May 082017

Before it is due to come into effect on 1 September 2017, section 60-20 of the Insolvency Practice Schedule (Corporations) (Australia) is to be amended.

Under the heading “Refining the Insolvency Law Reform Act 2016”, the Minister for Revenue and Financial Services has released draft legislation of amendments to the Corporations Act 2001 and Bankruptcy Act 1966.

The professional association representing insolvency practitioners has welcomed the amendments. The Australian Restructuring Insolvency & Turnaround Association (ARITA) says (on its website 5/5/2017):

The section would (have) require(d) external administrators and trustees to obtain consent from creditors prior to related entities obtaining any profit or advantage from any administration or estate – effectively requiring Insolvency Practitioners to seek creditor approval for their own firms to work on an appointment. We are delighted that Treasury have announced draft legislation specifically to resolve this issue. It is now clear that once remuneration is approved, further approval to share that remuneration with related parties (e.g. an Insolvency Practitioner’s firm or partners) is not required …. ARITA has been working very hard behind the scenes on this under strict confidentiality. The draft legislation is on The Treasury’s website for consultation. This is a significant win for the profession, achieved by ARITA.

Illustration of Change to Corporate Insolvency Law

I have set out below an illustration of the changes that are being made to section 60-20 of the Insolvency Practice Schedule (Corporations). Although “interested parties” have been invited to make a submission regarding the draft legislation by 17 May 2017, it is doubtful whether there will be any change to the draft. Continue reading »

Feb 022016

On 3 December 2015 the Insolvency Law Reform Bill 2015 was introduced into Australia’s House of Representatives. The Bill is a newer version of the 2014 draft Bill (Insolvency Law Reform Bill 2014), which was released in November 2014.

Ministerial Summary of the Insolvency Law Reform Bill 2015

The Bill was introduced to Parliament with this speech by Mr Alex Hawke, Assistant Minister to the Treasurer. The following is a copy of his speech. I have added headings to improve readability.
Continue reading »

Creditors’ voluntary winding up – fundamentals – flowchart

 Checklists and guides, Corporate Insolvency, Insolvency Law, Insolvency practices  Comments Off on Creditors’ voluntary winding up – fundamentals – flowchart
Jun 242015

(24 June 2015: copyright P J Keenan)

OVERVIEW OF  Creditors’ Voluntary Winding up IN AUSTRALIA

Resolutions by shareholders to wind up the company and to appoint a liquidator
Liquidator takes control of business, property and affairs
Liquidator prepares report of proposed remuneration
Liquidator makes declarations of indemnities, up-front payments and relevant relationships
Directors’ statement about business, property, affairs and financial circumstances of company (Report as to Affairs)
Meeting of creditors (possible committee of inspection; fix remuneration of liquidator; confirm or change liquidator; etc.)
Investigations, realisations of assets and unpaid share capital, recovery of property and (possibly) recovery of compensation Liquidator’s statutory reporting, accounts and returns
Examination and determination of creditors claims Payment of expenses and liquidator’s remuneration
Distribution of residual funds to creditors Annual meeting of creditors or annual report
Final meeting of creditors and shareholders
Deregistration of the company

LAW: Corporations Act 2001, Chapter 5; Corporations Regulations 2001.
PRACTICE STANDARDS: The Third Edition of the Code of Professional Practice of the Australian Restructuring Insolvency & Turnaround Association



IPA guide: acceptable creditor resolutions for external administrators seeking future remuneration encompassing increases in hourly rates.

 Checklists and guides, Corporate Insolvency, court decisions, Insolvency Law, Insolvency practices  Comments Off on IPA guide: acceptable creditor resolutions for external administrators seeking future remuneration encompassing increases in hourly rates.
Dec 182013

Several years ago an external administrator (Paul Gidley) went to the Federal Court for advice on the validity of resolutions passed approving his remuneration prospectively (i.e. ahead of the work being performed).  It was a treated as test case, and in it he was supported by the Insolvency Practitioners Association of Australia (IPA) and opposed by the Australian Securities and Investments Commission (ASIC).

The judgment of Justice Gyles favoured the external administrator and opened the way for liquidators and other external administrators to have their remuneration “fixed by reference to a formula based upon time, provided that the formula is objective enough to satisfy the test laid down by the High Court ….”  He decided that “the resolutions in question in this case are capable of objective application. All of the necessary elements can be objectively identified. The person doing the work, that person’s category and the period spent are all the elements required. The sum can be calculated or ascertained definitely….” (Gidley re: Aliance Motor Body Pty Limited [2006] FCA 102).

Now the IPAA has drafted two examples of alternative resolutions that it believes meet the test in situations where the external administrator seeks prospective (future) remuneration that allows for the increase of hourly rates. See IPAA release 17 December 2013: Prospective remuneration approval – Increase in hourly rates

The sample resolutions are:

“That the future remuneration of the [appointee type] from [date] is determined at a sum equal to the costs of time spent by the [appointee type] and their partners and staff, calculated at the hourly rates as detailed in the report to creditors of [date] that will be increased at a rate of X% at 1 July each year, up to a capped amount of $[capped amount], exclusive of GST, and that the [appointee type] can draw the remuneration on a monthly basis or as required.”


“That the future remuneration of the [appointee type] from [date] is determined at a sum equal to the costs of time spent by the [appointee type] and their partners and staff, calculated at the hourly rates as detailed in the report to creditors of [date] that will be increased in accordance with the June quarter Consumer Price Index (all groups) at1 July each year, up to a capped amount of $[capped amount], exclusive of GST, and that the [appointee type] can draw the remuneration on a monthly basis or as required.”

In providing these examples the IPAA says:

 “The Third Edition of the IPA Code of Professional Practice (effective from 1 January 2014) provides further clarification that hourly rates can only be increased where an objective formula is approved by creditors as part of the resolution …In practice this means that, should a practitioner wish to adjust their hourly rates, they must include a definitive formula in the resolution – a resolution which refers to an increase “from time to time” or similar is not acceptable.  The IPA also considers that a resolution that refers to increases of “up to X%” does not meet the definitive requirements of the Gidley decision.  Should practitioners wish to be able to increase rates during the period of a prospective fee approval, they should consider resolutions which refer to increases of X%pa or in accordance with CPI. “

Sep 032013

Melbourne liquidator Andrew Leonard Dunner is likely to be prohibited from being registered as a liquidator for 5 years, following a decision by the Federal Court in an action brought against him by the Australian Securities and Investments Commission (ASIC).

In a media release on 30 August 2013 ASIC said that:

“In handing down his reasons for judgment today, Justice Middleton found that Mr Dunner had failed to adequately investigate the circumstances and affairs of companies to which he was appointed and had inaccurately reported to ASIC and creditors.

“The Court also found that he had drawn remuneration in excess of $600,000 without appropriate approval or adequate supporting documentation. The Court considered it appropriate that he should repay that remuneration and have leave to apply to the Court for justification of an entitlement to recoup remuneration where appropriate. Justice Middleton found that Mr Dunner’s conduct indicated ‘…a systemic failure of administration and internal protocols, as well as (in a number of instances) extremely poor professional judgment. In this way, Mr Dunner has failed to satisfy the high standards of conduct required of his offices’.

“In finding that a banning period of 5 years was appropriate, Justice Middleton said:

‘Withdrawing a liquidator’s registration operates directly to protect the public from the work of the person. It also operates generally by deterring other liquidators from acting in a similar fashion. ASIC submitted – and I accept – that there is a compelling public interest in the maintenance of a system which recognises that registration as a liquidator is a privilege, the continuance of which is conditional upon diligent performance of its attendant duties.’

To see the ASIC media release, CLICK HERE.

To see Justice Middleton’s important 67 page report and judgment, CLICK HERE .

Case citation:

Australian Securities and Investments Commission v Dunner [2013] FCA 872.

Case catchwords:

CORPORATIONS – Corporations Act 2001 (Cth), ss 423, 499, 536 – Duties of liquidator – Duties of receiver – Court inquiry into defendant’s conduct as liquidator and receiver – Failure by defendant to investigate circumstances of companies to which he was appointed – Drawing remuneration without approval or adequate supporting documentation – Inaccurate reporting to ASIC and creditors regarding external administrations – Repayment of remuneration drawn without approval – Unfitness to remain registered as liquidator – Duration of prohibition order.


May 142013

According to a recent study, the cost of being an official liquidator can be a bit rich.

“In respect of official liquidations generally, the survey showed that on an annual basis, insolvency practitioners are required to personally fund disbursements of $1.4 million and remuneration of $47.3 million in the conduct of their roles as Official Liquidators.”

 This is one of findings in a research paper titled “An Analysis of Official Liquidations In Australia”, written by Amanda Phillips of Ferrier Hodgson, Sydney, and published on 13 May 2013 via the website of the Insolvency Practitioners Association of Australia (IPAA).

More detail of the estimates on annual remuneration and disbursements for official liquidations generally is shown in this table:

Charge made/cost incurred (million dollars)

Recovered from company assets (million dollars)

Funded by Official Liquidators (million dollars)









Another finding is that “based on the data provided by survey respondents, the average cost to administer an official liquidation is $17,475 over an average period of 7 to 12 months.”

Ms Phillips surveyed members of the IPAA.  The survey covered official liquidations which commenced during the period 1 July 2011 to 30 September 2011.  The paper says that “Sixteen Official Liquidators provided data in relation to 90 matters, which represented 10% of the total national official liquidations that commenced during the period 1 July 2011 to 30 September 2011.”

In addition to remuneration the paper reports on aspects of official liquidation including the nature of a typical official liquidation, the duration of appointments, an industry analysis, the turnover & size, the dividends to unsecured creditors and funding for Official Liquidators.

Ms Phillips was the 2012 winner of a scholarship from the Terry Taylor Scholarship fund administered by the IPAA.  Her 33 page paper is available in pdf format from the IPAA site by clicking HERE.

Options paper questions insolvency regulation and practises

 ASIC, Insolvency Laws, Insolvency practices, Personal Bankruptcy, Regulation, Standards  Comments Off on Options paper questions insolvency regulation and practises
Jun 062011

Over 130 questions about insolvency regulation and practises have been raised for discussion by the Attorney-General’s Department and the Departments of Treasury in their “Options paper: a modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”, released at the 2011 Gala Dinner of the Insolvency Practitioners Association of Australia on 2 June.

The questions, extracted from the 120 page paper, are shown below.  The final date for submissions is 29 July 2011.

Standards for entry into the insolvency profession

Discussion questions

  • Are there any concerns with changing the academic requirements to remove the greater emphasis placed upon accounting skills over legal skills, while retaining a minimum level of study in each?
  • Should the gaining of a Masters in Business Administration meet the qualification requirements for registration, if it did not otherwise meet legal and accounting study requirements?
  • Should a minimum level of actual experience in insolvency administration remain a mandatory requirement for registration as a practitioner?
  • Should the experience requirements for registered liquidators be reduced to two years of full‑time experience in five years?
  • Should new market entrants be required to complete some form of insolvency specific education before practicing as registered liquidators or registered trustees?
  • Should ASIC be empowered to impose requirements on a registered liquidator as a condition of the registration? What types of conditions should a regulator be empowered to impose upon a new registered liquidator’s registration?
  • Should a registered trustee face more streamlined entry requirements than those that exist for a standard applicant for registration as a registered liquidator, and vice versa?
  • Is further formal training necessary to ensure that practitioners that wish to transition between the two professions are able to fulfil their statutory obligations?

Registration process for insolvency practitioners

Discussion questions

  • Should an applicant seeking registration as a registered liquidator or registered trustee be required to be interviewed as part of the registration process?
  • Should an applicant seeking registration as a registered liquidator or registered trustee be required to sit an exam as part of the registration process?
  • Should a general ‘fit and proper’ person requirement be imposed for the registration of both personal and corporate insolvency practitioners?
  • If the process for the registration of liquidators is aligned with the process for the registration of registered trustees, what differences should be maintained between the two registration processes?
  • Is it appropriate that the current fee for registration of liquidators be increased to reflect the amendments to registration processes?
  • Should the official liquidator role be maintained?
  • What other aspects of the current Bankruptcy Act committee system might be amended?
  • If registration of a registered liquidator is for a defined period, what conditions should be required to be met for renewal of the registration to occur?
  • Should the renewal process include a fee? Should the fee be commensurate merely with the administrative cost for completing the renewal or should the revenue raised by the fee be used to fund additional oversight of the insolvency market? Should the renewal fee be determined with reference to the numbers and nature of the administrations to which the practitioner is appointed?

Remuneration framework for insolvency practitioners

Discussion questions

  • Should the Corporations Act be amended to include a provision that aligns with the Bankruptcy Act prohibition upon practitioners making any arrangement whereby a benefit is received, either directly or indirectly, in addition to the remuneration to which he or she is entitled?  Should such a prohibition be clarified to provide that this extends to charging disbursements with a profit component that may benefit, directly or indirectly, the practitioner?
  • Are the current requirements for the provision of information to creditors to assist them in assessing costs appropriate? Should this information be provided in a standard form? Should these requirements be aligned between corporate and personal insolvency?
  • What could be done to address concerns about cross subsidisation?
  • What could be done to address concerns about inappropriate use of disbursements?
  • Should all fee approval be required to be subject to a cap set by creditors in an external administration or bankruptcy? Is it unreasonable to expect that an insolvency practitioner go back to the creditors in order to seek an increase on the initial remuneration cap?
  • Should a group of creditors (or a single creditor) that successfully challenge an insolvency practitioners’ remuneration, receive an increased priority in relation to the savings that may result?
  • Should a registered liquidator, under any circumstances, be able to exercise a casting vote on a motion regarding his or her remuneration or removal?

Communication and monitoring

Discussion questions

  • What amendments should be made to provide creditors with more information or power to monitor the progress of a winding up, administration or bankruptcy?
  • Should creditors have largely the same rights to information and tools to monitor a liquidation, administration, bankruptcy or controlling trusteeship?
  • Are there any impediments to insolvency practitioners communicating with creditors electronically?
  • If the statutory frameworks are aligned, are there any modifications necessary to account for the practical differences between the bankruptcy and corporate insolvency frameworks?
  • Would support from at least 25 per cent of creditors be an appropriate threshold in corporate insolvency for requiring a creditors meeting to be held? Given the larger numbers and quantum of claims, would a lower threshold (for example, 10 per cent) be more appropriate? What rules should apply in relation to who bears the costs of holding a meeting of creditors?
  • If liquidators are required to provide all information reasonably requested by a creditor regarding a liquidation or administration and creditors have improved powers to require the calling of meetings, is there any need for default annual meetings, written updates or creditors’ meetings at the completion of a winding‑up? Could these requirements be amended to a requirement for the practitioner to raise the option of having such updates and meetings with creditors (for consideration and voting) as a default reporting arrangement?
  • Should the role of the COI be given greater prominence in the corporate and personal insolvency systems? If so, how might this occur?
  • Should the rules governing COIs be aligned between corporate and personal insolvency? Are there any specific aspects of COI law that should be otherwise reformed?
  • Should creditors be able to make a binding resolution on a liquidator? If yes, should there be any role for the Court to overrule that resolution (for example, where the Court believes that the resolution is not in the best interests of the creditors as a whole)? Should there be any limit on the type of areas that creditors are able to pass a binding resolution?

Funds handling and record keeping

Discussion questions

  • Should the rules governing record keeping, accounting, audits and funds handling in corporate and personal insolvency be aligned? If so, how should this occur?
  • If aligned rules on accounts reporting are introduced, what should be the content, form and frequency of the accounts required?
  • Are there other record keeping, accounting, audits and funds handling rules that should be mandated for personal and corporate insolvency, in addition to those that currently exist?
  • If amendments are made to the personal and corporate law to align the powers of the regulators (in certain circumstances) to freeze the accounts of insolvency practitioners, in what circumstances should the regulators be able to issue an account freezing notice to a bank?
  • Should the issuing of an account freezing notice require an application to the Courts? For how long should a freezing notice have effect?
  • At what level should the penalties that apply to breaches of the funds handling, record keeping, retention of books, and audit provisions in the Corporations Act and the Bankruptcy Act be set to provide a greater deterrent to potential offenders?
  • Will increasing the penalties make practitioners more likely to pay greater attention to these requirements?
  • Are there additional civil obligations and criminal offences that should be provided for in respect of these areas?
  • If civil or criminal penalties are applied for the lodgement of inaccurate annual reports, under what circumstances should those penalties apply?
  • Should late lodgement, non‑lodgement or false lodgement of accounts be a statutory basis for removal? If so, by what process might removal take place?

Insurance requirements for insolvency practitioners

Discussion questions

  • Is there a benefit for insolvency practitioners, creditors or other stakeholders in aligning the insurance requirements for liquidators and registered trustees?
  • If the criminal penalty for not complying with insurance requirements is increased, at what level should the penalty be set to provide a sufficient deterrence against breach?
  • Should a fidelity fund be established? If so, how should such a fund be operated and funded?
  • What other reforms might be put in place regarding insurance requirements? 

Discipline and deregistration of insolvency practitioners

Discussion questions

  • Are there any reforms that should be made to either the Committee’s or the CALDB’s systems of disciplining practitioners to improve their operation? 
  • Do you think that aligning the disciplinary frameworks will provide for more consistent and improved outcomes for practitioners and other stakeholders between personal and corporate insolvency?
  • If a Committee structure is adopted for registered liquidators:
    • Should there be any amendments to the framework that underpins the current personal insolvency committee system?
    • Should the statutory framework for the committee system currently in the Bankruptcy Act be replicated in the Corporations legislation?
    • Should ASIC be statutorily required to provide a show‑cause notice to the practitioner before establishing a committee?
    • Should the committee consist of a member of ASIC, a member of the IPA, and an appointee of the Minister?
    • Should there be a time limit for decisions by the committee? Should it be aligned with the current time limit for bankruptcy?
  • If a Committee structure is not adopted for registered liquidators, what specific reform options should be adopted under either the CALDB or Committee regimes? In particular:
  • Should a statutory timeframe be introduced for decisions by the CALDB?
  • Are there any powers that the CALDB currently has that should equally be conferred upon a Committee under the Bankruptcy Act or vice versa?
  • What, if any, other reforms should be made in respect of the transparency of Board and Committee hearings and decisions?
  • Should a committee constituted under the Bankruptcy Act be empowered to summon a third party to appear at a hearing to give evidence and be cross examined?
  • Should mechanisms be put in place to impose sanctions on practitioners or witnesses who fail to attend or provide books to a Committee or Board?
  • Should the Bankruptcy Act be amended to provide ITSA with the express power to seek to deregister a registered trustee where the trustee is no longer ‘fit and proper’?
  • If the regulatory frameworks are amended to expand the powers of ASIC and ITSA to discipline insolvency practitioners directly, what minor breaches should those powers extend to?
  • Would the suggested amendments to enhance the powers of the court breach considerations of natural justice?
  • Should the nature of the role of registered liquidators and registered trustees as officers of the court, as well as their inherent fiduciary duties, mean that it is reasonable to empower the Court to direct them to stand aside where there are serious allegations that have yet to be resolved?

Removal and replacement of insolvency practitioners

Discussion questions

  • Should an initial creditors’ meeting in a compulsory winding up at which creditors would have the right to replace or appoint a new liquidator be mandated?
  • If an initial creditors’ meeting were mandated for court‑ordered windings up:
  • Should there be an exception for assetless administrations?
  • Should approval of the appointed registered liquidator be able to be obtained through a mail out? If confirmation/replacement of registered liquidations occurred by postal vote in court ordered liquidations, should this mechanism also replace the opportunity to replace a practitioner provided via initial meetings in other kinds of corporate insolvency?
  • Should creditors in corporate insolvencies be generally empowered to remove a registered liquidator by resolution in the same way as under personal insolvency law?
  • What effect, if any, would the potential for removal be expected to have on remuneration arrangements?
  • Does the current scheme for the removal of a registered trustee provided sufficient and clear protections against abuses of process?
  • If creditors are empowered to remove a liquidator in a creditors’ voluntary winding up (subsequent to the first meeting), should members have any corresponding right in a members’ voluntary winding up?
  • Is there a need to facilitate the transfer of the books of the administration from an outgoing insolvency practitioner to his or her replacement? What barriers, if any, are there to the implementation of such a reform?
  • Are any other amendments necessary to assist creditors to use any new power to remove a registered liquidator? What other administrative arrangements would be required to ensure a smooth transition from one registered liquidator to another?

Regulator powers

Discussion questions

  • Are there unjustified divergences between the powers and roles of the insolvency regulators?
  • Should a creditor in a corporate insolvency have any right to request that ASIC undertake a review of specified kinds of decision by a liquidator?
  • If ASIC was to be empowered, what types of decisions should ASIC be able to review?
  • The expansion of ASIC’s current functions to include such a review power would have some cost. Given the Government’s cost recovery policy how should any expansion of powers be funded?
  • Should ASIC and ITSA be given more flexibility to communicate to a complainant (or creditors generally) information obtained by it in relation to the conduct of an external administration?
  • Should regulators be able to require a practitioner to sit an examination to test ongoing compliance with the knowledge or skills requirements for registration? Should such a power be extended to enabling regulators to require persons acting under delegation from practitioners to sit an examination?
  • What powers might be appropriate to provide to regulators to facilitate (if necessary) the rights of creditors to call meetings and to ensure such meetings are held in a transparent manner — in particular in relation to the assessment of votes for and against the retention of the current insolvency practitioner?
  • Does section 536 of the Corporations Act, as currently applied by the Court, provide for the appropriate supervision of registered liquidators by ASIC?
  • Should ASIC be able to share information with the IPA for disciplinary purposes?
  • Should ITSA and ASIC be empowered to impose conditions across the market? If so, what types of conditions should the regulator be empowered to impose?
  • If a new Ombudsman or external dispute resolution scheme were established:
  • Should the new body be a statutory body (for example, the Superannuation Complaints Tribunal) or a private body (for example, the Financial Ombudsman Service)?
  • Should any new body have the ability to hear disputes in both corporate and personal insolvency? Should the new entity be independent of the two regulators?
  • If the body is a statutory entity, what functions of ITSA or ASIC should be given to the new body? Should the body have power to obtain information or to inspect the records of an organisation relevant to the complaint? If the new body is privately run, what protections would need to be put in place to achieve this?
  • How should the new body be funded? Should there be any charge to the complainant to investigate a complaint or should it be funded through an industry levy?
  • Should the body have an explicit educative role?
  • Should the body have the right to deal with systemic issues or commence its own investigation? If the body is a private entity, what powers should it be given to achieve those objectives?
  • What types of disputes should the body be able to hear and deal with? Should the body be able to review remuneration? Should this be done through independent cost assessors?

Specific issues for small business

Discussion questions

  • Are any statutory reforms required to assist regulators to provide improved regulation in relation to interconnected personal and corporate insolvencies? Are improvements needed in relation to their capacity to share information and cooperate?
  • If the scope of the AA Fund is broadened to allow for the funding of registered trustees to investigate and report on corporate law breaches, which Corporations Act breaches in particular should be provided for?
  • Should the scope of the AA Fund be broadened to allow for loans to registered liquidators to properly carry out their fiduciary and statutory duties?
  • Should section 305 of the Bankruptcy Act also be expanded to provide for the funding of investigations into corporate law breaches?
  • What steps might be taken to improve efficiency in relation to related personal and corporate insolvencies while appropriately addressing conflicts of interest?
  • What other amendments can be made to assist creditors and directors of small corporates to better engage with the corporate insolvency system?
  • Is there a case for automatic disqualification of directors after a company failure? If so, how many repeated failures should trigger disqualification? Should there be a threshold for failures to trigger disqualification (for example, where less than 50 cents in a dollar are returned to creditors)? Over what period must the failures occur?
  • Should a registered liquidator be able to assign actions which vest personally in the liquidator? If so, should a registered trustee be likewise able to assign rights of action?
  • Should ASIC be able to automatically disqualify a director of an insolvent company who has not taken reasonable steps to ensure that the company has maintained its financial records?