, but are in the hundred of millions. On its website the ASIC quotes from figures in a report published by Fair Work Australia in 2012 which put the cost to the Australian economy at potentially more than $3 billion annually. The FWA report, “Phoenix activity: sizing the problem and matching solutions”, estimates that the annual cost of illegal phoenix activity is:
A phoenix transaction carried out by a company normally brings about the end of the company. If the company’s former suppliers or subcontractors cannot survive without the payments they were receiving from the company, they too may have to close down. Hence, where phoenix activity is involved a failed company might be a phoenix perpetrator or a phoenix victim (or perhaps a phoenix perpetrator as a result of being a phoenix victim!).
For simplicity’s sake, this article will focus upon companies/directors that are phoenix perpetrators.
When looking at a failed company an external administrator might conclude that the company is a phoenix perpetrator (or, to describe the event more accurately, that the directors caused the company to carry out a phoenix arrangement). However, the predetermined list of causes which the ASIC has created doesn’t provide a category that is clearly made for such cases, or a category into which such cases might logically fit.
“Fraud” (ASIC cause 8) might be an appropriate category. But if the phoenix activity was “legal” [4.] it may not.
Even if “Fraud” is the cause category into which external administrators should, and do, put fraudulent or illegal phoenix cases, then it appears that the commonly accepted extent of such activity is not being reflected in their reports to the ASIC. As chart 1. shows, “Fraud” accounts for only 146 out of 22,606 causes.
Furthermore, anecdotal evidence suggests that “Fraud” is regarded by external administrators as referring to dishonesty by employees or outsiders – like the misappropriation of funds, or the abuse of position by employees, or wrongful or criminal deception by outsiders.
In a “legal phoenix” case the external administrator might select the cause category of “Other” (ASIC cause 13). The fact that this cause stands at an appreciable 2,726 out of 22,606 on the latest count (see chart 1.) adds weight to that possibility. But because the “please specify” descriptions that are requested and given in this category are not publicly disclosed by the ASIC (and probably not even analysed), we don’t know what is being included in this undefined, catch-all category.
In a “legal phoenix” case, and even in an “illegal phoenix” case, the external administrator might – for the purpose of reporting causes of failure – disregard the phoenix transaction, preferring the view that the company failed before implementation of the phoenix scheme as a result of other causes, such as “inadequate cash flow or high cash use”, “poor strategic management of business” and/or “poor financial control including lack of records”.
There is so much we don’t know. For example:
The above discussion of causes has drawn on information supplied by external administrators in a particular section of the statutory report form EX01. However, the main reason for this form’s existence is to report, as required by the Corporations Act, possible offences that the external administrator has noticed.
In Schedule B external administrators are asked to advise whether they are reporting “possible misconduct”. It is possible, therefore, that reports of illegal phoenixing are contained in this main section of their reports.
But if this is so, the ASIC’s analysis of the statutory reports received – published in “Insolvency statistics: External administrators’ reports” – does not mention it. In fact, the word “phoenix” appears only once in the latest of those published reports, and then only in a passing manner. Perhaps this is to be expected, given that the word “phoenix” does not even appear in Schedules B and D nor in any other part of ASIC Regulatory Guide 16.
It’s possible that the word’s absence from the offences/misconduct section of the Regulatory Guide may be due to the fact that “there is no express ‘phoenix offence’”. [4.]
However, as “Defining and Profiling Phoenix Activity” explains, acts carried out during conduct of an “illegal phoenix scheme” are likely to be offences under one or more of several sections in the Corporations Act. Also, the acts are likely to breach provisions of the Tax Assessment Act, the Criminal Code Act and/or the Fair Work Act. [4.] .
At this point we arrive at the same questions presented by the earlier analysis of the causes of failure. Is the phoenix activity observed by “the front-line investigators of insolvent corporations” [5.] being officially reported to the ASIC? If it is, how does the ASIC know it is, and how is the ASIC putting that information on the public record and before inquiries and researchers looking into phoenix activity?
Given the high level of interest in, and regulatory action to curb, the illegal phoenixing phenomenon, it is a pity that the store of the valuable knowledge derived from first-hand observations by external administrators is not being properly mined. The ASIC should give serious consideration to amending/expanding the Form EX01, Schedule B of Regulatory Guide 16 with simple changes to:
FOOTNOTES:
Previous posts on this blog regarding this inquiry:
(6 July 2015) From 1 July 2015 the Australian Government’s Department of Employment will accept applications from liquidators for funding under its Fair Entitlements Guarantee programme. The following is a copy of the FACT SHEET for the Fair Entitlements Guarantee Recovery Programme.
A division of the Australian Government Department of Employment
This fact sheet provides information for liquidators about the Fair Entitlements Guarantee (FEG) Recovery Programme which aims to improve the recovery of employment entitlements advanced under FEG.
FEG provides financial assistance for unpaid employment entitlements to eligible employees who have lost their jobs due to the liquidation or bankruptcy of their employers. Once entitlements are paid under FEG, the Commonwealth stands in the shoes of the employee as a subrogated creditor and is entitled to claim in the liquidation and is given priority over other unsecured creditors under the Corporations Act 2001 (Cth).
The FEG Recovery Programme is administered by the Department of Employment (‘Department’) with the purpose of funding actions that will improve recovery of amounts advanced under FEG.
Under the FEG Recovery Programme funding may be provided to liquidators to enable recovery efforts, including legal proceedings, which the liquidators would not otherwise have the financial resources to pursue.
Actions that the Department may consider funding include, but are not limited to:
Liquidators of insolvent entities where employment entitlements have been paid under FEG can apply for funding assistance where:
Applications for funding assistance can be made by completing the Funding Application Form available on the FEG website and returning:
When determining whether to provide funding, the Department will have regard to:
If your application is accepted, you will be required to enter into a funding agreement with the Department. The funding agreement will govern what the Department will pay for and how monies recovered are to be applied.
A draft of the funding agreement will be provided to you if your application is accepted. The Department will not be liable to pay any amounts until the funding agreement has been executed and will only provide funding in accordance with the funding agreement.
You can contact the FEG Hotline if you would like more information about the FEG Recovery Programme:
If you speak a language other than English, call the Translating and Interpreting Service (TIS) on 13 14 50 for free help anytime.
Further information about FEG is also available on the FEG website (www.employment.gov.au/FEG).
The information contained in this fact sheet is not legal advice. Where necessary, you should seek your own independent legal advice relevant to your particular circumstances. The Commonwealth is not liable for any loss resulting from any action taken or reliance made by you on the information contained in this factsheet. Updated: June 2015
In the UK on 9 February 2015 the government issued the following statement by the Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs (Business Minister, Jo Swinson) :
Rescuing struggling but viable businesses out of formal insolvency helps save jobs and improves the prospect of creditors recovering some of what they are owed. The Enterprise and Regulatory Reform Act 2013 introduced new powers to help insolvency practitioners secure essential IT and utility supplies to keep a business going whilst it is being rescued.
I have today laid an Order to ensure that insolvency practitioners can retain the essential supplies they need to save viable businesses. There will be an impact on suppliers in the IT and utility sectors but I believe that by providing strong safeguards to ensure the supplier can have confidence they will be paid, we will ensure that the benefits of this measure far outweigh the
costs. In particular:1. The supplier will be able to seek a personal guarantee from the insolvency practitioner at any time to give them more certainty that the supplies will be paid for.
2. The supplier will be able to apply to court to terminate their contract on the grounds of
‘ hardship’.
3. Guidance will be issued to insolvency practitioners to urge them to make contact with essential suppliers at the earliest possible time following their appointment to discuss their needs in relation to supply, to ensure that undue costs are not incurred.The Government’s aim remains to ensure that a balance is struck between ensuring the rescue of viable businesses against the obligations placed on those suppliers that will be impacted by the Order. The proposed changes will have effect in relation to contracts made after 1 October 2015.
The Government consulted on how those new powers should be exercised and whether the safeguards proposed were adequate to ensure that those essential suppliers bound to supply an insolvent business would be paid. A total of 31 responses were received and I am very grateful for the time those respondents took to provide constructive feedback to the consultation. Almost all respondents expressed their support for the aims of the proposals with some suggesting ways to make the safeguards more effective. The draft Order was amended in the light of comments received.
Source: House of Commons: Written Statement (HCWS265)
Press Release: Insolvency Service Essential supplies to be guaranteed during business rescue
The Insolvency Service: Summary of Responses: Consultation on the Continuity of Essential Supplies.
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.
The following table sets out the proposed legislation by using extracts from the Bill and related official material.
| 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; 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 ASIC must consider information and documents ASIC must give notice if no action to be taken 45 business days to consider and decide ASIC not precluded from taking action Notice to industry body if ASIC takes action Notices are not legislative instruments 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: (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 |
When the Insolvency Law Reform Bill 2014 is passed, creditors in an external administration of a company (except under receivership or provisional liquidation) will be granted the power to have the external administrator’s fees reviewed by another external administrator. In the draft legislation, the person appointed by creditors is called a reviewer, a reviewing liquidator and, occasionally, a cost assessor.
The following table sets out the proposed legislation by using extracts from the Bill and related official material.
SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC. |
SOURCE OF TEXT |
| 5-20 Meaning of external administrator of a company
A person is an external administrator of a company if the person is: |
Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 5-20, page 157 |
| 90-22 Application of this Subdivision
This Subdivision applies in relation to a company that is under external administration, other than a company in relation to which a provisional liquidator has been appointed. |
Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), Subdivision C section 90-22, page 263 |
| Appointment to carry out review (1) A registered liquidator may be appointed to carry out a review into either or both of the following matters: (a) remuneration of the external administrator of the company; (b) a cost or expense incurred by the external administrator of the company. Appointment by resolution (2) The appointment may be made by resolution of: (a) the creditors; or (b) if the company is being wound up under a members’ voluntary winding up—the company; (3) If the appointment is made by resolution, the resolution must specify: (a) the remuneration, costs or expenses which the liquidator is appointed to review; and (b) the way in which the cost of carrying out the review is to be determined. Appointment by one or more creditors or members |
Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), Subdivision C, section 90-24, pages 264 and 265 |
| …. Creditors, ASIC and the Court will also have the power to appoint a cost assessor to assess and report on the reasonableness of the remuneration and costs incurred during a portion or all of an administration. | Explanatory Material, page 163, para 7.22 |
| Review of the external administration of a company
The creditors may resolve by majority of creditors in both value and number, or the external administrator may agree, to appoint a reviewer to review and report on the reasonableness of the remuneration and costs incurred in an external administration …. |
Explanatory Material, Comparison of key features of new law and current law, page 168 |
| 90-29 Rules about reviews
(1) The Insolvency Practice Rules may provide for and in relation to reviews under this Subdivision. |
Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 90-29, page 268 |
| Subdivision D of Division 90 provides ….for the creditors to resolve to appoint, or otherwise agree with the liquidator, to appoint a reviewer to report on external administrator remuneration or costs only. Section 90-27 provides for the Insolvency Practice Rules to contain rules about such reviews. | Insolvency Practice Rules Proposal Paper, page 25, para 143 |
| Only a registered external administrator would be able to be appointed as a reviewer. | Insolvency Practice Rules Proposal Paper, page 26, para 147 |
| In conducting a review of remuneration and/or costs, the reviewer will be empowered to do any of following: • conduct the review; • direct the external administrator to provide an itemised invoice in a form, and within the time, specified in the direction for work undertaken by the liquidator; • direct a third party to give an itemised bill of costs in a form, and within the time, specified in the direction in relation to work undertaken by the third party; • interview any party to the review and allow that party to be questioned by any other party to the review; • direct a person to give a written statement, in a specified form and signed by the person, about a matter relevant to the review; • direct the external administrator to produce all or part of the liquidator’s files or documents in relation to the administration of the estate. |
Insolvency Practice Rules Proposal Paper, page 26, para 150 |
| It is proposed that the new rules would also stipulate that: • if the reviewer gives a person a direction, and the person does not comply with the direction, the reviewer may conduct the assessment on the basis of the information available to the reviewer; and • the reviewer will have a duty to act independently, in the interests of creditors and to avoid actual and apparent conflicts of interest. |
Insolvency Practice Rules Proposal Paper, page 26, para 151 |
| The report to be prepared by the reviewing practitioner would be required to be provided in the form, and with the content, as agreed between the reviewer and the appointing body. | Insolvency Practice Rules Proposal Paper, page 27, para 152 |
| Once the report is completed, it would be required to be provided to the external administrator responsible for the administration, the committee of inspection (if applicable) and ASIC. | Insolvency Practice Rules Proposal Paper, page 27, para 153 |
| ASIC may give a registered liquidator notice in writing asking the liquidator to give ASIC a written explanation why the liquidator should continue to be registered, if ASIC believes that …. (g) the liquidator has been appointed to act as a reviewing liquidator … and has failed to properly exercise the powers or perform the duties of a reviewing liquidator | Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 40-40, page 180 |
The exposure draft of Australia’s Insolvency Law Reform Bill 2014 has, in its 240 pages dealing with corporate insolvency, so many proposed changes in the form of amended, repealed, omitted, added and substituted words, items, definitions and sections, and so many additional parts, divisions, subdivisions, schedules and transitional provisions, that only an expert with tremendous devotion to the task would be able to understand what it all means and see what the new law governing corporate insolvencies is going to look like. The rest of us will probably have to wait until this Bill is passed and a compilation of the Corporations Act 2001 that takes into account all these changes is prepared.
Even then it appears we’ll see quite a mishmash of insolvency laws scattered throughout the Corporations Act and its Rules and Regulations. Perhaps our corporate insolvency laws need a real clean up, like gathering all existing provisions together and moving the lot (with amendments and additions) out of the Corporations Act and into a new, specific Act, such as a Corporate Insolvency Act. But that’s a discussion for another day.
However, one of the changes proposed by the Insolvency Law Reform Bill will take us a little in this direction. Several rules that are currently scattered throughout the Corporations Act will be encompassed in a new Division 4 – which is to be called the Insolvency Practice Schedule (Corporations). It will be added to Part 5.9 (Miscellaneous) of Chapter 5 (External Administration) of the Corporations Act 2001. The table below shows the layout of this new Division and points to the pages of the Bill’s Exposure Draft where the text of the laws is set out. I hope it’s of some help to those trying to understand the proposed changes.
Part |
Division |
Exposure Draft – pages |
|---|---|---|
| 1-Introduction | 1-Introduction | 151 to 152 |
| 5-Definitions | 153 to 158 | |
| 2-Registering and disciplining practitioners | 10-Introduction | 158 to 159 |
| 15-Register of liquidators | 159 to 160 | |
| 20-Registering liquidators | 160 to 168 | |
| 25-Insurance | 169 | |
| 30-Annual liquidator returns | 170 | |
| 35-Notice requirements | 171 to 172 | |
| 40-Disciplinary and other action | 172 to 189 | |
| 45-Court oversight of registered liquidators | 189 to 190 | |
| 50-Committees under this Part | 190 to 195 | |
| 3-General rules relating to external administrations | 55-Introduction | 195 |
| 60-Remuneration and other benefits received by external administrators | 196 to 208 | |
| 65-Funds handling | 208 to 215 | |
| 70-Information | 216 to 234 | |
| 75-Meetings | 235 to 244 | |
| 80-Committees of inspection | 244 to 256 | |
| 85-Directions by creditors | 256 to 257 | |
| 90-Review of the external administration of a company | 257 to 269 | |
| 4-Other matters | 95-Introduction | 270 |
| 100-Other matters | 270 to 271 | |
| 105-The Insolvency Practice Rules *** | 271 to 272. (Note: To be made by the Minister.) |
*** The Bill’s Exposure Draft mentions the Insolvency Practice Rules many times, stating how and where they may be used to clarify, interpret, amplify, refine and flesh out the insolvency laws. A separate document – a 27 page Proposals Paper for Insolvency Practice Rules – has been released for comment (closing date 19/12/2014). The part of the Paper that applies to Corporate Insolvency is pages 16 to 27.
Note: There is an official Explanatory Material to the exposure draft of the Bill. It is 228 pages long, but only 115 pages concern changes to corporate insolvency laws!
________________________ END OF POST ____________________________
On 7 November 2014 an exposure draft of the Insolvency Law Reform Bill 2014 (ILRB 2014) was released by the Australian Treasury for comment.
The Treasury’s summary/promotion of the legislation is as follows:
“The draft Bill comprises a package of proposals to amend and streamline the Bankruptcy Act 1966 and the Corporations Act 2001. The proposed amendments will:
•remove unnecessary costs and increase efficiency in insolvency administrations;
•enhance communication and transparency between stakeholders;
•promote market competition on price and quality;
•boost confidence in the professionalism and competence of insolvency practitioners; and
•remove unnecessary costs from the insolvency industry resulting in around $55.4 million per annum in compliance cost savings.”
The Explanatory Material issued with the Bill opens with this outline:
“The Insolvency Law Reform Bill 2014 (Bill) amends the Corporations Act 2001 (Corporations Act), the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Bankruptcy Act 1966 (Bankruptcy Act) to create common rules that would:
• remove unnecessary costs and increase efficiency in insolvency administrations;
• align and modernise the registration and disciplinary frameworks that apply to registered liquidators and registered trustees;
• align and modernise a range of specific rules relating to the handling of personal bankruptcies and corporate external administrations;
• enhance communication and transparency between stakeholders;
• promote market competition on price and quality;
• improve the powers available to the corporate regulator to regulate the corporate insolvency market and the ability for both regulators to communicate in relation to insolvency practitioners operating in both the personal and corporate insolvency markets; and
• improve overall confidence in the professionalism and competence of insolvency practitioners.”
The draft Bill (ILRB 2014) in PDF format
The Explanatory Material in PDF format
The Insolvency Practice Rules – Proposals Paper in PDF format
Coversheet for a submission by post
The first version of ILRB 2014 appeared on 19/12/2012 as Insolvency Law Reform Bill 2012, but it never became law. However, the 2012 Explanatory Memorandum and the 2012 Exposure Draft contains valuable background information related to the current Bill. (Sixteen submissions were made for this 2012 consultation.)
Further background information regarding ILRB 2014 is available in the June 2011 Treasury Options Paper titled “A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia”. (Thirty three submissions were made for this consultation.)
The 2011 options paper was followed in December 2011 by a Proposals Paper with the same title. (Twenty nine submissions were made for this consultation.)
Closing date for submissions: Friday, 19 December 2014.
Email submissions are to be done online at:
http://www.treasury.gov.au/ConsultationsandReviews/Consultations/Submission-Form?parent={34029467-07BE-46D9-AA9E-86DAC3715DFF}
Address for written submissions:
Manager
Corporations and Scheme Unit
Financial System and Services Division
The Treasury
Langton Crescent
PARKES ACT 2600
For enquiries call Peter Levy at The Treasury on (02) 6263 3976.
Further posts will be made on this blog site in the coming days with details of some of the proposed changes to corporate insolvency laws.