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

 ASIC, Corporate Insolvency, External administrators, Insolvency Law, Law reform proposals, Practitioners Association (ARITA), Regulation  Comments Off on Insolvency industry bodies may request disciplinary action by ASIC against registered liquidators
Dec 092014
 

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

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

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

SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC.
SOURCE OF TEXT
Subdivision G of Division 40 provides that an industry body will be able to provide information about potential breaches of the law by a liquidator, and also be able to expect a response from ASIC on the outcome of that information provision.
The following industry bodies are proposed to be prescribed bodies:
• Australian Restructuring Insolvency & Turnaround Association;
• CPA Australia;
• Institute of Chartered Accountants in Australia; and
• Institute of Public Accountants.		 Insolvency Practice Rules Proposal Paper,
page 19, para 110
An industry body (prescribed in the Insolvency Practice Rules) may lodge a notice (an industry notice) stating that the body reasonably suspects that there are grounds for ASIC to take disciplinary action against a registered liquidator. The industry body must identify the registered liquidator and include the information and copies of any documents upon which the suspicion is grounded.

ASIC must consider the information and documents included in the industry notice and take action as follows:

• if ASIC decides to take no action ASIC, must give the industry body a notice within 45 business days after the industry notice is lodged;
• however, such a notice does not preclude ASIC from taking action based wholly or partly on the basis of information in the industry notice of the following kind:
– suspending or cancelling the registration of the registered liquidator;
– giving the registered liquidator a show cause notice; or
– imposing a condition on the registered liquidator;
• if ASIC does take action based wholly or partly on the information included in an industry notice, ASIC must give the industry body notice of that fact.

An industry notice is not a legislative instrument.

An industry body is not liable civilly, criminally or under any administrative process for giving an industry notice if the body acted in good faith and the suspicion that the body holds in relation to the subject of the notice is a reasonable suspicion.

A person who makes a decision in good faith as a result of which an industry body gives an industry notice is not civilly, criminally or under any administrative process for making the decision.

A person who gives information or a document in good faith which is included, or a copy of which is included, in an industry notice is not liable civilly, criminally or under any administrative process for giving the information or document.

 Explanatory Material, pages 140-141,
paras 6.67 to 6.70
An industry body (which will be prescribed in the Insolvency Practice Rules) may give ASIC an ‘industry notice’ stating that the industry body reasonably suspects that there are grounds for ASIC to take disciplinary action in relation to a registered liquidator.

ASIC is required to notify the industry body whether or not it has decided to take action in relation to the matters in the industry notice.

An industry body is not liable civilly, criminally or under any administrative process if the body acted in good faith and its suspicion in relation to the subject of the notice is a reasonable suspicion.

A person who makes a decision in good faith as a result of which an industry body gives a notice is not liable civilly, criminally or under any administrative process. Similarly, a person who in good faith provides information or gives a document which is included in an industry notice, or a copy of which is included, is not liable civilly, criminally or under any administrative process.

 Explanatory Material, Comparison of key features
of new law and current law, page 125
Notice by industry bodies of possible grounds for disciplinary action

Industry body may lodge notice
(1) An industry body may lodge with ASIC a notice in the approved form (an industry notice):
(a) stating that the body reasonably suspects that there are grounds for ASIC:
(i) to suspend the registration of a registered liquidator under section 40-25; or
(ii) to cancel the registration of a registered liquidator under section 40-30; or
(iii) to give a registered liquidator a notice under section 40-40 (a show-cause notice); or
(iv) to impose a condition on a registered liquidator under another provision of this Schedule; and
(b) identifying the registered liquidator; and
(c) including the information and copies of any documents upon which the suspicion is founded.

ASIC must consider information and documents
(2) ASIC must consider the information and the copies of any documents included with the industry notice.

ASIC must give notice if no action to be taken
(3) If, after such consideration, ASIC decides to take no action in relation to the matters raised by the industry notice, ASIC must give the industry body written notice of that fact.

45 business days to consider and decide
(4) The consideration of the information and the copies of any documents included with the industry notice must be completed and, if ASIC decides to take no action, a notice under subsection (3) given, within 45 business days after the industry notice is lodged.

ASIC not precluded from taking action
(5) ASIC is not precluded from:
(a) suspending the registration of a registered liquidator under section 40-25; or
(b) cancelling the registration of a registered liquidator under section 40-30; or
(c) giving a registered liquidator a notice under section 40-40 (a show-cause notice); or
(d) imposing a condition on a registered liquidator under another provision of this Schedule; and
wholly or partly on the basis of information or a copy of a document included with the industry notice, merely because ASIC has given a notice under subsection (3) in relation to the matters raised by the industry notice.

Notice to industry body if ASIC takes action
(6) If ASIC does take action of the kind mentioned in subsection (5) wholly or partly on the basis of information or a copy of a document included with the industry notice, ASIC must give the industry body notice of that fact.

Notices are not legislative instruments
(7) A notice under subsection (3) or (6) is not a legislative instrument.

No liability for notice given in good faith etc.

(1) An industry body is not liable civilly, criminally or under any administrative process for giving a notice under subsection 40-100(1) if:
(a) the body acted in good faith in giving the notice; and
(b) the suspicion that is the subject of the notice is a reasonable suspicion.

(2) A person who, in good faith, makes a decision as a result of which the industry body gives a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for making the decision.

(3) A person who, in good faith, gives information or a document to an industry body that is included, or a copy of which is included, in a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for giving the information or document.

 Insolvency Law Reform Bill 2014 Exposure Draft,
Insolvency Practice Schedule (Corporations),
sections 40-100 and 40-105,
pages 186 & 187

New law to give creditors power to review fees of liquidators

 Corporate Insolvency, External administration, Insolvency Law, Insolvency Laws, Law reform proposals, Regulation  Comments Off on New law to give creditors power to review fees of liquidators
Dec 062014
 

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

SUBJECT: CREDITORS’ REVIEW OF REMUNERATION OF EXTERNAL ADMINISTRATORS

 

SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC.

SOURCE OF TEXT
5-20 Meaning of external administrator of a company

A person is an external administrator of a company if the person is:
(a) the administrator of the company; or
(b) the administrator under a deed of company arrangement that has been entered into in relation to the company; or
(c) the liquidator of the company; or
(d) the provisional liquidator of the company.Note: A person is not an external administrator of a company for the purposes of this Schedule merely because the person has been appointed as a receiver, receiver and manager, or controller in relation to property of the company.

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 5-20,
page 157
90-22 Application of this Subdivision

This Subdivision applies in relation to a company that is under external administration, other than a company in relation to which a provisional liquidator has been appointed.

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), Subdivision C
section 90-22, page 263
Appointment to carry out review
(1) A registered liquidator may be appointed to carry out a review into either or both of the following matters:
(a) remuneration of the external administrator of the company;
(b) a cost or expense incurred by the external administrator of the company.
Appointment by resolution
(2) The appointment may be made by resolution of:
(a) the creditors; or
(b) if the company is being wound up under a members’ voluntary winding up—the company;
(3) If the appointment is made by resolution, the resolution must specify:
(a) the remuneration, costs or expenses which the liquidator is appointed to review; and
(b) the way in which the cost of carrying out the review is to be determined.

Appointment by one or more creditors or members
(4) The appointment may be made by:
(a) one or more of the creditors; or
(b) if the company is being wound up under a members’ voluntary winding up—one or more of the members.
(5) However, an appointment may only be made under subsection (4) if the external administrator of the company agrees to the appointment.
(6) The agreement must:
(a) be in accordance with the Insolvency Practice Rules; and
(b) specify:
(i) the remuneration, costs or expenses which the liquidator is appointed to review; and
(ii) the way in which the cost of carrying out the review is to be determined.
Appointments by creditors etc.—limit
(7) Despite subsection (1), a registered liquidator appointed under this section has no power to review the remuneration to which the external administrator of a company is entitled under subsection 60-5(2) (remuneration if no remuneration determinations made).

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations),
Subdivision C, section 90-24, pages 264 and 265
…. Creditors, ASIC and the Court will also have the power to appoint a cost assessor to assess and report on the reasonableness of the remuneration and costs incurred during a portion or all of an administration. Explanatory Material, page 163, para 7.22
Review of the external administration of a company

The creditors may resolve by majority of creditors in both value and number, or the external administrator may agree, to appoint a reviewer to review and report on the reasonableness of the remuneration and costs incurred in an external administration ….
The purpose of the report is to provide information for interested parties to exercise their rights in relation to the administration, such as to remove the liquidator or challenge the liquidator’s remuneration.
The review is not determinative of the issues considered.
The costs of the review will form part of the expenses of the administration, unless so agreed with the liquidator.
The Court may make any orders it deems fit in relation to the review.
The reviewer must be a registered liquidator.
The Insolvency Practice Rules may prescribe, amongst other things, the duties of a reviewer.

 Explanatory Material, Comparison of key features of new law and current law, page 168
90-29 Rules about reviews

(1) The Insolvency Practice Rules may provide for and in relation to reviews under this Subdivision.
(2) Without limiting subsection (1), the Insolvency Practice Rules may provide for and in relation to any or all of the following matters:
(a) the giving of notice to the external administrator of a company before appointing, or making an application for the appointment of, a reviewing liquidator under this Subdivision;
(b) the meaning, for the purposes of section 90-26, of properly incurred in relation to costs or expenses incurred by an external administrator of a company;
(c) the appointment of reviewing liquidators, including requirements as to who may be appointed and the provision of declarations of relevant relationships;
(d) the powers and duties of reviewing liquidators in carrying out a review;
(e) the form and content of reports by reviewing liquidators;
(f) the preparation and provision of reports by reviewing liquidators.

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 90-29,
page 268
Subdivision D of Division 90 provides ….for the creditors to resolve to appoint, or otherwise agree with the liquidator, to appoint a reviewer to report on external administrator remuneration or costs only. Section 90-27 provides for the Insolvency Practice Rules to contain rules about such reviews. Insolvency Practice Rules Proposal Paper, page 25, para 143
Only a registered external administrator would be able to be appointed as a reviewer. Insolvency Practice Rules Proposal Paper, page 26, para 147
In conducting a review of remuneration and/or costs, the reviewer will be empowered to do any of following:
• conduct the review;
• direct the external administrator to provide an itemised invoice in a form, and within the time, specified in the direction for work undertaken by the liquidator;
• direct a third party to give an itemised bill of costs in a form, and within the time, specified in the direction in relation to work undertaken by the third party;
• interview any party to the review and allow that party to be questioned by any other party to the review;
• direct a person to give a written statement, in a specified form and signed by the person, about a matter relevant to the review;
• direct the external administrator to produce all or part of the liquidator’s files or documents in relation to the administration of the estate.		 Insolvency Practice Rules Proposal Paper, page 26, para 150
It is proposed that the new rules would also stipulate that:
• if the reviewer gives a person a direction, and the person does not comply with the direction, the reviewer may conduct the assessment on the basis of the information available to the reviewer; and
• the reviewer will have a duty to act independently, in the interests of creditors and to avoid actual and apparent conflicts of interest.		 Insolvency Practice Rules Proposal Paper, page 26, para 151
The report to be prepared by the reviewing practitioner would be required to be provided in the form, and with the content, as agreed between the reviewer and the appointing body. Insolvency Practice Rules Proposal Paper, page 27, para 152
Once the report is completed, it would be required to be provided to the external administrator responsible for the administration, the committee of inspection (if applicable) and ASIC. Insolvency Practice Rules Proposal Paper, page 27, para 153
ASIC may give a registered liquidator notice in writing asking the liquidator to give ASIC a written explanation why the liquidator should continue to be registered, if ASIC believes that …. (g) the liquidator has been appointed to act as a reviewing liquidator … and has failed to properly exercise the powers or perform the duties of a reviewing liquidator Insolvency Law Reform Bill 2014 Exposure Draft,
Insolvency Practice Schedule (Corporations), section 40-40,
page 180

Corporate insolvency laws: the shape of things to come

 ASIC, Corporate Insolvency, Insolvency Law, Law reform proposals, Regulation, Standards  Comments Off on Corporate insolvency laws: the shape of things to come
Nov 282014
 

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

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

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

 

Division 4—Insolvency Practice Schedule (Corporations)

Part

Division

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

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

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

________________________ END OF POST ____________________________

2014 version of Bill to amend corporate and personal insolvency laws

 ASIC, Corporate Insolvency, Insolvency Law, Personal Bankruptcy, Regulation  Comments Off on 2014 version of Bill to amend corporate and personal insolvency laws
Nov 172014
 

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

The Treasury Crest

Summaries:

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

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

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

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

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

 Links to government material:

The draft Bill (ILRB 2014) in PDF format

The Explanatory Material in PDF format

The Insolvency Practice Rules – Proposals Paper in PDF format

Coversheet for a submission by post

The Treasury website page

Previous Bill and background material:

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

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

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

Submissions regarding ILRB 2014:

Closing date for submissions: Friday, 19 December 2014.

Email submissions are to be done online at:

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

Address for written submissions:

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

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

Further posts on this site:

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