In response to the coronavirus pandemic the Australian Government, through the Department of Treasury, has issued a Fact Sheet of information about the part of it’s economic package that is designed “to lessen the threat of actions that could unnecessarily push (distressed businesses) into insolvency and force the winding up of the business.”
The Treasury has today (28 September 2017) released a consultation paper on reforms to address illegal phoenix activity. The closing date for submissions by interested parties is 27 October 2017.
The paper is available for download from the Treasury website.
Below is the foreword to the paper, by the Hon Kelly O’Dwyer MP, Minister for Revenue and Financial Services:
Phoenixing involves the stripping and transfer of assets from one company to another to avoid paying liabilities. It hurts all Australians, including employees, creditors, competing businesses and taxpayers, and has been a problem for successive governments over many decades.
Phoenixing has a significant financial impact – in 2012, the Fair Work Ombudsman and PwC estimated the cost of phoenixing to the Australian economy to be as high as $3.2 billion annually. It also undermines business’ and the public’s confidence in the corporate and insolvency sectors and the broader economy.
Companies fail for many different reasons, and it can be difficult to distinguish between those who are engaging in illegal phoenix activity and those who are simply involved in a failed company. We are committed to helping honest and diligent entrepreneurs who drive Australia’s productivity, but we won’t tolerate those who misuse the corporate form, to defeat creditors and rip off all Australians.
A Government levy on registered liquidators is included in a draft proposal to adopt an “industry funding” model, or user-pays system, for the Australian Investments and Securities Commission (the ASIC). The levy is intended to recover costs incurred by the ASIC in regulating registered liquidators.
The Consultation Paper, issued on 28 August 2015, estimates that a flat levy on registered liquidators:
“… would equate to around $12,700 per year and some liquidators would potentially pay a high proportional fee relative to their costs of regulation.”
The paper discusses, as another option, the merits of the levy being based on “assets realised”. It states that one point in favour would be that:
“Levying liquidators on the basis of ‘assets realised’ would promote greater harmonisation between bankruptcy and corporate insolvency laws. It would be similar to the asset realisations charge administered by the Australian Financial Security Authority.”
In bankruptcies the liability to pay the asset realisations charge is that of the practitioner, but the amount of charge paid is borne by the estate or administration. This aspect is not discussed in the Consultation Paper. But presumably if the ASIC levy follows the bankruptcy scheme, the levy will be paid from funds held or realised by the company under external administration.
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:
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:
Address for written submissions:
Corporations and Scheme Unit
Financial System and Services Division
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.
“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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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:
Governance and Insolvency Unit
Corporations and Capital Markets Division
PARKES ACT 2600
Phone enquiries may be made by calling Alix Gallo on (02) 6263 2870.