Contributed by the editorial team behind the new Australian Bankruptcy Act 1966 with Regulations and Rules book.
Australia’s corporate and personal insolvency laws are in the midst of reforms the extent of which has not been seen since the major Harmer Report1 reforms of the 1990s. Case law produces decisions on the more difficult and at times unreformed aspects of the law, prompting further calls for reform. Many of these changes are consistent with international reforms. This is a brief overview of the major changes under the Insolvency Law Reform Act 2016 (ILRA 2016), some already in operation, others pending.
The new law is more focused on process and regulation, than on substantive insolvency law, one of its aims being to harmonise the processes between personal and corporate insolvency.
The ILRA adds new Schedules 2 to each of the Bankruptcy Act 1966 and the Corporations Act 2001, called Insolvency Practice Schedule (Bankruptcy) and Insolvency Practice Schedule (Corporations) respectively; supported by the respective Insolvency Practice Rules. These all mirror each other for the most part. The Corporations Regulations 2001, and the Bankruptcy Regulations 1996 each remain, but some of their content now appears in the relevant Insolvency Practice Schedules or the Rules.
These cover the handling of moneys, the conduct of creditors’ meetings, communications and reporting processes, creditors’ rights to information, and court and regulatory powers. While these changes may be welcome, at the same time there is criticism of the prescriptive drafting and regulatory requirements imposed on practitioners. As one example, practitioners are required to respond, promptly, to “reasonable requests” by creditors for information, defined by exclusion of a series of “unreasonable requests”. Other simple and uncontentious drafting in existing law is replaced by overly attentive drafting under the ILRA.
While there is useful harmonisation, variations exist that go beyond the essential differences between a company and an individual. For example, whereas AFSA (through the Inspector-General in Bankruptcy) can determine and resolve trustee remuneration disputes, external ‘reviewing liquidators’ are legislatively created for that task for liquidator remuneration, based on the respective capacities of each of ASIC and AFSA. Other differences are based on the on-going and unfortunate bifurcation of insolvency policy between the Attorney-General and the Treasurer, and their respective departments. One glaring inconsistency is the removal of penalty privilege in respect of liquidator discipline2, but, by apparent oversight, the retention of that privilege for trustees.
A feature of the law introduced by the ILRA is that aspects of bankruptcy law’s more efficient and effective processes are introduced to corporate insolvency law. Importantly, the registration of new liquidators now adopts the bankruptcy process of requiring applicants to be interviewed by an expert committee. Similarly, liquidator discipline has adopted bankruptcy’s committee process, removing that role from the former CALDB. Those quicker and more streamlined discipline reforms are prefaced by increased regulator powers of ASIC and AFSA – to suspend or terminate the registration of non-compliant practitioners, and otherwise to give directions as to conduct.
But the new law goes further, by way of a sharing of the regulation of insolvency practitioners with the main professional body, ARITA, along with the three accounting bodies and all solicitor and bar associations, “industry bodies”, nationally, sixteen in all. Each is given statutory authority to refer practitioner misconduct to ASIC and AFSA and receive and themselves hand over confidential misconduct information. These raise procedural fairness issues, including potential bases for challenge of decisions of the regulators, and of the industry bodies.
The old status of “official liquidator” has been removed, along with the professional but uncommercial obligation of court appointed liquidators to accept unremunerated work, thus aligning with the role of a registered trustee. This, combined with the absence of a government liquidator, may mean more insolvent companies entering deregistration with unresolved claims and misconduct uninvestigated, and government and creditors being called upon to themselves fund corporate administrations.
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The Australian Insolvency Management Practice, which is built upon the insolvency processes of the last 30 years, is now being amended to accommodate the new laws. That task is being both assisted and made difficult by the government’s decision to “split” the commencement times of different parts of the new law. Practitioner registration and discipline, some court powers and other lesser provisions commenced on 1 March 2017; the remainder, and the bulk of the process changes, will commence on 1 September. It was the late drafting and release of these changes that caused the government to meet the profession’s request for more time to prepare.
Wolters Kluwer’s prompt issue of an advance copy of the Bankruptcy Act has allowed the new law to be more accessible in preparation for the major changes already, or being, introduced. Its on-line equivalent Australian Bankruptcy Legislation offers both past and future section changes, along with relevant transitional provisions.
The result is that our new insolvency regime will be fully operating on and from 1 September 2017. The Practice has been amended to reflect the 1 March changes, and to gradually remove the repealed law, with discretion exercised depending on its continued relevance. A similar process is being undertaken with the 1 September 2017 changes.
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1General Insolvency Inquiry, ALRC 45, 1988
2Sections 70-45 Insolvency Practice Schedules; sections 70-15 Insolvency Practices Rules.