Major changes to the Bankruptcy Act 1966 (Cth) have been made by the Insolvency Law Reform Act 2016 (ILRA), which is anticipated to commence in 2017.
Below is an overview of the changes.
OVERVIEW OF THE CHANGES
The bankruptcy amendments will occur as a result of the Insolvency Law Reform Act 2016 (Cth) which became law on 29 February 2016 with an expected commencement date of 1 March 2017 for reforms directed at promoting competency and professionalism such as the practitioner registration and discipline provisions, and enhancements to the ASIC’s powers; and the expected commencement date of 1 September 2017 for reforms to insolvency administration processes, to enhance efficiency, improve communication and increase competition.
The 2016 Act imposes a regulatory approach to the conduct of insolvency administrations, in its focus on the liquidators and trustees who are entrusted with administering the regime. That detail is to be added to with the yet to be released Insolvency Practice Rules, under s 105-1, along with regulations, issued under s 178, and approved forms and related information under s 6D.
Many of the relevant process provisions of the Bankruptcy Act will be removed from the body of those Acts and “scheduled” as per modern drafting approaches. These schedules will be supplemented by the Insolvency Practice Rules. As one example, meeting and voting processes will be included in the Rules and the Schedules, not the Acts themselves, which may allow for their more flexible amendment.
Divisions 5 (meetings of creditors) and 5A (committee of inspection) of Part IV of the Bankruptcy Act are being repealed; committees of creditors are now dealt with in Division 80 of the Schedules.
All up, these changes will have significant impact on personal and corporate insolvency law and practice. But not so much that the commencement of the new regime cannot be well anticipated and prepared for.
HOW THE ILRA ITSELF IS STRUCTURED
The ILRA has three components:
- “Insolvency Practice Schedule (Bankruptcy)” is the new Schedule 2 to the Bankruptcy Act – s 4A. Many sections in the Bankruptcy Act are repealed and replaced by those in the Schedule through consequential and transitional amendments.
- “Insolvency Practice Schedule (Corporations)” is the new Schedule 2 to the Corporations Act – s 600K. Many sections in Chapter 5 of the Corporations Act are repealed and replaced. Corporations Act Schedule 2 is largely but not completely in parallel with Bankruptcy Schedule.
- Other remedial amendments to certain provisions in the Corporations Act – to Part 5.3A, to the definition of the “relation-back day” and other sections.
IN MORE DETAIL – CHANGES TO BANKRUPTCY ACT
From a day to day practice viewpoint, some changes can be neatly put aside and accessed by lawyers and practitioners and others only as the occasion arises – Part 2 – registering and disciplining practitioners (Divisions 20, 40 and 50); challenges by creditors or regulators (Division 90), and committee actions (Division 80).
The law in the new regime should remain familiar, given that much of the new corporate law is based on existing bankruptcy law, and no new principles are introduced. The new law will apply generally to new insolvency appointments from that date with some carry-over of existing provisions in particular cases, with defined terms like “old Act registrant” (s 1551, s 1553(4)) and “new external administration” (s 1551).
The many sections of each Act that are being repealed are often replaced by similarly worded – and newly-numbered – s 170A of the Bankruptcy Act (annual return) is replaced by the new s 70-5 (annual administration return) in the Bankruptcy Schedule.
Under the transitional provisions, many of the existing provisions of the Bankruptcy Act will continue to apply. There also may be some confusion given the re-numbering of the new and replacement sections.
THE BANKRUPTCY SCHEDULE
The bankruptcy Schedule is divided into three parts: 1. introduction, 2. registering and disciplining practitioners, and 3. general rules.
This covers the general objectives of the ILRA 2016 and includes its definitions, including “regulated debtor” (s 5-15) and “end of an administration” (s 5-5) – Bankruptcy Schedule.
2. Registering and Disciplining Practitioners
This deals with the registration and discipline process, all now aligned with the committee process in bankruptcy. Practitioners should note that their registrations now last for 3 years and must be renewed; and they must have professional indemnity and fidelity insurance.
3. General Rules
This comprises Div 55 to Div 105 and sets out general rules regarding the conduct of estates and administrations.
Some important elements are:
- Practitioner remuneration will have a uniform approval process, not dissimilar to the current process – by creditors, a committee of inspection, or by the court; including a process of review of lawyers’ and others’ bills. The Inspector-General may review a trustee’s remuneration – s 90-21 Bankruptcy Schedule;
- Creditors, and the debtor, may ask for information and reports from the practitioner, for example s 70-40 of the Bankruptcy Schedule;
- There will be annual administration returns annually in personal insolvency – s 70-5 of the Bankruptcy Schedule;
- There are new powers of committees of creditors and the committee and creditors may ask the administrator for information, reports or documents, and be able to take their own advice, if they wish – Division 80 of the Bankruptcy Schedule.
- ASIC, AFSA and, in some circumstances, the Commonwealth, are entitled to attend any meeting of creditors. This is comparable to the existing power of the Inspector-General to do so: s 12 of the Bankruptcy Act.
- Practitioners will have powers to assign, or sell, any right to sue, including, for example, in relation to voidable transactions and insolvent trading – s 100-5. Such a right has recently been introduced in England and there may be a market for such claims, among third party funders and distressed debt traders. However, the mechanics of such an assignment, and the extent of any powers of the practitioner, are not explained in the section.
Start preparing now for these upcoming changes. Take advantage of the complimentary trial to our online Australian Bankruptcy Legislation research tool today!