Package of reforms to address illegal phoenixing

 Corporate Insolvency, Insolvency Law, Phoenix company activity, Regulation, White collar crime  Comments Off on Package of reforms to address illegal phoenixing
Sep 132017
 

Phoenix

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

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

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

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

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

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

Insolvency law in United Kingdom to help external administrators obtain essential supplies

 Corporate Insolvency, External administration, Insolvency Law  Comments Off on Insolvency law in United Kingdom to help external administrators obtain essential supplies
Feb 102015
 

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.

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

ARITA launches its plans for reform of the corporate insolvency recovery system

 Corporate Insolvency, Insolvency Law, Insolvency practices, Practitioners Association (ARITA)  Comments Off on ARITA launches its plans for reform of the corporate insolvency recovery system
Oct 222014
 

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

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

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

ARITA executive summary

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

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

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

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

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.

Insolvency options paper: free template for submissions

 Checklists and guides, Insolvency Laws, Insolvency practices, Personal Bankruptcy, Regulation  Comments Off on Insolvency options paper: free template for submissions
Jul 292011
 

NOTE: SUBMISSIONS CLOSED.  ALL PUBLIC SUBMISSIONS ARE NOW PUBLISHED ON THE TREASURY WEBSITE.  CLICK HERE TO VIEW OR COPY.  PJK 23/8/2011.

Want to make a submission regarding the Government’s important options paper on insolvency reform, titled “A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”?  Use my free template, available for download HERE.

This  simple table template, written with MS Office Word, lists the 135 discussion questions being raised in the options paper and provides space beside each question for your comments/opinions.  Just save the document to your computer,  fill it in and email it to the Treasury Department at insolvency@treasury.gov.au.  Closing date for submissions is 29 July 2011, but submissions soon after that date are likely to be accepted.

NOTE: submissions will be made public unless marked Confidential or Not for Publication.

The options paper in available at the Treasury website.