Below is an excerpt from the Australian Bankruptcy Act 1966 – with Rules and Regulations title. The advanced consolidation is also available from our online Australian Bankruptcy Legislation research tool.
The changes to the Australian Bankruptcy Act 1966 are on the one hand, substantial, but on the other, they largely represent a re-categorisation and re-drafting of existing provisions, with many of the settled legal rules maintained. Australian Bankruptcy Act 1966 – Advanced Consolidation (effective in 2017), with Regulations contains an exclusive comparative table that provides a comprehensive look at the changes that have been made by the amendments. It enables practitioners to determine how a provision of the amended Act has transformed the provision of the old Bankruptcy Act.
A major focus of the changes is the alignment of bankruptcy law and processes with corporate insolvency. Similar changes to the structure and provisions of the Corporations Act 2001 are also made.
The focus of the bankruptcy changes is on trustees and creditors and on more streamlined and harmonised processes. The parts of the Bankruptcy Act dealing with debtors and creditors petitions, voidable transactions, examinations, and so on, are not affected.
Overview of new structure
Many of the sections of the Bankruptcy Act 1966 have been replaced and their content restated in what is the Insolvency Practice Schedule (Bankruptcy) to the Act. These primarily deal with registration, discipline, meetings and reporting.
We are therefore left with a structure where what are largely core provisions remain in the Act itself, with the process provisions now to be found in the Insolvency Practice Schedule (Bankruptcy).
The “Bankruptcy Schedule” is divided into Parts 1 to 5:
In this first section, s 1-1 states the objects, including to ensure that registered trustees have an appropriate level of expertise and that they behave ethically, and to regulate the administration of estates consistently and to give greater control to creditors.
Part one also contains the dictionary in s 5-5, in which a range of new terms relevant to the Schedule are introduced. Other terms remain defined in s 5 of the Act.
In particular, a “regulated debtor” is the general defined term s 5-15 meaning a bankrupt, a debtor subject to a s 188 authority or a personal insolvency agreement, or a deceased estate. It does not include a person subject to a Part IX debt agreement. “Regulated debtor’s estate” has a consequential meaning: s 5-16.
The simplified outline of the whole Schedule, from Parts 2 to 4, is explained in s 1-5.
The second part sets out the process for registering trustees, and also deals with regulating and disciplining trustees. This largely replicates the existing regime but adds some features.
The third part of the Schedule is the substantive set of laws now applicable to bankruptcy processes. It sets out provisions to regulate the administration of all regulated debtors’ estates consistently. A single set of laws now generally applies to each one of these types of administrations, as to meetings, voting, committees, and rights of creditors, and powers of the court.
Importantly, these are largely consistent with the laws applicable to corporate insolvency. That is a major purpose of the 2016 Act.
Part four contains some particular provisions, as to application rights to the AAT and as to the Insolvency Practice Rules. The Insolvency Practice Rules will set out much of the process detail of meetings, reporting, funds handling, dealing with creditors and other such details in support of particular provisions in the Schedule. They will also set out the registration criteria and discipline processes. The Insolvency Practice Rules have not been included in this edition as these had not been released at the time that this publication was finalised.
Significance of the Insolvency Law Reform Act 2016
Transitional arrangements are important in major changes to any legislation, and this is the case here. The Act sets out the circumstances when former Bankruptcy Act provisions continue to apply to existing administrations, and when the new Bankruptcy Schedule and other changes apply from day one. In this advance consolidation Wolters Kluwer has included the transitional provisions as stated in the Insolvency Law Reform Act 2016. The edition also includes the transitional provisions in a tabular format in order to enable practitioners to use the information in a more practical manner.
Another significance of the early publication of these changes lies in the fact that it is bankruptcy law that has led much of the impetus for insolvency law reform generally, with many bankruptcy processes being carried over into the corporate insolvency regime. An early understanding of the new look bankruptcy law will give corporate practitioners a head start on their area of focus.
The changes under the Insolvency Law Reform Act 2016 have been criticized as being over regulatory and prescriptive of trustees, and overly compensatory to creditors and the regulators, with more prescription to be added in the rules. Whether that be the case or not, there is also some good law in the new regime and in any event, that is what we must now deal with.
As we said in the last edition, the Bankruptcy Act 1966 is close to 50 years old and is generally acknowledged as needing a full review. These changes meet some of the areas in which it needed attention but the substantial review of the Act is still necessary, as explained in the last edition, although, it must be said, these are not likely in the short term.
A change that is being made, although not yet formally confirmed, was referred to in the last edition, namely, a reduction in the period of bankruptcy from three years to one. That in itself has a significance beyond the change in the time period, representing an attempt to change the negative focus on financial failure to one encouraging business risk and support for a fresh start, a trend existing internationally. How the reduction in the time period will be balanced against the need for accountability and contribution under the Act is presently being considered by the government.
Wolters Kluwer hopes that Australian Bankruptcy Act 1966 – with Rules and Regulations will assist the profession and the community with the smooth introduction of the new law.
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