Bills Digest no. 82 2015–16
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WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Paula Pyburne
Law and Bills Digest Section
22 February 2016
Contents
The
Bills Digest at a glance
Purpose of the Bill
Structure of the Bill
Background
Committee consideration
Policy position of non-government parties
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions—IPS Corporations
Key issues and provisions—IPS Bankruptcy
Other provisions—Schedule 3
Date introduced: 3
December 2015
House: House of
Representatives
Portfolio: Treasury
Commencement: Various
dates as set out in the body of the Bills Digest.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the ComLaw
website.
The Bill aims to restore confidence in the insolvency profession by raising
the standards of professionalism and competence of insolvency practitioners. It
does this by aligning and strengthening the registration, discipline and
regulatory oversight of corporate insolvency practitioners with the framework
currently in place for personal insolvency practitioners.
The Bill amends the Bankruptcy Act 1966 and
the Corporations Act
2001 to insert an Insolvency Practice Schedule (IPS) as Schedule 2 to
both of those Acts.
The IPS Bankruptcy and IPS Insolvency have many common
features. They:
- require
trustees and liquidators to be registered
- set
out the conditions for registration and provide that registration is for a
period of three years
- set
out a process for registration including the composition and conduct of
committees which make decisions on suitability for registration
- set
out mechanisms for the disciplining of registered trustees and liquidators and
- contain
general rules for:
- the
remuneration of a registered trustee or a registered liquidator respectively, including
the setting of maximum default amounts
- funds
handling
- provision
of information to creditors and the relevant regulator, keeping of books and preparation
of administration returns
- holding
meetings
- committees
of inspection and
- rights
of review of certain decisions.
In addition, the Bill contains consequential and
transitional amendments to both Acts to accommodate the proposed changes.
The purpose of the Insolvency Law Reform Bill 2015 (the
Bill) is to:
- increase
efficiency in insolvency administrations
- align
the registration and disciplinary frameworks that apply to registered
liquidators and registered trustees
- align
a range of specific rules relating to the handling of corporate external
administrations and personal bankruptcies
- enhance
communication and transparency between stakeholders
- improve
the powers available to the corporate regulator to regulate the corporate
insolvency market and
- improve
overall confidence in the professionalism and competence of insolvency
practitioners.
The Bill is ‘the first phase of the Government’s reforms
to strengthen and streamline Australia’s bankruptcy and corporate insolvency
regimes’.[1]
Information about proposed future changes to insolvency laws is contained in
the National Innovation and Science Agenda.[2]
The Bill has three Schedules. Schedule 1 has three parts:
- Part
1 amends the Bankruptcy Act 1966[3]
to insert the Insolvency Practice Schedule (Bankruptcy) as Schedule 2 to
that Act
- Part
2 makes consequential amendments to the Bankruptcy Act and the
Bankruptcy (Estate Charges) Act 1997[4]
- Part
3 sets out the rules for the transition to the Insolvency Practice Schedule
(Bankruptcy).
- Schedule 2 of the Bill also has three parts:
- Part
1 amends the Corporations Act 2001[5]
to insert the Insolvency Practice Schedule (Corporations) as Schedule 2 to that
Act
- Part
2 makes consequential amendments to the Australian Securities and Investments
Commission Act 2001[6]
(ASIC Act), the Corporations Act and numerous other statutes
- Part
3 amends the ASIC Act and the Corporations Act to set out the
rules for the transition to the Insolvency Practice Schedule (Corporations).
Schedule 3 of the Bill contains seven parts. It makes
miscellaneous amendments to the Corporations Act and the Private
Health Insurance (Prudential Supervision) Act 2015.[7]
Regulation of insolvency
practitioners
Australia currently has separate regulatory systems for personal
and corporate insolvency. This includes separate laws and regulators.
The laws relating to personal insolvency are fully contained
in the Bankruptcy Act and Bankruptcy Regulations 1996.[8]
The Inspector-General in Bankruptcy (Inspector-General), located within the
Australian Financial Services Authority (AFSA), is the personal insolvency
regulator.[9]
The laws relating to corporate insolvency are contained in the Corporations
Act and Corporations Regulations 2001,[10]
with supporting regulator-related provisions in the ASIC Act. The
Australian Securities and Investment Commission (ASIC) is the corporate
insolvency regulator.[11]
Since the early 2000s the regulation of insolvency
practitioners—particularly corporate insolvency practitioners—has been the
subject of a number of reviews. These include:
- the
Corporate insolvency laws: a stocktake, completed by the Parliamentary
Joint Committee on Corporations and Financial Services in June 2004[12]
- the
Rehabilitating large and complex enterprises in financial difficulties report,
completed by the Corporations and Markets Advisory Committee (CAMAC) in October
2004[13]
and
- the
Issues in external administration report, completed by CAMAC in November
2008.[14]
Despite the numerous findings and recommendations for
improved regulation, action in that regard was not taken. It is not possible to
say with certainty why this was so. However, at that time, the Government was enacting
complex and technical personal property securities legislation which would
strongly impact on the order in which secured creditors would be paid out in
the event of insolvency.[15]
There were ongoing public reports of misconduct by insolvency practitioners.[16]
This culminated in 2009 when ASIC commenced proceedings against liquidator
Stuart Ariff in the Supreme Court of New South Wales.[17]
The subsequent decision by the Court sets out a long list of admissions which
were made by Ariff as to his conduct in carrying out his duties as a
liquidator:
The CarLovers group of companies operated the business of car
washing ... The conduct admitted by [Ariff] includes, but obviously is not
limited to, ... charging the CarLovers companies for overseas travel for himself
and his family members, including travel expenses, accommodation charges and
the like over a period 2003 through to 2007 ... those expenses had absolutely
nothing to do with the business of the CarLovers companies. The admitted facts
also includes (sic) admissions of conduct ... by which he paid his family
members large amounts of the companies’ money claimed to be for services to the
companies but which had nothing to do with the CarLovers companies ... Compounding
this conduct is [his] inability to produce any documents relating to the
amounts identified ...[18]
The Supreme Court ultimately declared that Ariff was unfit
to hold the office of official liquidator, registered liquidator, liquidator,
provisional liquidator, voluntary administrator, administrator of a deed of
company arrangement or controller and ordered that he was prohibited from
holding any of those offices, for life.[19]
Senate inquiry
In 2010, in the wake of the Ariff case, the Senate
Economics Committee (Economics Committee) conducted an inquiry into insolvency
practitioner misconduct.
The committee received a range of comment about
the extent to which the well publicised cases of wrongdoing in the insolvency
industry reflect generally poor industry practices. At one end of the spectrum,
there are those who argue that the industry generally performs well and that
Mr Ariff is the exception. At the other end are those who claim the
insolvency industry has systemic problems and operates in a regulatory vacuum.
Between these positions are more nuanced views, which recognise that there are
specific problems that require targeted reform.[20]
The report of the Economics Committee contained 17
recommendations. First and foremost, the Economics Committee recommended that
responsibility for regulation of insolvency practitioners should no longer lie
with the ASIC and should, instead be transferred to AFSA (then known as the
Insolvency and Trustee Service Australia).[21]
This recommendation was not accepted by the Government which determined that ‘a
new single regulator is not required in order to address the concerns of the Senate
Committee in relation to ASIC’s role in regulating the corporate insolvency
industry’.[22]
In addition, the Committee recommended, amongst other
things, establishing a licensing system for corporate insolvency practitioners,[23]
the payment of a license registration fee[24]
and empowering the insolvency regulator to suspend a license in the event that
overcharging has occurred.[25]
The Bill delivers on many of those recommendations.
Treasury consultation
Options paper
On 2 June 2011 the Attorney-General, Robert McClelland and
the Parliamentary Secretary to the Treasurer, David Bradbury, jointly released
an options paper entitled, A Modernisation and Harmonisation of
the Regulatory Framework Applying to Insolvency Practitioners in Australia.[26]
Thirty-three submissions were received in response to the options paper.[27]
Proposals paper
Following on from the options paper, on 14
December 2011 the Attorney-General and the Parliamentary Secretary to the
Treasurer jointly released a proposals paper, Reforms to modernise and harmonise insolvency.[28]
The key reform proposals included:
- new powers for ASIC to
compel practitioners to answer questions about an administration or their
conduct
- changes to the standards
of entry to require practitioners to have undertaken insolvency specific
education and a new registration and disciplinary system based on the personal
insolvency regime
- changes to the way
information is distributed to creditors and a new right for creditors to remove
a practitioner
- giving creditors the
power to pass a resolution capping practitioner fees
- removing conflicts of
interest by preventing practitioners and their related parties from deriving a
benefit
from the use
of disbursements without the approval of creditors.[29]
Twenty-nine submissions were received in response to the
proposals paper.[30]
Responders to the proposals paper were generally supportive of the need for
reform. The Institute of Chartered Accountants in Australia acknowledged that
‘in respect of practitioner discipline, we believe that the intended policy
outcome of the reforms is for a fair, timely, effective and transparent process
for resolving disciplinary matters, and through that, an improvement in
practitioner behaviours’.[31]
Insolvency Practitioners Australia supported:
... the proposed steps towards harmonisation of the laws and
processes of personal and corporate insolvency and further recommend that the
proposed reforms be approached with a view to ensuring alignment where that is
possible. This applies both to laws concerning the regulation of the
profession, and to laws concerning insolvency processes—meetings, time limits,
voting rights, dividends etc.[32]
First exposure draft
Announcing the release of the draft Bill for public
comment on 19 December 2012, Attorney-General, Nicola Roxon and Parliamentary
Secretary to the Treasurer, Bernie Ripoll, explained:
The draft Insolvency Law Reform Bill 2012 amends the personal
and corporate insolvency laws to improve regulatory oversight of the insolvency
profession, improve value for money for recipients of insolvency services, and
enhance creditor rights across all forms of insolvency administration.
In particular, these draft laws provide greater powers for
creditors to remove practitioners and curb excessive fees, and therefore
deliver better outcomes for creditors, many of whom are small businesses.[33]
There were 16 submissions in response to the first
exposure draft.[34]
Importantly, no draft regulations were issued at that time. That being the
case, Deloitte made clear that its comments were ‘subject to this qualification
as it is apparent that many important matters are intended to be addressed in
the regulations to the Bill’.[35]
On the other hand, McGrathNicol cautioned against attempts
to harmonise the corporate and personal insolvency regimes without due regard
to the significant and substantive differences between corporate and personal
insolvency stating:
Insolvent companies typically involve a far greater number
and value of creditors than personal insolvencies and are far more likely to be
trading enterprises and employers. The harmonisation approach appears to have
taken the view that processes and requirements that work well in bankruptcy can
be applied, without modification, to corporate insolvency. There are certainly
aspects in which this premise holds, but there are several where it does not
and, in our view, harmonisation in these aspects will unnecessarily add cost
and confusion.[36]
Second exposure draft
It was two years before the second exposure draft Bill was
circulated for comment. On 7 November 2014, Minister for Finance Mathias
Cormann and Attorney-General George Brandis announced that the Government was
‘releasing draft legislation to implement the first phase of reforms to
strengthen and streamline Australia’s personal bankruptcy and corporate
insolvency regimes’.[37]
The draft Bill was accompanied by the Insolvency Practice Rules proposals
paper.[38]
The proposals paper sets out the details of the Government’s Insolvency
Practice Rules, as well as amendments to the Corporations Regulations and the
Bankruptcy Regulations necessary to implement the reforms.[39]
Treasury received 20 submissions in response to that
consultation. The views of submitters are canvassed under the heading ‘Key
issues and provisions’ below.[40]
‘Minor and technical amendments were made [to the final form of the Bill] in
response to concerns that the Bill may have an unintended consequence for the
efficient management of insolvencies’.[41]
Selection of Bills Committee
At its meeting of 3 February 2016, the Selection of Bills
Committee determined that the Bill would not be sent to committee for inquiry
and report.[42]
Senate Standing Committee for the
Scrutiny of Bills
The Standing Committee for the Scrutiny of Bills commented
on the Bill in its Alert Digest of 3 February 2016.[43]
Relevant comments are set out under the Key issues and provisions part of this
Bills Digest.
Speaking on the Bill, ALP member Dr Jim Chalmers indicated
that the ALP ‘will be supporting [the Bill] through the Parliament’.[44]
Despite generally supporting the Bill, Dr Chalmers identified four issues of
concern:
The first one is that the Bill defers some
fine detail to a legislative instrument called the 'insolvency practice rules'.
The intended insolvency practice rules have not been released yet. They should
be released to allow practitioners the opportunity to prepare for the change in
regime ...
The second one is that the Bill claims a
compliance saving of $50 million, which the industry itself has said is
completely wrong. It says that the regime will cost them substantially ...
The third concern is that ... there are more
components coming. We think you can minimise the cost to the industry if you
release all the parts of the insolvency reforms close together to give people
the opportunity to consider them together and try to harmonise the various
phase-ins of the separate tranches of law reforms.
The fourth area of concern is around ASIC
funding ... There have been a couple of years of fairly substantial cuts to ASIC.
If we want ASIC to do its job, we have to make sure it is adequately resourced
to do that job.[45]
As the Bill has been through several iterations, the commentary
has been largely supportive of the general policy of aligning the registration
and disciplinary frameworks that apply to registered liquidators and registered
trustees. Comments from stakeholders about individual provisions are set out
under the heading ‘Key issues and provisions’ below.
According to the Explanatory Memorandum for the Bill, ‘$2.8
million will be reappropriated from 2012–13 and 2013–14 into 2016–17 to
implement the Bill. Past revenue collected has already offset this expenditure.
The Bill will result in revenue of $1 million per annum from commencement’.[46]
As required under Part 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s
compatibility with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of that Act. The Government
considers that the Bill is compatible.[47]
Parliamentary Joint Committee on
Human Rights
The Parliamentary Joint Committee for Human Rights determined
that the Bill does not raise human rights concerns.[48]
Assistant Minister to the Treasurer, Alex Hawke, speaking
on the Bill stated that it aims:
... to restore confidence in the insolvency profession by
raising the standards of professionalism and competence of practitioners, and
identifying and removing “bad apples” from the profession more swiftly.
The Bill does this by aligning and strengthening the
registration, disciplining and regulator oversight of corporate insolvency
practitioners with the framework currently in place for personal insolvency
practitioners.[49]
As the primary changes are being made to
the Corporations Act and other statutes in relation to insolvency, this
Bills Digest commences with a detailed outline of those amendments. The Digest then
identifies some of the main differences between the current regime for
registration of trustees in bankruptcy and the proposed Insolvency
Practice Schedule (IPS) Bankruptcy.
With the exception of items 94 and 303, the
provisions in Schedule 2 to the Bill commence on a single day to be fixed by
Proclamation. However, if the provisions do not commence within the period of
12 months beginning on the day the Insolvency Law Reform Act 2016
receives Royal Assent, they commence on the day after the end of that period.
About insolvency and the
Corporations Act
A company is classified as being solvent if, and only if, it
is able to pay all of its debts as and when they become due and payable.
Otherwise the company is insolvent.[50]
The three main insolvency procedures are voluntary
administration,[51]
liquidation[52]
and receivership.[53]
Voluntary administration is designed to resolve a company’s
future direction quickly. An independent and suitably qualified person takes
full control of the company to try to work out a way to save either the company
or its business.
If it is not possible to save the company or its business,
the aim is to administer the affairs of the company in a way that results in a
better return to creditors than they would have received if the company had
been placed straight into liquidation.
After taking control of the company, the voluntary
administrator investigates and reports to creditors on the company’s business,
property, affairs and financial circumstances, and on the three options
available to creditors. These are:
-
end the voluntary administration and return the company to the
directors’ control
-
approve a deed of company arrangement through which the company
will pay all or part of its debts and then be free of those debts or
-
wind up the company and appoint a liquidator.[54]
Liquidation
Liquidation is the name given to the orderly winding up of a
company’s affairs. A liquidator can be appointed either by a court or at a
general meeting of the company, for the purpose of winding up the affairs and
distributing the property of the company.[55]
When a company is being liquidated because it is insolvent, the liquidator has
a duty to all the company’s creditors. The liquidator’s role is to:
- collect,
protect and realise the company’s assets
- investigate
and report to creditors about the company’s affairs, including any unfair
preferences which may be recoverable, any uncommercial transactions which may
be set aside, and any possible claims against the company’s officers[56]
- enquire
into the failure of the company and possible offences by people involved with
the company and report to ASIC
- after
payment of the costs of the liquidation, and subject to the rights of any
secured creditor, distribute the proceeds of realisation—first to priority
creditors, including employees, and then to other unsecured creditors and
- apply
for deregistration of the company on completion of the liquidation.[57]
In its current form, the Corporations
Act provides for the formal registration of auditors and liquidators (in Part 9.2
of Chapter 9). Essentially, a person must not consent to be appointed and must
not act as a liquidator unless the person is a registered liquidator.[58]
The Australian Securities and Investments Commission (ASIC) is responsible for
the registration of liquidators.[59]
ASIC must not register a person who has been disqualified from managing a
corporation as a liquidator.[60]
Part 2 of Schedule 2 to the Bill repeals the existing
rules for the registration of liquidators. As a result, Part 9.2 of the Corporations
Act will set out the rules for the registration of auditors only.
Receivership
A company goes into receivership when an independent and
suitably qualified person (the receiver) is appointed by a secured creditor, or
in special circumstances by the court, to take control of some or all of the
company’s assets. The receiver’s primary duty is to the company’s secured
creditor. A receiver also has the same general duties as a company director. [61] A
person is not eligible to be appointed as a receiver if the person is not a
registered liquidator.[62]
Insolvency in context
The table below sets out the number of insolvency
appointments in each state and territory since the financial year 1999–2000.
Period
|
NSW
|
Vic.
|
Qld
|
SA
|
WA
|
Tas.
|
NT
|
ACT
|
Australia
|
1999–2000
|
2,968
|
1,862
|
1,557
|
387
|
567
|
67
|
44
|
113
|
7,565
|
2000–2001
|
3,350
|
2,472
|
1,913
|
508
|
788
|
104
|
56
|
123
|
9,314
|
2001–2002
|
4,077
|
2,646
|
1,894
|
518
|
918
|
139
|
48
|
201
|
10,441
|
2002–2003
|
4,379
|
2,848
|
1,891
|
540
|
900
|
97
|
59
|
168
|
10,882
|
2003–2004
|
4,679
|
2,967
|
1,765
|
493
|
806
|
57
|
76
|
165
|
11,008
|
2004–2005
|
4,371
|
2,824
|
1,732
|
507
|
747
|
62
|
76
|
162
|
10,481
|
2005–2006
|
5,711
|
3,347
|
2,053
|
552
|
746
|
54
|
43
|
183
|
12,689
|
2006–2007
|
5,570
|
3,056
|
2,055
|
488
|
497
|
89
|
31
|
170
|
11,956
|
2007–2008
|
5,879
|
3,245
|
2,086
|
494
|
509
|
74
|
30
|
207
|
12,524
|
2008–2009
|
6,591
|
4,215
|
3,003
|
555
|
861
|
69
|
33
|
240
|
15,567
|
2009–2010
|
5,659
|
3,555
|
3,079
|
506
|
922
|
108
|
36
|
191
|
14,056
|
2010–2011
|
5,710
|
3,900
|
3,005
|
547
|
1,052
|
125
|
52
|
175
|
14,566
|
2011–2012
|
6,033
|
3,898
|
3,380
|
654
|
1,056
|
133
|
39
|
223
|
15,416
|
2012–2013
|
5,747
|
4,472
|
3,251
|
744
|
1,101
|
205
|
67
|
228
|
15,815
|
2013–2014
|
5,059
|
3,902
|
2,943
|
585
|
1,079
|
125
|
53
|
239
|
13,985
|
2014–2015
|
4,398
|
3,427
|
2,667
|
528
|
1,317
|
98
|
74
|
217
|
12,726
|
Source: ASIC,
Australian
insolvency statistics, ASIC, December 2015, accessed 8 February 2016.
IPS
Corporations and Insolvency Practice Rules
The Bill inserts the Insolvency
Practice Schedule (Corporations) (IPS Corporations) as Schedule 2 to the
Corporations
Act.
[63]
Proposed clause 105‑1 empowers
the Minister, by legislative instrument, to make Insolvency Practice
Rules. References to this rule-making power appear throughout the proposed IPS Corporations.
Key issue—delegation of legislative
power
The report of the Scrutiny of Bills Committee draws
particular attention to the making of Insolvency Practice Rules. The Scrutiny
of Bills Committee took the view that ‘important matters should be included in
primary legislation unless a compelling justification is provided’.[64]
That being the case the Committee considered it ‘regrettable that the
explanatory materials did not include a more detailed justification for why
particular aspects of the new regulatory framework and the content of the rules
are to be provided for in the Rules rather than the primary legislation’.[65]
The Committee’s report highlighted a number of proposed provisions
of the Bill where powers and standards are to be prescribed under the Rules:
- subclause
65-50 which provides that significant rules in relation to the consequences for
failure to comply with Division 65 of the Schedule may be provided for by the Insolvency
Practice Rules and
- clause
70-50 which relates to reporting to creditors.
The Scrutiny of Bills Committee has sought the Assistant
Treasurer’s detailed explanation of the general division between the Rules and
primary legislation, including the justification for including matters in the
Rules.[66]
Dictionary
terms
The Dictionary in proposed clause
5-5 refers to, amongst other things, external administration
of a company and the external administrator of a company. Accordingly,
a company is taken to be under external administration in any of
the following circumstances:
- the
company is under administration
- a
deed of company arrangement has been entered into in relation to the company
- a
liquidator has been appointed in relation to the company or
- a
provisional liquidator has been appointed in relation to the company.
However, a company is not under external
administration for the purposes of the proposed IPS Corporations merely
because a receiver, receiver and manager, or other controller has been appointed
in relation to property of the company.[67]
A person is an external administrator of a
company if the person is any of the following:
- the
administrator of the company
- the
administrator under a deed of company arrangement that has been entered into in
relation to the company
- the
liquidator of the company or
- the
provisional liquidator of the company.
However, a person is not an external administrator of
a company for the purposes of the proposed IPS Corporations merely
because the person has been appointed as a receiver, receiver and manager, or
controller in relation to property of the company.[68]
In additional to the definitions that are common to both
IPSs, the proposed IPS Corporations contains the definition of a pooled
group.[69]
If a pooling determination or a pooling order is in force in relation to a
group of two or more companies then the companies are together a pooled
group and each of the companies is a member of the pooled group.[70]
Basic steps for registering
liquidators
Quick Guide to Division 20
Although liquidators are currently registered under section
1282 of the Corporations Act, that registration is not limited to a
prescribed time period. The requirement in the IPS Corporations for
registration, and renewal of registration every three years, is intended to
promote a high level of professionalism and competence in insolvency
practitioners. To that end, Division 20 requires:
- a
formal application to ASIC to be registered as a liquidator
- referral
of an application by ASIC to a committee for assessment against specified
criteria—one of which is the holding of adequate and appropriate professional
indemnity insurance and fidelity insurance against the liabilities that the person
may incur working as a registered liquidator[71]
and
- the
registration of the liquidator by ASIC, which may be subject to conditions.
|
First, a person may apply to ASIC to be registered
as a liquidator on the approved form.[72]
Fees for lodging documents such as an application for registration may be
imposed under the Corporations
(Fees) Act 2001.
Second, within two months of receiving an
application for registration as a liquidator, ASIC must refer it to a committee
for consideration.[73]
The committee must comprise ASIC, a registered liquidator chosen by a
prescribed body and a person appointed by the Minister.[74]
(The common rules for committees are discussed below under the heading ‘About
committees’.)
Third, in considering the application, the
committee must interview the applicant and may also require the applicant to
sit for an exam.[75]
The committee must make its decision within 45 business days after interviewing
the applicant.[76]
A person must be registered as a liquidator provided that the committee is
satisfied that he, or she, meets each of the conditions set out in proposed
subclause 20-20(4) of the IPS Corporations. These include, but are not
limited to, having the prescribed qualifications, experience, knowledge and
abilities; a willingness to take out adequate and appropriate professional
indemnity insurance and fidelity insurance; and being a fit and proper person.[77]
The registration of a person as a liquidator may be subject to conditions
specified by the committee.[78]
The decision of the committee not to register a liquidator may be reviewed by
the Administrative Appeals Tribunal.[79]
Fourth, once the decision is made, the committee
must give the applicant and ASIC a report setting out the decision and the
reasons for the decision—including the reasons, if there are any, for imposing
a condition on the person’s registration.[80]
The decision of the committee to impose conditions on the registration of a
liquidator may be reviewed by the Administrative Appeals Tribunal.[81]
Finally, the person will be registered as a liquidator
once written evidence has been provided to ASIC that the required professional
indemnity insurance and fidelity insurance have been taken out against the
liabilities that the applicant may incur working as a registered liquidator.[82]
The proposed IPS Corporations requires ASIC to establish and maintain a Register of Liquidators
which may be in any form that ASIC considers appropriate.[83]
Once the person is registered as a liquidator, ASIC must give the person a
certificate of registration which may be in electronic form. The period of
registration is three years.[84]
A person commits an offence if he, or she, makes a
representation about being a registered liquidator and the representation is
false. In that case the maximum penalty is 30 penalty units.[85]
Key issue—timing
As stated above, ASIC must convene a committee within two
months of receiving an application for registration. The committee then has a
further 45 business days within which to make its decision. A worst case
scenario would be that a decision to register a liquidator may not be made for
over four months from the date of application.
Many submitters considered that the 45 business day time
frame for the decision of the committee was too long.[86]
In addition, KordaMentha was concerned that ‘there is no timeframe in which the
interview must be held. There is also no timeframe for when the exam must be
sat if an exam is required’.[87]
Key issue—registration for three
years
Currently section 1279 of the Corporations Act provides
that a person may apply to ASIC for registration as a liquidator, or as a
liquidator of a specified body corporate that is to be wound up, amongst other
things, under that Act. Section 1282 provides that ASIC must grant the
application if the following criteria are satisfied:
- the
person holds the required academic qualification (or qualifications and
experience that are adjudged to be equivalent)
- the
person has had suitable experience in connection with externally administered
bodies corporate
- ASIC
is satisfied that the person is capable of performing the duties of a
liquidator and
- ASIC
is satisfied that the person is a ‘fit and proper’ person.
Existing subsection 1282(8) provides that the registration
continues until the registration is cancelled by ASIC or by the Companies
Auditors and Liquidators Disciplinary Board (CALDB), or the person dies.
The Economics Committee noted that the possibility of a
licensing system for insolvency practitioners had been considered—and rejected—in
2007 when the Corporations Amendment (Insolvency) Bill 2007 was under
consideration.[88]
The Economics Committee recommended that a licensing system for corporate
insolvency practitioners be established and that practitioners should be
required to renew their license every three years.[89]
The rationale for this position was:
In addition to quickly stopping wrongdoing, a licensing
system would also have the advantage of improved monitoring of insolvency
practitioners. Unlike the current registration process, a licensing system
would have a requirement for regular renewal. This would involve the
practitioner lodging information every three years (for example) and an
assessment by the regulator of the practitioner's conduct and need for
professional development. Pending this assessment, the regulator has the
options of renewing the license, imposing conditions on it, suspending the
license or revoking it.[90]
None of the submitters to Treasury’s second exposure draft
opposed the move to limit the period of registration to three years. The
transitional provisions in Part 3 of Schedule 2 to the Bill operate so that on
the day that the Insolvency Law Reform Act commences, those liquidators
who are registered will be taken to be registered as a liquidator under Division
20 of the IPS Corporations. That registration will cease on the first
anniversary of the person’s registration under the former rules that occurs
after the commencement day.[91]
Example
Bill Brown was registered as a liquidator on 15 November
2014. If the Insolvency Law Reform Act were to commence on 1 July 2017
he would be taken to be registered under the rules set out in the IPS
Corporations on that date. However, on 15 November 2017 his registration
would cease unless he had taken the relevant steps to renew it. |
This means that in the first 12 months following the
commencement of the Insolvency Law Reform Act all existing registrations
will end unless the liquidator applies to have the registration renewed in the appropriate
manner. (See discussion under the heading ‘Renewing registration’ below.)
About committees
Division 50 of the IPS Corporations sets out the general
rules for committees. These rules apply equally to the committees which may be
formed for the following purposes:
- a
committee convened by ASIC to consider an application for registration[92]
- a
committee convened by ASIC to consider an application to vary a condition of
registration[93]
- a
committee convened by ASIC to consider the nature of any disciplinary action
which may be taken when a registered liquidator has received a show cause
notice and has either not responded to it or ASIC is not satisfied with the
response[94]
and
- a
committee convened by ASIC to determine an application to have a suspension
lifted or shortened.[95]
In each of those circumstances, the manner in which a
committee i is to perform its functions will be set out in the Insolvency
Practice Rules.[96]
Composition of the committee
As stated above, for the purposes of the proposed IPS
Corporations, a committee must comprise ASIC, a registered liquidator
chosen by a prescribed body and a person appointed by the Minister.
The Insolvency Practice Rules may prescribe a body which
is to appoint a person to a committee. In that case the prescribed body must be
satisfied that the person has the knowledge or experience which is prescribed
in relation to appointment. If no knowledge or experience is prescribed, then the
prescribed body must be satisfied that the person has the knowledge and
experience necessary to carry out his, or her, functions as a member of the
committee if appointed.[97]
The power of the Minister to appoint a person to a
committee may be delegated, in writing to ASIC, an ASIC member or to a staff
member of ASIC who is an SES employee or acting SES employee or to an APS
employee who holds, or is acting in, an Executive Level 2 position or to a
person who holds, or is acting in, an office or position that is equivalent to
an SES employee, or an Executive Level 2. The delegate must comply with any
directions of the Minister.[98]
The power of the Minister to delegate the power to appoint
a person to a committee to ASIC, may have the effect that ASIC has one of the
three places on the committee and it is ASIC which is empowered to choose a
person to take another of those places. Of concern to Deloitte is that ‘this
may create the impression that the committee is not seen as independent’.[99]
A single committee may be convened to consider one or more
matters. The matters may relate to the registration as a liquidator of one or
more applicants and to the conduct of one or more registered liquidators.[100]
The proposed IPS Corporations creates an offence
where a member of a committee uses or discloses information or a document for
purposes other than exercising the powers or performing functions as a member
of the committee if the information or the document was disclosed to him, or
her, for that purpose. The maximum penalty for the offence is 50 penalty units
(that is, a maximum of $9,000).[101]
The offence provision does not apply where the information
or document is disclosed to the Inspector-General in Bankruptcy in the exercise
of his, or her, powers and functions, or to another committee to assist in the
exercise of its powers.[102]
A person who wishes to rely on this exception bears the evidential burden to
prove that the disclosure was made appropriately.[103]
Key issue—reverse onus of proof
The proposed IPS Corporations contains a number of
offences in which the evidential burden of proof is reversed so that the defendant
bears the onus of proof if he or she wishes to rely on an exception to a
general rule.[104]
This generally occurs ‘where the facts in relation to the defence might be said
to be peculiarly within the knowledge of the defendant, or where proof by the
prosecution of a particular matter would be extremely difficult or expensive
whereas it could be readily and cheaply provided by the accused’.[105]
However, the Scrutiny of Bills Committee noted that the Explanatory Memorandum to
the Bill provides no explanation for the reversal of the onus of proof. That
being the case, the Committee has asked the Assistant Treasurer to provide a
detailed justification of this approach wherever it occurs in the Bill.[106]
Other steps in registering practitioners
Where a
committee has decided that a person’s registration as a liquidator is to be
subject to a condition, or conditions, the person may apply to ASIC for their variation
or removal.[107]
In that case, the application must be lodged with ASIC in the approved form.[108]
Within two months of receiving such an application, ASIC must refer it to a committee
for consideration.[109]
That consideration is to include interviewing the applicant unless he or she
agrees otherwise. The committee must decide, within 20 business days, whether
the condition should be varied or removed. If a condition is to be varied, the
committee must specify the way in which it is to be varied. The committee must
give the applicant and ASIC a written report setting out the reasons for its decision
and where appropriate, details of any variation that is to be made.[110]
A registered liquidator must apply to ASIC to have his, or
her, registration renewed before the existing registration ceases to have
effect.[111]
ASIC must renew the registration of the applicant as a liquidator
if the application is properly made, the applicant has produced evidence that
the required insurances are maintained and that any condition dealing with
continuing professional education to which the applicant is subject has been
complied with.[112]
The renewed registration is subject to the current conditions
imposed on the registered liquidator.[113]
The period of the renewed registration is three years beginning on the day
after the person’s immediately preceding registration as a liquidator ceased to
have effect.[114]
Offences
The proposed IPS Corporations creates a range of offences arising from the registration
regime that are of different degrees of severity.
First, a registered liquidator
commits an offence if he, or she, intentionally or recklessly fails to comply
with the requirement to maintain adequate and appropriate professional
indemnity insurance and adequate and appropriate fidelity insurance against the
liabilities that the person may incur working as a registered liquidator.[115]
In that case, the maximum penalty is 1,000 penalty units (being a maximum
amount of $180,000). According to the Explanatory Memorandum to the Bill:
The new maximum penalty for intentionally or recklessly
failing to comply with a registered liquidator’s insurance obligations is a
significant increase over the current five penalty unit penalty provided for
under the Corporations Act. The new penalty provides an appropriate
deterrent to non-compliance with these important obligations and more
appropriately reflects the possible magnitude of the loss third parties may
suffer due to a breach.[116]
In the alternative, a registered
trustee commits an offence of strict liability if he, or she, fails to comply
with the requirement to maintain adequate and appropriate insurance. The maximum
penalty for this offence is 60 penalty units (being a maximum amount of
$10,800).[117]
Second,
a person who is a registered liquidator during all or part of a liquidator
return year[118]
for the person must, within one month after the end of that year, lodge with ASIC
a return on the approved form and accompanied by evidence that the registered liquidator
held the required insurance against the liabilities the person may incur
working as a registered liquidator.[119]
A registered liquidator commits an offence of strict liability if he, or she, fails
to comply with the requirement to lodge an annual return. The maximum penalty
is five penalty units (being a maximum amount of $900).[120]
Third, a registered liquidator
must notify ASIC of certain events within five business days after the
registered liquidator could reasonably be expected to be aware of them
occurring. The events are:
- the
liquidator becomes an insolvent under administration
- a
bankruptcy notice is issued under the Bankruptcy Act in relation to the liquidator
as debtor, or a corresponding notice is issued in relation to the liquidator as
debtor under a law of an external Territory or a law of a foreign country
- the
liquidator is convicted of an offence involving fraud or dishonesty
- the
liquidator is disqualified from managing corporations under Part 2D.6 of
the Corporations Act, or under a law of an external Territory or a law
of a foreign country
- the
liquidator ceases to have adequate and appropriate professional indemnity
insurance or adequate and appropriate fidelity insurance against the
liabilities that the liquidator may incur working as a registered liquidator
- the
liquidator is issued with a notice under section 40‑40 of
Schedule 2 to the Bankruptcy Act (a show cause notice) in relation
to the liquidator’s registration as a trustee under that Act
- the
liquidator’s registration as a trustee under the Bankruptcy Act is
suspended or cancelled or
- any
other event prescribed.[121]
A registered liquidator who intentionally or recklessly
fails to comply with this notification requirement commits an offence.[122]
The maximum penalty is 100 penalty units.[123]
Fourth,
a registered liquidator has an
additional requirement to notify ASIC if the information included in an annual liquidator
return, an annual administration return or an end of administration return, which
has been prepared by, or on behalf of, the liquidator is, or becomes, inaccurate
in a material particular or of any other prescribed event. That notification
must be made with 10 business days after the registered liquidator could
reasonably be expected to be aware that the event has occurred. A registered liquidator
commits an offence if he, or she, intentionally or recklessly fails to comply
with the requirement. The maximum penalty is five penalty units.[124]
The second of the offences
outlined above is an offence of strict liability. Both the IPS
Corporations and the IPS Bankruptcy create new strict liability offences and
retain strict liability offences existing in the Bankruptcy Act and the
Corporations Act. The proposed IPS Corporations
sets out a further nine strict liability offences.[125]
The Scrutiny of Bills Committee
noted the contents of the Explanatory Memorandum to the Bill—in particular:
... the application of strict
liability, as opposed to absolute liability, preserves the defence of honest
and reasonable mistake of fact to be proved by the accused on the balance of
probabilities. The defence maintains adequate checks and balances for
individuals who may be accused of breaching such offences.[126]
In its submission to Treasury in
relation to the second exposure draft, ARITA likewise drew attention to the
imposition of strict liability offences and the penalties attached to them.[127]
The rationale for the imposition
of strict liability offences is set out in the Explanatory Memorandum:
Strict liability offences are appropriate in this area of
commercial regulation, as it is necessary to strongly deter misconduct that can
have serious consequences for affected parties. Strict liability offences also
reduce non‑compliance, which bolsters the integrity of the regulatory
regime enforced by ASIC and AFSA. Strict liability is particularly beneficial
to these regulatory bodies as they need to deal with offences expeditiously to
maintain public confidence in their regulatory regimes.[128]
Whilst most of the strict
liability offences in the proposed IPS Corporations relate to conduct by
insolvency practitioners, some apply to the conduct of creditors. Proposed
clause 80-60 makes it an offence for a creditor to directly
or indirectly become the purchaser of any part of the administration estate,
subject to certain exceptions. In the IPS Corporations, ‘strict liability is
only imposed on non-practitioners for more serious misconduct that may have
significant consequences for innocent third parties’—for example, a person who
purchases the property in good faith only to have the transaction set aside by
the Court.[129]
Disciplining
practitioners
Quick Guide to Divisions 40 and 45
Division 40 of the IPS Corporations provides that the
Companies Auditors and Liquidators Disciplinary Board will no longer be
responsible for the discipline of registered liquidators as is currently the
case. Instead, the IPS Corporations empowers ASIC to:
- take
a range of direct actions against insolvency practitioners who breach their
duties, including to suspend or cancel a liquidator’s registration or to
prevent them from taking on new appointments
- to
give a show cause notice and, if a sufficient explanation is not given, to
refer the matter to a committee and
- take
further disciplinary action on the decision of a committee.
Division 45 sets out the Court’s powers to make orders in
relation to a registered liquidator and the right of an industry body to
notify ASIC where it is suspected that reasonable grounds exist for
disciplinary action to be taken against a registered liquidator.
|
Current procedure
The Bill makes major changes to who disciplines registered
liquidators and the manner in which they are disciplined. Currently, it is for
the Companies Auditors and Liquidators Disciplinary Board (CALDB) to determine
the appropriate disciplinary action once ASIC has identified some wrongdoing on
the part of a registered auditor or liquidator.
In the event that the alleged wrongdoing is
established the following orders may be made:
- cancel or suspend the auditor or liquidator's registration and/or
- admonish or reprimand the auditor or liquidator and/or
- require the auditor or liquidator to give an undertaking.[130]
In evidence to the Economics Committee, then Chairman of the
CALDB described the Board’s role as being:
... to protect the public interest by ensuring that the
regulatory system for disciplining members of the auditing and liquidating
professions who fail to perform their professional duty adequately are
appropriately dealt with.
Firstly, so that the particular person concerned is properly
dealt with and deterred from engaging in further conduct of the same or similar
nature.
Secondly, so that the other members of the profession can see
that that particular conduct has led to that particular result ... deterring them
from engaging in the same or similar conduct.
Thirdly, to reassure the public that the regulatory system is
there and that it is working effectively ... so that the public can have
confidence in the services provided by auditors and by liquidators.[131]
Nevertheless, the Economics Committee stated:
The committee's evidence is that, on at least some of these
scores, the CALDB has been found wanting. There have been various criticisms
including that the Board lacks independence from ASIC, takes a prolonged time
(and cost) to reach a finding, has few cases referred and makes few findings,
and is often referred inconsequential matters.[132]
ASIC’s proposed role
The Bill amends the ASIC Act
to reduce the function of the CALDB to the discipline of auditors only.[133] Instead, the proposed IPS Corporations places
with ASIC the power to discipline registered liquidators.
ASIC may give a registered liquidator a written direction
to comply with a requirement to lodge a document or to give any information or
document where a registered liquidator has failed to do so.[134]
In that case, the time within which the registered liquidator must comply is 10
business days after the notice is given—although this period may be extended,
or further extended, at the request of the registered liquidator.[135]
A decision to direct a liquidator to lodge documents is an excluded decision
under section 1317C of the Corporations Act and is therefore not
reviewable by the Administrative Appeals Tribunal.[136]
If the liquidator does not comply within the requisite period,
ASIC may either give the registered liquidator a direction not to accept
further appointments[137]
or apply to the Court for an order directing the liquidator to comply with the
requirement within such time as is specified in the order, or both.[138]
ASIC may
exercise equivalent powers in circumstances where it reasonably
suspects that information that a registered liquidator is required to give to
ASIC is incomplete, or incorrect in any particular, and the registered liquidator
has failed to comply with a notice to complete or correct the information.[139]
A decision to direct a liquidator to correct inaccuracies is an excluded
decision under section 1317C of the Corporations Act and is, therefore,
not reviewable by the Administrative Appeals Tribunal.[140]
The registration of a liquidator is
automatically cancelled if the person becomes an insolvent under
administration or he, or she, dies.[141]
Proposed clauses 40-25 and 40-30 of the IPS
Corporations set out in essentially equivalent terms the basis on which ASIC may
decide to suspend or cancel the registration of a liquidator respectively. The
circumstances which may lead to such a decision include:
- the
person is disqualified from managing corporations under Part 2D.6 of the Corporations
Act, or under a law of an external Territory or a law of a foreign country
- the
person ceases to have adequate and appropriate insurance against the
liabilities that the person may incur working as a registered liquidator
- the
person’s registration as a trustee under the Bankruptcy Act has been
cancelled or suspended other than in compliance with a written request by the
person to cancel or suspend registration
- if
the Court has made an order that the person repay remuneration—the person has
failed to do so
- the
person has been convicted of an offence involving fraud or dishonesty or
- the
person lodges a request with ASIC in the approved form to have the registration
suspended or cancelled.
ASIC must, within 10 business days after making the
decision to suspend or cancel registration give the person a written notice
setting out the decision and the reasons for the decision. The decision comes
into effect on the day after the notice is given to the person.[142]
ASIC may give a registered liquidator notice in writing
asking the liquidator to give it a written explanation as to why the liquidator
should continue to be registered (a show cause notice). Proposed
clause 40-40 lists the circumstances in which ASIC may give such a show cause
notice.
If ASIC
has given a registered liquidator a show cause notice and either
does not receive an explanation within 20 business days after the notice is given,
or is not satisfied by the explanation which is provided, ASIC may refer
the matter to a committee.[143]
In that case, the committee must make a decision about whether the liquidator
should continue to be registered, whether the liquidator’s registration should
be suspended for a period or whether the liquidator’s registration should be
cancelled.[144]
The committee also has a range of other disciplinary options
open to it. These include, but are not limited to, that the liquidator should
be publicly admonished or reprimanded; that a condition should be imposed on
the liquidator;[145]
or that a condition should be imposed on all other registered liquidators so
that they must not allow the liquidator to carry out any of the functions or duties,
or exercise any of the powers, of a liquidator on their behalf for a period
specified in the decision of no more than 10 years.[146]
The committee must give the registered liquidator and ASIC
a report setting out the committee’s decision and the reasons for the decision.
Where the liquidator is to be registered subject to a condition, the details of
the condition and the reasons for imposing it are also to be included.[147]
ASIC must give effect to the committee’s decision.[148]
The proposed IPS Corporations
also sets out the rules to be followed when a registered liquidator applies to
have a suspension lifted or shortened.[149]
The submission to Treasury by ASIC in response to the second
exposure draft suggests that, since the Economics Committee reported its
criticism of CALDB, there have been improvements in its performance.
The CALDB recently delivered decisions on five ASIC
applications concerning liquidator misconduct. We expect to shortly file four
new applications to add to one existing matter with CALDB. This follows a
number of years during which ASIC brought no significant applications to the CALDB.
Our recent experience strongly evidences a more effective and timely process ...
In light of our recent experience, we believe that CALDB’s
independent disciplinary role is now a more important element of the regulatory
framework for insolvency practitioners.[150]
Chartered Accountants Australia New Zealand also expressed
its concern at the removal of CALDB from the disciplinary process stating:
We understand that the committee approach works in the
personal bankruptcy arena. However corporate proceedings often involve many
more stakeholders and complex issues and often the financial or other impacts
are higher. Therefore a robust and transparent process for resolving these
issues is essential and we do not believe that the committee approach as
proposed will provide the requisite rigour.[151]
ASIC also identified a potential problem with the operation
of the relevant transitional provisions.[152]
Specifically, proposed section 1565 of the Corporations Act provides
that where an application has been made to CALDB before the commencement day
but CALDB has not taken action in relation to that application under the
current rules, then on the commencement day the Board must cease its
consideration of the matter. It is then up to ASIC to deal with it under the proposed
IPS Corporations.
ASIC believes:
... that this will result in unnecessary cost and delay for
both the applicant and the respondent because, regardless of how progress the
proceedings may be, they must recommence in another forum. ASIC cannot afford
to lose resources invested in these matters and fears losing momentum in its
enforcement program.[153]
Action
initiated by industry body
An industry body[154]
may lodge with ASIC a notice in the approved form (called an industry
notice) that it reasonably suspects that there are grounds for ASIC to
suspend or cancel the registration of a registered liquidator, to give a
registered liquidator a show cause notice or to impose a condition on a
registered liquidator.[155]
ASIC must consider the information and any documents
included with the industry notice. If ASIC decides to take no action in
relation to the matters raised by the industry notice, it must give the industry
body written notice of that fact within 45 days of the date that the industry
notice was lodged.[156]
A decision of ASIC to take no action in relation to matters raised by an
industry body is an excluded decision under section 1317C of the Corporations
Act and is therefore not reviewable by the Administrative Appeals Tribunal.[157]
It is open to ASIC to suspend or cancel the registration
of a registered liquidator, to give the registered liquidator a show cause
notice or to impose a condition on a registered liquidator. If ASIC does take such
action based wholly or partly on the information or documents included with the
industry notice, it must give the industry body notice of that fact.[158]
Importantly, proposed clause 40-105 provides that
neither an industry body which has given an industry notice to ASIC, nor an
individual who makes a decision as a result of which the industry body lodges
an industry notice is liable civilly, criminally or under any administrative
process provided that the actions taken were taken in good faith and the
suspicion that is the subject of the notice is a reasonable suspicion.
Proposed clause 40-111 provides that where the
registration of a liquidator is suspended or cancelled at a time when the
liquidator is conducting the external administration of a company, then ASIC
may, in writing, appoint another registered liquidator to conduct the external
administration of the company.
Similarly, ASIC may, in writing, appoint another
registered liquidator to conduct the external administration of a company,
where a liquidator who is conducting the external administration of that
company fails to renew his, or her, registration as a liquidator before that
registration ceases to have effect and the Court has not made an order extending
the period during which the liquidator may apply for renewal.
Court oversight
The proposed
IPS Corporations gives the Court oversight of
registered liquidators.[159] The Court may make such
orders as it thinks fit in relation to a registered liquidator either on its
own initiative during proceedings before the Court, or on application by the
registered liquidator or ASIC.[160]
In particular, the Court may make orders about costs. Relevant orders may
include an order that the registered liquidator is personally liable for some
or all of those costs and/or the registered liquidator is not entitled to be
reimbursed by a company or its creditors in relation to some or all of those
costs.[161]
Quick Guide to Division 60
According to the Economics Committee ‘from 2006–2010,
eight per cent of insolvency related complaints to ASIC concerned
remuneration issues, including excessive fees and poor disclosure of
remuneration’.[162]
Division 60 of the proposed IPS Corporations
responds to this issue by consolidating provisions about the rights of
insolvency practitioners to claim remuneration. It provides that remuneration
is to be set by a remuneration determination. In the absence of a
remuneration determination, a maximum default amount applies.
The Court may review a remuneration determination and, in deciding whether it
was reasonable, must take into account a range of prescribed matters. These
relate, amongst other things, to the quality of the work performed and its
complexity.
In addition, Division 60 prohibits an external
administrator from directly or indirectly deriving a profit or advantage from
a transaction, sale or purchase for, or on account of, the company under
external administration. The purpose of this prohibition is to prevent such
conduct as overcharging, secret commissions, kick-backs and secretly
acquiring company property. |
Currently there is no statutory direction or formula to
provide a basis for calculating the remuneration of insolvency practitioners in
Australia. The statutory and judicial expectation is that remuneration is
‘reasonable’.[163]
According to the Economics Committee report, ‘several
submitters and witnesses to this inquiry were critical of the largesse of
insolvency practitioners’ fees’.[164]
In response to the broad criticism of remuneration of insolvency practitioners,
the Law Council of Australia submitted to the Economics Committee that there
was ‘understandable dissatisfaction’ arising from individuals who have already
suffered from a corporate failure, who are unfamiliar with the system and who
‘see practitioners charge large sums of money, which are paid out in priority
to their own claims’.[165]
Remuneration by determination
The proposed IPS Corporations provides for the
remuneration of an external administrator. The general rules about remuneration
do not apply to a provisional liquidator or to a liquidator appointed by ASIC
under section 489EC (winding up by ASIC). Remuneration for those two
categories of external administrator is subject to separate rules.[166]
The external administrator of a company is
entitled to receive remuneration for necessary work properly performed in
relation to the external administration in accordance with the remuneration
determination (if any).[167]
Making remuneration determinations
A remuneration determination
for an external administrator (other than in a members’ voluntary winding up) may
be made:
- by
resolution of the creditors
- in
the absence of such a resolution—by the committee of inspection (see below for
discussion about the composition, functions and obligations of the members of a
committee of inspection) or
- by
the Court. [168]
By comparison a remuneration determination for an external
administrator of a company in a members’ voluntary winding up may be made:
- by
resolution of the company at a general meeting or
- in
the absence of such a resolution, by the Court.[169]
Contents of remuneration
determination
The remuneration determination may specify either an
amount of remuneration or a method for working out an amount of remuneration.[170]
If the method specified calculates the remuneration wholly or partly on a time‑cost
basis, the determination must include a cap on the amount of remuneration.[171]
There is no capacity under the proposed IPS Corporations to specify that
remuneration may be worked out on the basis of a specified percentage of money
received by the external administrator in respect of the company (which is permitted
under the proposed IPS Bankruptcy).
Review of determinations
The proposed IPS Corporations provides that ASIC, a
person with a financial interest in the external administration of the company
or an officer of the company may apply to the Court for a review of the
remuneration determination. The Court must affirm the remuneration
determination, vary it or set it aside and substitute another remuneration
determination.[172]
Proposed clause 60-12 sets out the matters to which the Court must have
regard in making such a determination. These include, but are not limited to,
matters such as the extent to which the work by the external administrator was
necessary and properly performed,[173]
the period during which the work was, or is likely to be, performed by the external
administrator[174]
and the quality[175]
and complexity of that work.[176]
Remuneration if there is no
determination
If no remuneration determination is made, the external
administrator is entitled to receive reasonable remuneration for the work.
However, that remuneration must not exceed the maximum default amount.[177]
The rules for calculating the maximum default amount are
equivalent in both IPSs.[178]
According to the Explanatory Memorandum to the Bill:
The maximum default amount does not seek to establish an
industry average for remuneration in an administration. Rather this provision
seeks to facilitate a liquidator being able to draw a base amount of
remuneration without incurring the expense of convening a meeting to obtain
creditor approval. This provision is expected to be particularly valuable
during a no- or low-asset administration.[179]
Remuneration of provisional
liquidators
A provisional liquidator is entitled to receive
remuneration, by way of percentage or otherwise, as determined by the Court. In
the absence of such a determination, remuneration is determined by agreement
between the liquidator and the committee of inspection. In the event that the
liquidator and the committee of inspection fail to agree then remuneration is determined
by resolution of the creditors.[180]
Remuneration of liquidators in a
winding up by ASIC
If ASIC orders that a company be wound up under
section 489EA of the Corporations Act, ASIC may determine the
remuneration that the liquidator is entitled to receive.[181]
Duties of external administrators
Proposed clause 60-20 codifies the general rule
that:
... equity will not allow a fiduciary to enter into any
engagement in which he has, or could have, a personal interest conflicting with
that of his principal ... nor will it allow him to retain any benefit or gain
obtained or received by reason of his fiduciary position or through some
opportunity or knowledge resulting from it.[182]
Accordingly, the clause provides that an external administrator
of a company must not directly or indirectly derive any profit or advantage
from the external administration of the company and sets out, for the avoidance
of doubt, the circumstances in which an external administrator is deemed to do so. One of those circumstances is
where a related entity of the external administrator directly or
indirectly derives a profit or advantage from the external administration of
the company.[183]
Meaning of related entity
For the purposes of the IPS Corporations the meaning of related
entity is equivalent to the definition in section 5 of the Bankruptcy
Act, so that in relation to a person, related entity
means any of the following:
a) a
relative of the person
b) a
body corporate of which the person, or a relative of the person, is a
director
c) a
body corporate that is related to the body corporate referred to in paragraph
(b)
d) a
director, or a relative of a director, of a body corporate referred to in
paragraph (b) or (c)
e) a
beneficiary under a trust of which the person, or a relative of the person,
is a trustee
f)
a relative of such a beneficiary
g) a
relative of the spouse, or de facto partner, of such a beneficiary
h) a
trustee of a trust under which the person, or a relative of the person, is a
beneficiary
i)
a member of a partnership of which the person, or a relative of the
person, is a member.
For the purposes of paragraph (c) of this definition,
the question whether a body corporate is related to another body corporate is
to be determined in the same manner as that question is determined for the
purposes of the Corporations Act 2001.
|
This provision, as set out in an earlier exposure draft,
caused considerable disquiet amongst stakeholders. For instance, Chartered
Accountants Australia New Zealand stated that it could ‘prevent the effective
running of the proceeding’ and expressed concern that ‘the prohibition on
employing a related party without creditor consent could prevent a practitioner
from using experts in their firm to secure premises or IT systems on
appointment to the detriment of the proceedings’.[184]
However, proposed subclause 60-20(4) now clarifies
that the deeming will not operate where the profit or advantage arises because
the external administrator employs a person to provide services in connection
with the external administration of the company and the person is a related
entity of the external administrator where, amongst other things, it is
not reasonably practicable in all the circumstances to obtain the agreement, by
resolution, of the creditors to the related entity being employed or engaged
and the cost of employing the related entity is reasonable in all the
circumstances.
A person who is subject to the requirement not to directly
or indirectly derive a profit or advantage from the external administration of
the company commits an offence of strict liability if he, or she, fails to
comply with the requirement. The maximum penalty is 50 penalty units.[185]
A transaction or any other arrangement entered into in contravention of this
section may be set aside by the Court.[186]
Quick Guide to Division 65
Division 65 formalises funds handling procedures including
the requirement that an external administrator pay all money received on
behalf of the company into an administration account.
In addition, the provisions in Division 65 empower those
persons with a financial interest in the external
administration of the company to ask the Court to give directions to the
external administrator about the way in which money of the company is to be
handled.[187]
|
The proposed IPS Corporations requires an external
administrator to pay all the money he or she receives on behalf of the company
into an administration account within five business days after
receipt. A failure to comply with that requirement gives rise to a strict
liability offence. The maximum penalty is 50 penalty units.[188]
The proposed IPS Corporations contains an additional descriptor of an administration
account for a member of a pooled group of companies.[189]
Where an amount has not been paid into an administration account a
liability arises to pay interest to the Commonwealth on the excess as a penalty—worked
out at the rate of 20 per cent per year or another rate that is prescribed—for
the period during which the failure to comply occurred.[190]
Importantly, the external administrator is personally liable for the payment of
that interest.[191]
Paying money out of the administration
account
The proposed IPS Corporations prohibits an external
administrator of a company from paying money out of the administration account
for the company otherwise than for the administration of the company or
in accordance with the Corporations Act or in response to a direction of
the Court. A person who fails to comply with the prohibition commits an offence
of strict liability. The maximum penalty is 50 penalty units.[192]
The proposed IPS Corporations also
provides rules for the handling of securities such as bills of exchange,
promissory notes and negotiable instruments, including that the Court may give
directions regarding the payment, deposit or custody of money and securities.[193]
Information
Quick Guide to Division 70
The provisions contained in Division 70 apply in relation
to an ongoing external administration of a company. The Division is intended
to address the information asymmetry between external administrators and
creditors which interferes with the efficiency of the insolvency market and
contributes to the risk of misconduct by market participants.[194]
Division 70 addresses this issue by requiring an external
administrator to maintain certain records and to report to ASIC annually. In
addition, it allows creditors to request information from an insolvency
practitioner and to request that a creditors meeting be held during an
external administration. Creditors and members with a financial interest will
be able to make a reasonable request for information. Insolvency
practitioners will be obliged to meet those requests. |
The external administrator of a company during all or part
of an administration return year must lodge a return in relation
to the administration. An administration return year is the
period of 12 months beginning on the day on which the person first began to be
an external administrator of the company and each subsequent period of 12
months.[195]
The return must be lodged with ASIC within three months after the end of the
year.[196]
In addition, the person must give notice that the return
has been lodged when next forwarding any report, notice of meeting, notice of
call or dividend:
- to
the members of the company in a members’ voluntary winding up
- to
the creditors in a creditors’ or court‑ordered winding up
- to
the Court if the external administrator is appointed as a provisional
liquidator and
- to
the company if the company is under administration or has executed a deed of
company arrangement.[197]
If two or more companies are members of a pooled group,
then the returns for those companies may be set out in the same document.[198]
End of administration return
The person who is the external administrator of the
company when the external administration of the company ends[199]
(the last external administrator) must lodge a return in relation
to the external administration of the company with ASIC within one month of the
end of the administration.[200]
The last external administrator must give notice that the return has been
lodged to the company, members of the company, the creditors or the Court (as
the case may be) if requested to do so in writing.[201]
Record keeping
The proposed IPS Corporations contains requirements
for an external administrator to keep books of meetings and other affairs of the
company, to ensure that the books are available for inspection and to permit a
creditor or contributory to inspect the books.[202]
In addition, an external administrator must allow those books to be audited by
a registered company auditor if required to do so[203]—although
Deloitte expressed concern about ‘how this would be paid if the administration
is without funds’.[204]
The proposed IPS Corporations also empowers ASIC,
by written notice to a person who has ceased to be the external administrator
of a company, to require the person to transfer possession or control of the
books of the external administration to ASIC within the period specified in the
notice. If the books are not in the possession or control of the person, ASIC
may require the person to give it notice to that effect.[205]
A person who intentionally or recklessly fails to comply
with a notice to transfer possession or control of the books of the external
administration, commits an offence, the maximum penalty for which is 50 penalty
units.[206]
If ASIC has possession or control of books relating to an
external administration of a company it must either:
- as
soon as practicable, transfer possession or control of those books to the new
administrator if one is appointed or
- if
the company ceases to be a company under external administration, as soon as
practicable transfer possession or control of those books to the company.[207]
ASIC must retain all books of the company, and of the
external administration of the company that are in its possession or control
under this section, the possession of which is not transferred to another
entity, for a period (the retention period) of two years after
the end of the external administration of the company—at which time ASIC may
destroy them.[208]
Giving information
In addition to the rights of creditors to request
information, documents and reports from the external administrator[209]
the proposed IPS Corporations also provides equivalent rights to members of a company in a
members’ voluntary winding up.[210]
Direction to
external administrator to comply with the request
Where the external administrator of a company refuses a
request made by a person for information, a report or document, ASIC may, in
writing, direct the external administrator to give all or part of the relevant
material to the person who made the request within five business days after the
direction is given.[211]
A decision of ASIC to direct an external administrator to comply with a request
for information is an excluded decision under section 1317C of the Corporations
Act and is therefore not reviewable by the Administrative Appeals Tribunal.[212]
However,
before giving that formal direction, ASIC must notify the external
administrator in writing that it proposes to give such a direction and invite
the external administrator to make a written submission, within 10 business
days, about whether the external administrator objects to giving the relevant
material. If so, the reasons for that objection must be stated. Where there is
an objection, ASIC must take it into account when deciding whether to direct that
the relevant material be given to the person.[213]
Where relevant material is to be given to a person, ASIC
may, by notice in writing to the person, impose conditions on its use and
disclosure by the person. [214]
The person commits an offence if they do not comply with the conditions. The maximum
penalty for the offence is 10 penalty units or imprisonment for three months or
both.[215]
A decision of ASIC to impose a condition on the use or disclosure of relevant
material is an excluded decision under section 1317C of the Corporations Act
and is therefore not reviewable by the Administrative Appeals Tribunal.[216]
If the external
administrator refuses to comply with the formal
direction of ASIC to give a person relevant material ASIC may apply to
the Court for an order that the external administrator comply with the
direction.[217]
Quick Guide to Division 75
One of the aims of the Bill is to enhance communication
and transparency between stakeholders. To that end, Division 75 sets out:
- the
instances in which the external administrator must convene a meeting at the
request of a percentage of the creditors
- the
instances in which the external administrator may convene a meeting
- who
may attend the meeting and
- the
mechanism for resolving a matter without holding a meeting.
|
The Insolvency Practice Rules may
provide for a range of matters in relation to meetings of creditors. These
include, but are not limited to, matters such as the notice for convening
meetings, the agenda for the meeting, who is to preside at meetings, voting
(including casting votes) and costs in relation to meetings and security for
those costs.[218]
Requirement to convene a meeting
The proposed IPS Corporations contains a general
power which allows an external administrator to convene a meeting of the creditors
or the members of the company.[219]
In addition, the external administrator of a company must convene a meeting
of creditors in certain circumstances.[220]
In particular, a meeting of creditors must be convened if all of the following
are satisfied:
- the
company is being wound up under a creditors’ voluntary winding up
- less
than 25 per cent, but more than five per cent, in value of the creditors direct
the external administrator to do so in writing
- none
of the creditors who give the direction is a related entity in relation to the
company and
- the
direction is given no more than 20 business days after the resolution for the
voluntary winding up of the company is passed.[221]
In addition to the requirement to hold meetings of
creditors in certain circumstances, the external administrator of a company may
at any time put a proposal to the creditors by giving notice, in writing. In
that case, the notice must contain a single proposal. The reasons for the
proposal, and the likely impact it will have on creditors if passed, are to be
included with the proposal. The creditors are to be invited to vote for or
against the proposal or to object to the proposal being resolved without a
meeting of creditors.[222]
Vote
determined by a related entity
The proposed IPS Corporations sets
out the powers of the Court to make orders in certain circumstances.
The first is where the Court is satisfied that a proposal has been voted
on by creditors and the outcome was unduly influenced by the vote or votes of a
related creditor[223]—that
is, if the proposal passed, it would not have been passed but for the vote of
the related creditor and vice versa. In addition, the outcome of the vote is
either contrary to the interests of the creditors as a group or has prejudiced,
or is reasonably likely to prejudice, the interests of the creditors who voted
contrary to the related creditor to an extent that is unreasonable.[224]
In making a determination about the prejudice (or
otherwise) of the outcome of the proposal, the Court must consider the benefits
resulting to the related creditor from the proposal if passed (or from the
failure to pass the proposal), the nature of the relationship between the
related creditor and the company and any other relevant matter.[225]
That done, the Court may make the following orders:
- an
order that the proposal be considered and voted on at a meeting of the
creditors convened and held as specified in the order
- an
order directing that the related creditor is not entitled to vote on the
proposal or a resolution to amend or vary the proposal
- if
the proposal was passed—an order setting aside the resolution passing the
proposal and
- such
other orders as the Court thinks fit.[226]
The second circumstance in which the Court may make
orders is where a resolution is passed at a meeting of the creditors of a
company under external administration because the person presiding at the
meeting exercises a casting vote.
In that case, either ASIC or a person who voted against
the resolution in some capacity (or on another’s behalf), may apply to the Court
for an order setting aside or varying the resolution.[227]
The Court may, by order set aside or vary the resolution and make such further
orders, and give such directions, as it thinks fit.
Similarly, where a resolution
is not passed at a meeting of creditors of a company under external
administration because the person presiding at the meeting exercises a casting
vote, or refuses or fails to exercise such a vote, ASIC or a person who voted
for the resolution in some capacity (or on another’s behalf), may apply to the
Court for an order. The Court may order that the proposed resolution is taken
to have been passed at the meeting and make such further orders, and give such
directions, as it thinks fit.[228]
Quick Guide to Division 80
Creditors of a company under external administration may
decide that there is to be a committee of inspection to monitor the
administration and give assistance to the external administrator.
Division 80 sets out:
- the
rules for appointing the committee
- the
procedures to be followed by the committee
- the
powers of the committee and
- the
power of the Court to inquire into and make orders about the conduct of a
committee of inspection.
|
Creditors of a company may decide that there is to be a
committee of inspection in relation to the external administration of the
company.[229]
The functions of the committee of inspection include, but are not limited to:
- advising
and assisting the external administrator of the company
- giving
directions to the external administrator of the company and
- monitoring
the conduct of the external administration of the company.[230]
However, whilst the external administrator must have
regard to any directions given by the committee of inspection he, or she,
is not required to comply with such directions.[231]
This is necessary as it may not be ‘reasonable for practitioner to attend to
tasks if there are no funds from which they will be remunerated’.[232]
If the external administrator of a company does not comply with a direction he,
or she, must make a written record of that fact and the reasons for it.
The creditors of a company may, by resolution, appoint
members of a committee of inspection and by subsequent resolution may remove a
person as a member of a committee of inspection and appoint another person to
fill the vacancy.[233]
In addition, a creditor representing at least 10 per cent
in value of the creditors, or a group of creditors who together represent at
least 10 per cent in value of the creditors, of a company may appoint a person
as a member of a committee of inspection in relation to the external administration
of the company.[234]
Further, an employee (or
employees) of the company representing at least 50 per cent in value
of the amounts owed in respect of employees by the company, in respect of
services rendered to the company, may appoint a person as a member of a
committee of inspection to represent the employees.[235]
Proposed clause 80-30 states that the Insolvency
Practice Rules may provide, amongst other things, for matters pertaining to a
person’s eligibility to be appointed as a member of a committee of inspection.
It may be that the membership of a committee of inspection could be capped or
curtailed under those Rules.
Pooled groups
However, there are separate provisions in relation to meetings
of members of pooled groups.[236]
Under proposed clause 80‑27,
the external administrator of the members of a pooled group must convene a
meeting in any of the following circumstances:
- the
committee of inspection (if one has been formed) directs the external
administrator to do so[237]
- the
creditors of one of the members of the pooled group direct the external
administrator to do so, by resolution[238]
- at
least 25 per cent in value of the creditors of one of the members of the pooled
group, direct the external administrator to do so in writing[239]
- less
than 25 per cent, but more than 10 percent, in value of the creditors of one of
the members of the pooled group direct the external administrator to do so in
writing and security for the cost of holding the meeting is given to the
external administrator before the meeting is convened[240]
or
- all
of the following are satisfied:
-
the
members of the pooled group are each being wound up under a creditors’
voluntary winding up
- less
than 25 per cent, but more than five percent, in value of the creditors of one
of the members of the pooled group direct the external administrator to do so
in writing
-
none
of the creditors who give the direction is a related entity in relation to that
member of the pooled group and
- the
direction is given no more than 20 business days after the last resolution for
the voluntary winding up of the members of the pooled group is passed.[241]
The external administrator need not comply with the
direction if the direction is not reasonable.[242]
In addition, the requirement to hold a meeting does not apply if one of the
external administrators is a provisional liquidator of a member of the pooled
group; or one of the external administrators is the administrator of a member
of the pooled group and the member is under administration.[243]
Where each company that is a member of a pooled group is
being wound up and the external administrator has been directed to convene a
meeting under proposed clause 80-27, the meeting must be on a
consolidated basis, of the creditors of all of the companies for the purposes
of determining whether there is to be a committee of inspection for the pooled
group and if so who are to be appointed members of the committee.[244]
If it is resolved that there is to be a committee of
inspection for the pooled group then any committee of inspection which was in existence
for a company that is a member of the pooled group ceases to exist when the
resolution is passed.[245]
The Insolvency Practice Rules may contain other rules in
relation to meetings of companies which are in external administration and are
members of a pooled group (pooled group meetings).[246]
So that the committee of
inspection may carry out its functions, the proposed IPS Corporations empowers
it to request information, reports and documents from the external
administrator about the company. The Insolvency Practice Rules may prescribe
circumstances where it is, or is not, reasonable for the external administrator
to comply with a request for information.[247]
In addition to its powers to obtain information, a committee
of inspection may obtain any advice or assistance it considers desirable in
relation to the obligations of external administrators of companies. However,
the committee of inspection must obtain the approval of the external
administrator of the company or the Court before expenses are incurred in
obtaining the advice or assistance.[248]
Members of a committee of inspection must not directly or
indirectly derive any profit or advantage from the external administration of
the company. However the creditors may resolve otherwise.[249]
The proposed IPS Corporations sets out, for the
avoidance of doubt, the circumstances in which a member of an inspection
committee is deemed to derive a profit or
advantage from the administration of the estate. One of those circumstances is
where a related entity of the member of the committee directly or
indirectly derives a profit or advantage from the external administration of
the company.
A person who is subject to this requirement commits an
offence of strict liability if he or she fails to comply with it. The maximum penalty
is 50 penalty units.[250]
In
addition, where a creditor
representing at least 10 per cent in value of the creditors has been appointed as
a member of a committee of inspection, the creditor must not directly or
indirectly become the purchaser of any part of the regulated debtor’s estate—although
the creditors may resolve otherwise.[251]
Quick Guide to Division 90
Division 90 provides for the review of the external
administration of a company:
- by
the Court or
- by
another registered liquidator.
It also provides for the removal of an external
administrator by the creditors.
|
Review by the Court
The proposed IPS Corporations provides for the
Court to inquire into the external administration of a company on its own
initiative or at the request of one of a number of persons including: a person
with a financial interest in the external administration of the company; an
officer of the company; a creditor on behalf of the committee of inspection (if
any); ASIC; if the application is in relation to a company that is a friendly
society within the meaning of the Life Insurance
Act 1995 and which may be wound up voluntarily under
subsection 180(2) of that Act—the Australian Prudential Regulation Authority.[252]
However, the proposed IPS Corporations contains an
additional power for Court to direct that a meeting of creditors and contributories
[253]
is convened and held, with a person appointed to act as chair who will report
the result of the meeting to the Court. This is to ensure that the Court is
able to ascertain the wishes of the creditors and contributories.[254]
Review by another registered
liquidator
The proposed IPS Corporations provides for a
registered liquidator to be appointed by ASIC on its own initiative, or on
application by a person with a financial interest in the external
administration or an officer of the company.[255]
The Court may also appoint a registered liquidator to carry out a review into a
matter that relates to the external administration of a company upon an
application by ASIC or a person with a financial interest in the external
administration.[256]
However, in neither case may the review relate to the remuneration that the
external administrator is to receive under proposed subclause 60-5(2) being
remuneration if no remuneration determination has been made.[257]
However a registered liquidator may be appointed to carry
out a review into the remuneration of the external administrator of the company
or a cost or expense incurred by the external administrator. In that case there
are two ways in which the appointment may be made.
First, the appointment may be made by resolution of
the creditors or, if the company is being wound up under a members’ voluntary
winding up—by the company.[258]
Where the appointment is made by resolution, it must specify the remuneration,
costs or expenses which the liquidator is appointed to review and the way in
which the cost of carrying out the review is to be determined.[259]
The cost of the review forms part of the expenses of the external
administration of the company.[260]
The second method of appointment is by one or more
of the creditors, or if the company is being wound up under a members’
voluntary winding up—by one or more of the members. In this instance, the
appointment may only be made if the external administrator of the company
agrees.[261]
The cost of the review is to be borne by the creditors or members.[262]
In either case, the registered liquidator has no power to
review the remuneration which the external administrator is to receive under
proposed subclause 60-5(2) (being remuneration if no remuneration determination
has been made).[263]
In addition, the registered liquidator must consent to the appointment in
writing.[264]
If a review liquidator is appointed his, or her, review
may include an assessment of whether the remuneration is reasonable. If the
matter being reviewed is a cost or expense incurred by the external
administrator, the review must include an assessment whether the cost of
expense was properly incurred.[265]
Where a reviewing liquidator has been appointed but has
not completed the review, the Court may, on application by the reviewing liquidator
or by a person with a financial interest in the external administration of the
company or an officer of the company, make a range of orders including, but not
limited to, requiring the provision of books, information or assistance to the
reviewing liquidator, extending the matters to be reviewed, and removing the
reviewing liquidator from office and appointing another registered liquidator.[266]
One of the circumstances in which ASIC may give a
liquidator a show cause notice is that the liquidator has been appointed to act
as a reviewing liquidator and has failed to properly exercise the powers or
perform the duties of a reviewing liquidator.[267]
(See further discussion below.)
Removal of the external
administrator
The Economics Committee was told how it was difficult to
remove Mr Ariff as the administrator:
Mr Ariff and his legal advisers composed a deed of company
arrangement and the Berjaya Group abandoned their claims as creditors, and
therefore had no voting rights. Unsecured creditors, such as the Australian
Taxation Office, lost interest in the administration as Mr Ariff's fees ate up
any potential dividend.
... no-one who could vote had any interest in bringing the
administration to an end and Mr Ariff was therefore able to continue in office
as administrator of this group over the opposition of its owner.[268]
The Economics Committee, having considered the various
reports about the state of the insolvency industry at that time, recommended
that the Court should be able to remove a liquidator and appoint another
liquidator where there has been a vote of no confidence by a majority of
creditors or where it appears time based charging of the incumbent liquidator
has not or will not result in a reasonable cost-benefit analysis for the
company.[269]
The proposed IPS Corporations takes this
recommendation one step further by authorising the creditors, by resolution at
a meeting, to remove the external administrator of a company and by resolution
at the same or a subsequent meeting, to appoint another person as external
administrator of the company —provided that at least five business days’ notice
of the meeting is given to all persons who are entitled to receive notice of
creditors’ meetings.[270]
A former external administrator may apply to the Court to be reappointed.[271]
It has been suggested that there is a significant risk of
abuse in giving creditors a broad power of removal at any time during an
insolvency administration. In Multi-Core Aerators Pty Ltd v Dye,[272]
Justice Warren stated:
... it is not sufficient that a court remove a liquidator
merely because of levels of feeling and rancour between parties especially
where the hostility has at all times emanated from the party seeking the
removal of the liquidator. To do so would provide a creditor with an
opportunity to manipulate the liquidation of the company. In my view to accede
to the application of the applicant in the present matter would be to disregard
the principle that the onus of proof borne by an applicant will not be easily
discharged if the liquidator has become well acquainted with the business and
affairs of the company and/or the process of winding up has almost reached
completion.[273]
In response to the Government’s June 2011 options paper
entitled: A Modernisation
and Harmonisation of the Regulatory Framework Applying to Insolvency
Practitioners in Australia, Arnold Bloch Leibler submitted:
Introducing a broad power of removal would magnify the risk
of manipulation of the course of the insolvency administration in favour of a majority
of creditors. Majority creditors could attempt to direct the course of the
insolvency either by requisitioning a meeting and voting for removal of the
incumbent insolvency practitioner, or by threatening the insolvency
practitioner with removal if he or she does not act in accordance with the
directions of the majority.[274]
In oral evidence to the Economics Committee, Dr Vivienne
Brand from Flinders University acknowledged the need for greater education of
creditors to understand the work of liquidators and what a reasonable fee
structure might look like. She told the Economics Committee that creditors:
...might well live and work in an economy where to charge $850
an hour is just unbelievable. They do not know what the normal run of a
liquidation would look like, so they cannot really tell if they are being
ripped off. They do not have the information that the liquidator has. They do
not have access to the full understanding of the company’s operations. It is
very hard for them to make an informed decision about whether or not the
liquidator is doing the right thing.[275]
And further:
People who are involved in liquidations as creditors often do
not have a lot of expertise. They may not know when misdemeanours are occurring
and, conversely, they may think they are occurring when they are not.[276]
Associate Professor Brown also told the Economics Committee:
... the problem is creditor’s perception. A lot of the
complaints [about insolvency practitioners’ fees] which are received ... are
based on misunderstanding the nature of insolvency work and ... can often involve
a certain amount of anger because everybody to some extent loses out on an
insolvency.[277]
While similar views were not expressed by submitters to
Treasury in respect of the second exposure draft, it remains that this Bill
seeks to strike a balance between the needs of creditors and the need for a
speedy and efficient insolvency process. It is unclear whether this provision
will tip the balance too far in favour of the creditors.
Administrative Appeals Tribunal
Unlike the IPS Bankruptcy, the proposed IPS
Corporations does not provide an avenue of appeal to the Administrative
Appeals Tribunal. Instead that right is embedded in the body of the Corporations
Act so that section 1317B provides that applications may be made to the Administrative
Appeals Tribunal for review of a decision made under the Corporations Act
by the Minister, ASIC, the Companies Auditors Disciplinary Board (see
discussion below about the renaming of the Companies Auditors and Liquidators Disciplinary
Board) and a committee convened under proposed Part 2 of the IPS
Corporations.[278]
Amendments in Part 2 of Schedule 2
Most of the amendments in Part 2 of Schedule 2 of the Bill
are consequential in nature. They apply to a range of statutes to remove
references to an ‘externally administered body corporate’ and to replace them
with references to a ‘Chapter 5 body corporate’[279]
and to insert references to Schedule 2 of the Bankruptcy Act and/or the Corporations
Act.[280]
However, there are also significant amendments to the Australian
Securities and Investments Commission Act 2001 (ASIC Act) and to
the Corporations Act.
Amendments to the ASIC Act
Items 5–32 of Part 2 of Schedule 2 to the Bill
amend the ASIC Act. Item 12 inserts proposed section 30B into
the ASIC Act to empower ASIC to give a registered liquidator a written
notice requiring the liquidator to give specified information and to produce
specified books at a specified place and time. The provision contains strong
limits on the exercise of the power so that it may only be used by ASIC in the
performance or exercise of its functions and powers in relation to the liquidator
requirements, to ascertain compliance with those requirements or in
order to investigate an alleged or suspected contravention of the requirements.
The liquidator requirements are defined as the requirements in
relation to registered liquidators, the external administration of companies or
the control of the property of corporations under Chapter 5 or Schedule 2
to the Corporations Act and other provisions of the Corporations Act that
relate to that Chapter or Schedule.[281]
Proposed section 39C of the ASIC Act, at item
16 of Schedule 2 to the Bill, introduces the term administration
information into the Act. This refers to information or books that ASIC
generates in the exercise of its powers or the performance of its functions in
relation to the external administration of a company. ASIC is able to give administration
information in whole or in part to a person under strict conditions and
subject to adherence to the process set out in the section.
Companies Auditors and Liquidators
Disciplinary Board
The Companies Auditors and Liquidators Disciplinary Board
(CALDB) is an independent statutory body established under the
Part 11 of the ASIC Act. The primary role of CALDB is to act as an
expert disciplinary tribunal to consider applications for the cancellation or
suspension of the registration of auditors or liquidators under the Corporations
Act.[282] Items 24–28 amend the ASIC
Act to reduce the function of the CALDB to the discipline of auditors only.
This is consistent with the provisions of the proposed IPS Corporations which
transfers the responsibility for discipline of registered liquidators to ASIC. Item
63 of Part 2 of Schedule 2 to the Bill amends the name of the Board to the
Companies Auditors Disciplinary Board.
Amendments
to the Corporations Act
Items 64–81 of Part 2 of
Schedule 2 to the Bill insert new definitions or amend existing definitions
relating to the operation of Chapter 5 (external administration) and Schedule 2
(the IPS Corporations) of the Corporations Act in section 9 of that Act.
Powers of
directors
Item 84 of Part 2 of
Schedule 2 to the Bill inserts proposed section 198G into Part 2D.1 of
the Corporations Act which deals with the powers of directors. The
provision would make it an offence for an officer of a company
under external administration to perform or exercise a function or power of
that office unless the officer of the company is the external
administrator of the company, has the written approval of the external
administrator of the company or the Court or where, despite the fact that the company
is under external administration, the officer is permitted by the Corporations
Act so to act.
Section 9 of the Corporations
Act defines the term officer of a corporation as any
of the following:
- a
director or secretary of the corporation
- a
person who makes, or participates in making, decisions that affect the whole,
or a substantial part, of the business of the corporation; or who has the
capacity to affect significantly the corporation’s financial standing; or in
accordance with whose instructions or wishes the directors of the corporation
are accustomed to act (excluding advice given by the person in the proper
performance of functions attaching to the person’s professional capacity or
their business relationship with the directors or the corporation)
- a
receiver, or receiver and manager, of the property of the corporation
- an
administrator of the corporation
- an
administrator of a deed of company arrangement executed by the corporation
- a
liquidator of the corporation or
- a
trustee or other person administering a compromise or arrangement made between
the corporation and someone else.
Arrangements and reconstructions
Item 90 of Part 2 of Schedule 2 to the Bill inserts
proposed sections 415A–415C into Part 5.1 of the Corporations Act which
deals with arrangements[283]
and reconstructions.[284]
Proposed section 415A is in similar terms to proposed clause 75-41
of the IPS Corporations—that is, it empowers the Court to make a range of
orders (including orders to set aside or amend the resolution) in the event
that the outcome of voting at a creditor’s meeting was determined by the vote
of a related entity. Proposed section 415B allows the Court to make
interim orders in circumstances where an application under section 415A has not
yet been determined.[285]
Receivers and controllers
Item 91 of Part 2 of
Schedule 2 to the Bill inserts proposed sections 422A–422D into Part 5.2
of the Corporations Act which deals with receivers and other controllers
of property of corporations. Proposed subsection 422A(5) defines a control
return year for a controller as the period of 12 months beginning on
the day on which the person first began to be a controller of the property of
the corporation and each subsequent period of 12 months. Proposed subsection
422A(3) requires the controller of property during all or part of a control
return year to forward an annual return to ASIC within three months
after the end of the control return year. In addition, when the
period of receivership has concluded the controller of the property of the
corporation must forward a return to ASIC within one month after the control of
the property ends. Item 99 of Part 2 of Schedule 2 to the Bill inserts proposed
section 434H into Part 5.2 of the Corporations Act so that
regulations may set out the obligations of a controller of property to give
information, provide reports and to produce documents to ASIC.
Executing a
deed of company arrangement
Items 100–136 of Part 2 of
Schedule 2 to the Bill amend Part 5.3A of the Corporations Act which
deals with executing a deed of company arrangement. The amendments repeal
various sections which are redundant or are replicated in the IPS Corporations.[286]
Winding up
in insolvency or by the Court
Items 137–156 of Part 2 of
Schedule 2 to the Bill amend Part 5.4B of the Corporations Act which
deals with the winding up of a company in insolvency or by the Court. Item
144 repeals existing section 473 which currently sets out general
provisions in relation to liquidators, including the remuneration of
liquidators. These matters are contained in the proposed IPS Corporations. Proposed
section 473 and 473A (which are inserted by item 144) allow for the
resignation of a liquidator appointed by the Court and the filling of a
vacancy in the office of a liquidator appointed by the Court respectively.
Voluntary winding up
Items 158–169 of Part 2 of
Schedule 2 to the Bill amend Part 5.5 of the Corporations Act which
deals with voluntary winding up of a company. Item 162 repeals and
replaces section 497 which currently requires the liquidator of a company to
call a meeting of the company’s creditors within 11 days of the day that the
resolution to voluntarily wind up a company is passed. Under clause 75-10 of
the proposed IPS Corporations it will no longer be a requirement to hold
an initial meeting of creditors in a creditors’ voluntary winding up. Proposed
section 497 provides that the liquidator of the company must, within 10
business days after the day of the meeting of the company at which the
resolution for winding up is passed send to each creditor a summary of the
affairs of the company and a list of all the creditors and the estimated amounts
of their claims, as shown in the records of the company. The list must identify
any creditors that are related entities of the company. However, unless the
Court orders otherwise, the liquidator is not required to send the list to a
creditor whose debt is $1,000 or less. The liquidator is also required to lodge
a copy of the documents with ASIC.
Also consequential on the repeal of existing section 497
is the repeal and replacement of section 506A.[287]
Proposed section 506A requires a liquidator, within 10 business days
after the day of the meeting of the company at which the resolution for
voluntary winding up is passed, to make a declaration of relevant
relationships[288]
and a declaration of indemnities and to give a copy of each
declaration to as many of the company’s creditors as reasonably practicable.[289]
Item 169 repeals and replaces section 509 of the Corporations
Act. The amendments to section 509 are consequential on the removal of the
obligation imposed on a liquidator in a creditors’ voluntary winding up to
convene a meeting of creditors when the affairs of a company are fully wound up.[290]
Proposed section 509 will require ASIC to deregister a company three
months after lodgement of the administration return stating that the affairs of
a company are fully wound up, is lodged with it.
Registration of auditors
Currently Part 9.2 of the Corporations Act deals with
the registration of auditors and liquidators. As the IPS Corporations will set
out the rules for the registration of liquidations if the Bill is passed, items
217–243 of Part 2 of Schedule 2 to the Bill set out
consequential amendments to Part 9.2 so that the existing provisions relate
only to the registration of auditors.
Penalties
Schedule 3 to the Corporations
Act sets out, in table form, the relevant penalties for each of the
offences in the Act. Items 260, 263 and 264 repeal and replace existing
penalties to reflect the penalties in the Bill. The following items in Part 2
of Schedule 2 to the Bill repeal items in the penalties table:
- item
259 (in relation to subsection 437C(1) which is repealed by item 104 of Part 2
of Schedule 2 to the Bill)
- item
261 (in relation to section 448D which is repealed by item 128 of Part 2 of
Schedule 2 to the Bill), and
- item
262 (in relation to section 471A which is repealed by item 139 of Part 2 of
Schedule 2 to the Bill).
Commencement
The provisions in Schedule 1 to the Bill commence on a
single day to be fixed by Proclamation. However, if the provisions do not commence
within the period of 12 months beginning on the day the Bill receives Royal
Assent, they commence on the day after the end of that period.
About bankruptcy and the Bankruptcy
Act
Where a person has unmanageable debt and needs time to
consider all the possible options, he or she may apply for temporary protection
from enforcement action by unsecured creditors by lodging a declaration of
intention to lodge a debtor’s petition.[291]
This provides relief for up to 21 days to negotiate payment
arrangements with creditors or alternatively to consider a formal insolvency
administration by way of:
- bankruptcy
- personal
insolvency agreement or
- debt
agreement.[292]
Bankruptcy
Bankruptcy is a process where a person who
cannot pay his, or her, debts becomes bankrupt to receive the protection of the
Bankruptcy Act and where the person’s estate is administered by a
trustee.[293] Bankruptcy may be voluntary or involuntary.
- Voluntary bankruptcy occurs where a person who is unable to pay their
debts and cannot come to suitable repayment arrangements with his, or her,
creditors chooses to voluntarily lodge a petition to become bankrupt. This is
called a debtor’s petition. Lodging a debtor’s petition is an act
of bankruptcy.[294]
- Involuntary bankruptcy occurs where a creditor who is owed $5,000 or
more applies to the court to make a person bankrupt. Where the act of
bankruptcy is established the court may make a sequestration order against the
estate of the debtor.[295]
The Official Trustee
in Bankruptcy
(the Official Trustee) is a body corporate, established under the Bankruptcy
Act, to administer bankruptcies
and other personal insolvency
arrangements when a private trustee or
other administrator is not appointed.[296]
Personal insolvency agreement
A personal insolvency agreement
is an alternative to bankruptcy.[297]
Under Part X of the Bankruptcy Act, a personal insolvency agreement
arises when creditors accept a debtor’s proposal to settle his or her debts. It
is a legally binding arrangement between the debtor and his, or her,
creditors which is an offer to pay them in full or in part by instalments or a
lump sum.[298]
This may occur, for instance, upon the sale of an asset. There are no debt,
asset or income limits to be eligible to propose a personal
insolvency agreement.
The offer must be accepted by a special resolution of the
creditors and requires a ‘yes’ vote from a majority of creditors who represent
at least 75 per cent of the dollar value of the debts. Importantly, if the vote
is a ‘no’ vote the creditors can use this process to apply to the court to make
the debtor bankrupt.
Only a registered trustee, the Official
Trustee or a suitably qualified solicitor can act as a controlling trustee in
relation to a personal insolvency agreement.[299]
Debt agreement
A debt agreement is a binding agreement under Part IX of the
Bankruptcy Act between a debtor and their creditors where
creditors agree to accept a sum of money which the debtor can afford.[300]
This may be by way of:
-
weekly or monthly payments from income
-
deferral of payments for an agreed period
-
the sale of an asset to pay creditors or
-
a lump sum payment to be divided among creditors.[301]
A person who wishes to enter into a debt agreement must make
a formal proposal about the substance and effect of the agreement to the
Official Receiver for approval.[302]
A person cannot propose a debt agreement if their unsecured debts are more than
$108,162.60[303]
or if their after tax income for the year is more than $81,121.95.[304]
A person who decides that a debt agreement is the best
option, may appoint an administrator[305]
who may be a registered, or non-registered, debt agreement administrator.[306]
Trustees and debt agreement
administrators
In its current form, the Bankruptcy Act provides
for the formal registration of trustees (in Division 1 of Part VIII) and debt
agreement administrators (in Division 8 of Part IX). As at 30 June 2015, there
were 281 personal insolvency practitioners in Australia comprised of 212
registered trustees and 69 registered debt agreement administrators.[307]
Part 2 of Schedule 1 to the Bill repeals the existing
rules for the registration of trustees (discussed below). The rules about the
registration of debt agreement administrators remain largely unchanged.
Equivalent
provisions in the IPSs
The Bill inserts the Insolvency
Practice Schedule (Bankruptcy) (IPS Bankruptcy) as Schedule 2 to the Bankruptcy
Act.[308] The effect of the amendments in Schedule 1 to the Bill is to
ensure that the proposed IPS Bankruptcy contains a discrete set of rules
about the registration and discipline of trustees and the regulation of the
administration of regulated debtors’ estates. These are largely equivalent to
those that apply to insolvency practitioners as set out in proposed IPS
Corporations. References to ASIC in the IPS Corporations are substituted with
references to the Inspector-General in the IPS Bankruptcy. Similarly,
references to external administrators are substituted with references to registered
trustees. The proposed IPS Bankruptcy is set out in the same order and uses,
for the most part, equivalent clause numbers to those in the IPS Corporations.
Importantly the offences and penalties are equivalent in both of the IPSs.
Registration of trustees
Proposed clause 5-5 contains
the definitions that are to be applied in the interpretation of the proposed IPS
Bankruptcy. In particular, it defines a registered trustee as an
individual who is registered as a trustee under Part 2 of the IPS
Bankruptcy. The object of the proposed IPS Bankruptcy is to ensure
that any such person:
- has
an appropriate level of expertise
- behaves
ethically and
- maintains
sufficient insurance to cover his or her liabilities in practising as a
registered trustee.[309]
Importantly, the Bankruptcy Act
establishes the position of Inspector-General of Bankruptcy who is responsible
for the general administration of the Bankruptcy Act.[310] The Inspector-General already has powers under
the Bankruptcy Act to regulate bankruptcy trustees and debt agreement
administrators, review decisions of trustees and investigate allegations of
offences under the Act.[311]
The proposed IPS Bankruptcy contain a singly-located
set of rules for the registration of trustees. For the most part it replicates
existing rules in Part VIII of the Bankruptcy Act.
The proposed IPS Bankruptcy requires the Inspector‑General to establish and
maintain a Register of Trustees which may be in any form that the Inspector‑General
considers appropriate.[312]
Once the person is registered as a trustee, the Inspector‑General is
required to give the person a certificate of registration which may be in
electronic form. The period of registration is three years.[313]
About committees
The proposed IPSs contain common rules for
committees. The manner in which a committee is to perform its functions will be
set out in the Insolvency Practice Rules.[314]
For the purposes of the proposed IPS Bankruptcy, a committee must
comprise the Inspector‑General, a registered trustee chosen by a
prescribed body and a person appointed by the Minister.
The rules about a prescribed body appointing a person to a
committee are equivalent in both the IPS Bankruptcy and the IPS Corporations.[315]
For the proposed IPS Bankruptcy a person is to be
appointed by the Minister as a member of the committee only if the Minister is
satisfied that the person is qualified for appointment due to his or her
knowledge of, or experience in, business, law (including the law relating to
bankruptcy), economics, accounting and public policy relating to bankruptcy—or
a combination of those fields.[316]
Consistent with the IPS Corporations, a single committee
may be convened to consider one or more matters. The matter or matters may
relate to the registration as a trustee of one or more applicants, and to a
matter or matters relating to one or more registered trustees.[317]
Imposing
conditions and renewing registrations
Consistent with the IPS
Corporations, where a committee has decided that a person’s registration
as a trustee is to be subject to a condition, or conditions, the person may
apply to the Inspector‑General for their variation or removal.[318]
In that case, the application must be lodged with the Inspector‑General
in the approved form.[319]
Within two months of receiving such an application, the Inspector-General must
refer it to a committee for consideration.[320]
That consideration is to include interviewing the applicant unless he or she
agrees otherwise. The committee must decide, within 20 business days, whether
the condition should be varied or removed. If a condition is to be varied, the
committee must specify the way in which it is to be varied.[321]
The committee must give the applicant and the Inspector‑General a written
report setting out the reasons for its decision and where appropriate, any variation
that is to be made.[322]
Similarly, a registered trustee must apply to the
Inspector‑General to have his, or her, registration renewed before the
existing registration ceases to have effect. In addition, the registered
trustee must pay the renewal fee at least one month before the registration
ceases to have effect.[323]
A failure to do so gives rise to a penalty equal to 20 per cent of the renewal
fee.[324]
Offences
The proposed IPS Bankruptcy creates
a range of offences which are of different degrees of severity.
First, a registered
trustee commits an offence if he or she intentionally or recklessly fails to
comply with the requirement to maintain adequate and appropriate professional
indemnity insurance and adequate and appropriate fidelity insurance against the
liabilities that the trustee may incur working as a registered trustee.[325]
In that case, the maximum penalty is 1,000 penalty units.
In the alternative, a registered
trustee commits an offence of strict liability if he or she fails to comply
with the requirement to maintain adequate and appropriate insurance. The maximum
penalty for this offence is 60 penalty units.
Second, a person who is a registered trustee during all or part
of a trustee return year[326]
for the person must, within one month after the end of that year, lodge with
the Inspector‑General a return on the approved form and accompanied by
evidence that the registered trustee held appropriate insurance.[327]
A registered trustee commits an offence of strict liability if he or she fails
to comply with the requirement to lodge an annual return. The maximum penalty
is five penalty units.
Third, a registered
trustee must notify the Inspector‑General of certain events within five
business days after the registered trustee could reasonably be expected to be
aware of them occurring. The events are:
- the
trustee becomes an insolvent under administration
- a
bankruptcy notice is issued under the Bankruptcy Act in relation to the
trustee as debtor, or a corresponding notice is issued in relation to the
trustee as debtor under a law of an external Territory or a law of a foreign
country
- the
trustee is convicted of an offence involving fraud or dishonesty
- the
trustee is disqualified from managing corporations under Part 2D.6 of the Corporations
Act, or under a law of an external Territory or a law of a foreign country
- the
trustee ceases to have adequate and appropriate professional indemnity
insurance or adequate and appropriate fidelity insurance against the
liabilities that the trustee may incur working as a registered trustee
- the
trustee is issued with a notice under section 40‑40 of
Schedule 2 to the Corporations Act (a show cause notice) in
relation to the trustee’s registration as a liquidator under that Act
- the
trustee’s registration as a liquidator under the Corporations Act is
suspended or cancelled or
- any
other event prescribed.[328]
A registered trustee who intentionally or recklessly fails
to comply with this notification requirement commits an offence. The maximum penalty
is 100 penalty units.
Fourth, a registered
trustee has an additional requirement to notify the Inspector‑General if
the information included in an annual trustee return, or in an annual
administration return, which has been prepared by or on behalf of the trustee
is or becomes inaccurate in a material particular, or a prescribed event occurs.
That notification must be made with 10 business days after the registered
trustee could reasonably be expected to be aware that the event has occurred. A
registered trustee commits an offence if he, or she, intentionally or
recklessly fails to comply with the requirement. The maximum penalty is five
penalty units.[329]
Disciplining
practitioners
In addition to imposing the penalties for offences as set
out above, the proposed IPS Bankruptcy empowers the Inspector‑General
to suspend or cancel the registration of trustee. The difference between the
proposed clause and the existing provisions of the Bankruptcy Act is
that the Bankruptcy Act does not give the Inspector-General the option
of suspending the registration of a trustee—only to involuntarily terminate it.[330]
The circumstances which may lead to such a decision include:
- the
person is disqualified from managing corporations under Part 2D.6 of the Corporations
Act, or under a law of an external Territory or a law of a foreign country
- the
person ceases to have adequate and appropriate insurance against the
liabilities that the person may incur working as a registered trustee
- the
person’s registration as a liquidator under the Corporations Act has
been cancelled or suspended
- the
person owes more than the prescribed amount of notified estate charges
- if
the Court has made an order that the person repay remuneration—the person has
failed to repay the remuneration and
- the
person has been convicted of an offence involving fraud or dishonesty.[331]
The Inspector‑General must, within 10 business days
after making the decision, give the person a written notice setting out the
decision to suspend or cancel their registration as a trustee, and the reasons
for the decision. The decision comes into effect on the day after the notice is
given to the person.[332]
Disciplinary
action by committee
The Inspector‑General may give a registered trustee
notice in writing asking the trustee to give the Inspector‑General a
written explanation why the trustee should continue to be registered. The Bankruptcy
Act already contains such a power. Proposed clause 40-40 lists the
circumstances in which the Inspector‑General may give such a show cause
notice.
If the Inspector‑General
has given a registered trustee a show cause notice and either does not receive
an explanation within 20 business days after the notice is given or is not
satisfied by the explanation which is provided, he or she may refer the matter
to a committee.[333]
In that case, the committee must make a decision about whether the trustee
should continue to be registered, whether the trustee’s registration should be
suspended for a period or whether the trustee’s registration should be
cancelled.
The committee also has a range of other disciplinary
decisions open to it, including but not limited to publicly admonishing or
reprimanding the trustee, or imposing a condition on the trustee.[334]
The Inspector‑General must give effect to the committee’s decision.[335]
Action
initiated by industry body
An industry body[336]
may lodge with the Inspector‑General a notice in the approved form
(called an industry notice) that it reasonably suspects that
there are grounds for the Inspector‑General to suspend or cancel the
registration of a registered trustee, to give a registered trustee a show cause
notice or to impose a condition on a registered trustee.[337]
The Inspector‑General must consider the information
and any documents included with the industry notice. If the Inspector‑General
decides to take no action in relation to the matters raised by the industry
notice, the Inspector‑General must give the industry body written notice
of that fact within 45 days of the date that the industry notice was lodged.
Court oversight of registered
trustees
Part III of the Bankruptcy Act
sets out the jurisdiction and powers of courts in bankruptcy. In particular,
section 27 of the Bankruptcy Act provides that the Federal Court and the
Federal Circuit Court have concurrent jurisdiction in bankruptcy. The proposed
IPS Bankruptcy gives the Courts oversight of
registered trustees in addition to their existing powers.[338] The Court may make such orders as it thinks fit in
relation to a registered trustee either on its own initiative during
proceedings before the Court or on application by the registered trustee or the
Inspector‑General.[339]
In particular, the Court may make orders about costs. Relevant orders may
include an order that the registered trustee is personally liable for some or
all of those costs and/or the registered trustee is not entitled to be
reimbursed by a regulated debtor’s estate or creditors in relation to some or
all of those costs.[340]
Rules
about estate administrations
Remuneration of trustee
The proposed IPS Bankruptcy defines the trustee
of a regulated debtor’s estate as the person who is:
- in
relation to a bankrupt—the trustee of the bankrupt’s estate
- in
relation to a person whose property is subject to control under Division 2
of Part X of the Bankruptcy Act—the controlling trustee
- in
relation to a debtor under a personal insolvency agreement—the trustee of the
agreement and
- in
relation to a deceased person whose estate is being administered under
Part XI of the Bankruptcy Act—the trustee administering the estate
under that Part.[341]
The trustee of a regulated debtor’s estate
is entitled to receive remuneration for necessary work properly performed by
the trustee in relation to the administration of the regulated debtor’s estate,
in accordance with the remuneration determinations (if any) for the trustee. If
no remuneration determination is made, the trustee is entitled to receive
reasonable remuneration for the work. However, that remuneration must not
exceed the maximum default amount.[342]
The maximum default amount is set at $5,000
in respect of a trustee appointed during the financial year commencing on 1
July 2016. It is indexed according to the formula set out in proposed clause
60-15 in respect of a trustee appointed during the financial year
commencing on 1 July 2017 and beyond.[343]
The remuneration is to be paid from the funds in the regulated debtor’s estate. [344]
Duties of trustees
Proposed clause 60-20 provides that a trustee of a
regulated debtor’s estate must not directly or indirectly derive any profit or
advantage from the administration of the estate and sets out, for the avoidance
of doubt, the circumstances in which a trustee of a regulated debtor’s estate
is taken to derive a profit or advantage from the administration of the estate.
A person who is subject to this requirement commits an offence of strict
liability if they fail to comply with it. The maximum penalty is 50 penalty
units.
Two other strict liability offences
arise in relation to the duties of trustees.
First, a person must
not give, or agree or offer to give, to another person any inducement which
would secure his, or her, appointment or nomination as a trustee of a regulated
debtor’s estate or which would prevent the appointment or nomination of a third
person to that role. A person commits an offence of strict liability if he or
she contravenes that prohibition. The maximum penalty is 50 penalty units or
imprisonment for three months, or both.[345]
According to the Explanatory Memorandum proposed clause
60-21:
... creates an offence (in personal insolvency) for a person to
offer an inducement to securing the appointment or nomination of their
preferred trustee. It provides that a person commits an offence of strict
liability with a penalty of 50 penalty units, or 3 months imprisonment, or
both. This provision, and its corresponding penalty, is modelled on section 595
of the Corporations Act. The severity of the penalty recognises the
importance of appointing an impartial trustee who would have significant power
to determine the outcome of an estate for creditors and for the regulated
debtor. The conduct described in this offence amounts to an abuse of the
insolvency process that could see favourable treatment for the creditors
involved in the breach at the expense of innocent creditors. Such conduct would
significantly undermine the integrity of the insolvency regime and have
far-reaching consequences for insolvency practitioners, debtors, creditors and
financial institutions.[346]
Second, if another
person performs the trustee’s ordinary duties, they must not be paid unless the
creditors or committee of inspection authorise that payment. A person commits
an offence of strict liability if he or she contravenes that prohibition. The maximum
penalty is 50 penalty units.[347]
Funds
handling and information
The proposed IPS Bankruptcy sets out the requirements
for handling of funds, including the need to maintain an administration
account in relation to a regulated debtor’s estate, in equivalent terms
to those in the IPS Corporations. Similarly there are equivalent provisions for
the keeping of records and the provision of information.
Meetings of
creditors
The proposed IPS Bankruptcy requires the trustee of
a regulated debtor’s estate to convene creditor meetings in each of the
following circumstances:
- a
committee of inspection directs the trustee to do so
- the
creditors direct the trustee to do so by resolution[348]
- at
least 25 per cent in value of the creditors direct the trustee to do so in
writing and
- less
than 25 percent but more than 10 per cent, in value of the creditors direct the
trustee to do so in writing and security for the cost of holding the
meeting is given to the trustee before the meeting is convened.[349]
In addition, the Inspector‑General may, in writing,
direct the trustee of a regulated debtor’s estate to convene a meeting of the
creditors.[350]
Removal of the trustee
The proposed IPS Bankruptcy authorises the creditors,
by resolution at a meeting, to remove the trustee of a regulated debtor’s
estate and by resolution at the same or a subsequent meeting, to appoint
another person as trustee of the regulated debtor’s estate—provided that at
least five business days’ notice of the meeting is given to all persons who are
entitled to receive notice of creditors’ meetings.[351]
However, if that occurs, the former trustee may apply to
the Court to be reappointed as trustee and the Court may order that the former
trustee be reappointed if the Court is satisfied that his, or her, removal was
an improper use of the powers of one or more creditors.[352]
Committees
of inspection
Creditors of a regulated debtor’s estate may decide that
there is to be a committee of inspection.[353]
The functions of the committee of inspection include, but are not limited to:
- advising
and assisting the trustee of the regulated debtor’s estate
- giving
directions to the trustee of the regulated debtor’s estate and
- monitoring
the conduct of the administration of the estate.
However, whilst the trustee must have regard to any
directions given to the trustee by the committee of inspection he, or she, is
not required to comply with such directions.[354]
Composition
of the committee
First, a creditor representing at least 10 per cent
in value of the creditors, or a group of creditors who together represent at
least 10 per cent in value of the creditors, of a regulated debtor’s estate may
appoint a person as a member of a committee of inspection in relation to the
administration of the estate.[355]
Second, an employee (or
employees) of the regulated debtor representing at least 50 per cent in
value of the amounts owed in respect of employees by the regulated debtor, in
respect of services rendered to the regulated debtor, may appoint a person as a
member of a committee of inspection to represent the employees.[356]
Proposed clause 80-30 states that the Insolvency
Practice Rules may provide, amongst other things, for matters pertaining to a
person’s eligibility to be appointed as a member of a committee of inspection.
It may be that the membership of a committee of inspection could be capped or
curtailed under those Rules.
Committees of inspection have the
same access to information under the proposed IPS Bankruptcy as
they do under the IPS Corporations.[357]
Amendments in
Parts 2 and 3 of Schedule 1
The amendments in Part 2 of Schedule 1 to the Bill are
consequential in nature. They:
- repeal
provisions which are, with the enactment of the Insolvency Law Reform Act,
to be included in the proposed IPS Bankruptcy[358]
- create
uniformity of terms, for instance, time limits are amended so that they are
expressed as business days rather than working days[359]
- impose
uniform penalties across the Bankruptcy Act [360]and
- insert
references to Schedule 2 (the proposed IPS Bankruptcy) throughout the Bankruptcy
Act for clarity.
The amendments in Part 3 of Schedule 1 to the Bill are
transitional in nature. Essentially:
- a
person registered as a trustee before the commencement of the Insolvency Law
Reform Act will continue to be registered and must comply with the
requirements and duties set out in the proposed IPS Bankruptcy[361]
- the
proposed IPS Bankruptcy will apply to an administration of an estate that
starts on or after the commencement of the Insolvency Law Reform Act and
to most ongoing administrations where a new event occurs[362]
- regulations
may be made to deal with other transitional matters.[363]
Commencement
The provisions in Schedule 3 to the Bill commence
immediately after the provisions in Schedule 1 to the Bill.
Contravention of a deed of
arrangement
Division 10 of Part 5.3A of the Corporations Act sets
out the rules entering into a deed of company arrangement.
Item 2 of Part 2 of Schedule 3 to the Bill inserts proposed
Division 11AA into Part 5.3A of the Corporations Act. Within the new
Division, proposed subsection 445HA(1) requires the director of a
company that is subject to a deed of company arrangement who becomes aware that
there has been, or is likely to be, a material contravention of the deed by a
person bound by the deed to give notice of the contravention or likely
contravention to the administrator of the deed of company arrangement as soon
as possible.
In addition, proposed subsection 445HA(2) requires the
administrator of a deed of company arrangement to advise the company’s
creditors as soon as practicable after becoming aware of a material
contravention, or likely material contravention, of the deed by a person bound
by it.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. A
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[18]. Australian
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[21]. Ibid.,
recommendation 1, p. xix.
[22]. Australian
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[23]. Senate
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xx.
[24]. Ibid.,
recommendation 6, p. xx.
[25]. Ibid.,
recommendation 14, p. xxi.
[26]. R
McClelland (Attorney-General) and D Bradbury (Parliamentary Secretary to the
Treasurer), Modernising
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2015.
[27]. Treasury,
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[28]. R
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Treasurer), Reform
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[29]. Ibid.
[30]. Treasury,
‘Reforms
to modernise and harmonise insolvency: proposals paper’, Treasury website,
14 December 2011, accessed 23 December 2015.
[31]. Institute
of Chartered Accountants in Australia, Submission
to Treasury, Reforms to modernise and harmonise insolvency, 3 February
2012, p. 1, accessed 23 December 2015.
[32]. Insolvency
Practitioners Australia, Submission
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1, accessed 23 December 2015.
[33]. N
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Treasurer), Insolvency
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[34]. Treasury,
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[35]. Deloitte,
Submission
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[36]. McGrathNicol,
Submission
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accessed 23 December 2015.
[37]. M
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(Attorney-General), Reforms
to align, simplify and strengthen insolvency rules, media release, 7
November 2014, accessed 23 December 2015.
[38]. Treasury,
‘Insolvency
Law Reform Bill 2014: exposure draft’, Treasury website, 7 November 2014,
accessed 23 December 2015.
[39]. Treasury,
Insolvency practice rules, proposals paper, The Treasury, Canberra,
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[40]. Treasury,
‘Insolvency
Law Reform Bill 2014: submissions’, Treasury website, accessed 9 February
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[41]. J
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reading speech: Insolvency Law Reform Bill 2015’, House of Representatives,
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[42]. Selection
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[43]. Standing
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February 2016.
[44]. J
Chalmers, ‘Second
reading speech: Insolvency Law Reform Bill 2015’, House of Representatives,
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[45]. Ibid.,
p. 84.
[46]. Explanatory
Memorandum, Insolvency Law Reform Bill 2015, p. 3, accessed 22 December
2015.
[47]. The
Statement of Compatibility with Human Rights can be found at pages 229–233 of
the Explanatory
Memorandum to the Bill.
[48]. Parliamentary
Joint Committee for Human Rights, Thirty-third
report of the 44th Parliament, 2 February 2016, p. 2, accessed
11 February 2016.
[49]. A
Hawke (Assistant Minister to the Treasurer), ‘Second
reading speech: Insolvency Law Reform Bill 2015’, House of Representatives,
Debates, 3 December 2015, p. 14637, accessed 3 February 2016.
[50]. Section
95A, Corporations Act
2001, accessed 11 January 2016.
[51]. Australian
Securities and Investments Commission (ASIC), Voluntary
administration: a guide for creditors, information sheet, 74, ASIC, 2008,
accessed 11 January 2016.
[52]. ASIC, Liquidation:
a guide for creditors, information sheet, 45, ASIC, 2012, accessed 11
January 2016.
[53]. ASIC, Receivership:
a guide for creditors, information sheet, 54, ASIC, 2008, accessed 11
January 2016.
[54]. ASIC,
Voluntary
administration: a guide for creditors, op. cit.
[55]. Corporations
Act, section 499.
[56]. The claims
against the company’s officers would arise from an alleged breach of directors’
duties which are set out in Chapter 2D of the Corporations Act. An
example of such a claim is in the ‘Centro’ case: Australian Securities and
Investments Commission v Healey (2011) 278 ALR 618, [2011]
FCA 717 (27 June 2011), accessed 17 September 2015.
[57]. ASIC,
Liquidation:
a guide for creditors, op. cit.
[58]. Corporations
Act, section 532. Section 1282 of the Corporations Act sets out the
requirements for registration of liquidators.
[59]. ASIC, External
administration: liquidator registration, regulatory guide, 186, ASIC,
2005, accessed 18 January 2016.
[60]. Corporations
Act, subsection 1282(4).
[61]. ASIC,
Receivership:
a guide for creditors, op. cit., pp. 1–2. It is possible for a company
in receivership to also be in provisional liquidation, liquidation, voluntary
administration or subject to a deed of company arrangement.
[62]. Corporations
Act, paragraph 418(1)(d).
[63]. Item
2 of Part 1 of Schedule 2 to the Bill.
[64]. Standing
Committee on the Scrutiny of Bills, Alert
digest, 1, 2016, op. cit., p. 28.
[65]. Ibid.
[66]. Ibid.,
p. 29.
[67]. Corporations
Act, proposed clause 5-15 of Schedule 2.
[68]. Corporations
Act, proposed clause 5-20 of Schedule 2.
[69]. Corporations
Act, proposed clause 5-27 of Schedule 2.
[70]. Subsection
571(2) of the Corporations Act provides that the consequences of a
pooling determination are: (i) each company in the group is taken to be jointly
and severally liable for each debt payable by and each claim against each other
company in the group; (ii) each debt payable by a company in the group to any
other company in the group is extinguished; and (iii) each claim that a company
or companies in the group has against any other company or companies in the
group is extinguished.
[71]. ASIC’s
Insurance Requirements for registered liquidators, regulatory guide
194, outlines ASIC’s policy on how it administers the insurance requirements
under the Corporations Act, including guidance to assist registered
liquidators to determine what are adequate and appropriate insurance
arrangements.
[72]. Corporations
Act, proposed clause 20-5 of Schedule 2.
[73]. Corporations
Act, proposed clause 20-15 of Schedule 2.
[74]. Corporations
Act, proposed clause 20-10 of Schedule 2.
[75]. Corporations
Act, proposed subclause 20-20(2) of Schedule 2.
[76]. Corporations
Act, proposed subclause 20-20(3) of Schedule 2.
[77]. The
list of matters which the Australian Securities and Investments Commission
takes into account in making its determination about whether a person is ‘fit
and proper’ is set out in Senate Economics Committee, The
regulation, registration and remuneration of insolvency practitioners in
Australia: the case for a new framework, op. cit., paragraph 7.3.
[78]. Corporations
Act, proposed subclause 20-20(6) of Schedule 2.
[79]. Corporations
Act, subsection 1317B(1) as amended by item 248 of Part 2 of
Schedule 2 to the Bill.
[80]. Corporations
Act, proposed clause 20-25 of Schedule 2.
[81]. Corporations
Act, subsection 1317B(1) as amended by item 248 of Part 2 of
Schedule 2 to the Bill.
[82]. Corporations
Act, proposed subclause 20-30(1) of Schedule 2.
[83]. Corporations
Act, proposed clause 15-1 of Schedule 2.
[84]. Corporations
Act, proposed subclause 20-30(6) of Schedule 2.
[85]. Corporations
Act, proposed clause 20-80 of Schedule 2. Under section 4AA of the Crimes Act 1914 a penalty unit is
equivalent to $180. This means the maximum penalty is $5,400.
[86]. ARITA,
Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, 18 December 2014,
p. 23; Lynch Meyer Lawyers, Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, 8 December 2014,
accessed 9 February 2016.
[87]. KordaMentha,
Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, 10 December 2014,
p. 2, accessed 9 February 2016.
[88]. Parliament
of Australia, ‘Corporations
Amendment (Insolvency) Bill 2007 homepage’, Australian Parliament website,
accessed 9 February 2016.
[89]. Senate Economics
Committee, The
regulation, registration and remuneration of insolvency practitioners in
Australia: the case for a new framework, op. cit.,
recommendation 5, p. 152.
[90]. Ibid., paragraph 7.44.
[91]. Corporations
Act, proposed sections 1553 and 1555, at item 322 of Schedule
2 to the Bill.
[92]. Corporations
Act, proposed clause 20-10 of Schedule 2.
[93]. Corporations
Act, proposed clause 20-45 of Schedule 2.
[94]. Corporations
Act, proposed clause 40-45 of Schedule 2.
[95]. Corporations
Act, proposed clause 40-75 of Schedule 2.
[96]. Corporations
Act, proposed clause 50-25 of Schedule 2.
[97]. Corporations
Act, proposed clause 50-5 of Schedule 2.
[98]. Corporations
Act, proposed subclauses 50-10(4) and (5) of Schedule 2.
[99]. Deloitte,
Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, 18 December 2014,
accessed 9 February 2016.
[100]. Corporations
Act, proposed clause 50-15 of Schedule 2.
[101]. Corporations
Act, proposed subclause 50-35(1) of Schedule 2.
[102]. Corporations
Act, proposed subclause 50-35(2) of Schedule 2.
[103]. Criminal Code Act 1995,
section 13.3.
[104]. See
proposed subclauses 50-35(2); 60-20(3), (4) and (5); 65-5(2); 65-15(2);
65-40(2); 70-10(3); 70-25(3); 70-35(2) and (3); 80-55(3), (5) and (6); and
80-60(3) and (5).
[105]. Attorney-General’s
Department (AGD), A
guide to framing Commonwealth offences, infringement notices and enforcement
powers, AGD, Canberra, September 2011, p. 51.
[106]. Standing
Committee on the Scrutiny of Bills, Alert
digest, 1, 2016, op. cit., p. 27.
[107]. Corporations
Act, proposed clause 20-40 of Schedule 2.
[108]. Corporations
Act, proposed subclause 20-40(3) of Schedule 2.
[109]. Corporations
Act, proposed clause 20-50 of Schedule 2. Under proposed clause
20-45 the committee must comprise ASIC, a registered liquidator chosen by a
prescribed body and a person appointed by the Minister.
[110]. Corporations
Act, proposed clause 20-60 of Schedule 2.
[111]. Corporations
Act, proposed clause 20-70 of Schedule 2.
[112]. Corporations
Act, proposed paragraphs 20-75(1) of Schedule 2.
[113]. Proposed
clause 5-10 formally defines a current condition by reference
to the conditions which can be placed on the registration of a liquidator in
various clauses of the Insolvency Practice Schedule (Corporations).
[114]. Corporations
Act, proposed subclause 20-75(6) of Schedule 2.
[115]. Corporations
Act, proposed subclause 25-1(3) of Schedule 2.
[116]. Explanatory
Memorandum, Insolvency Law Reform Bill 2015, op. cit., p. 134.
[117]. Corporations
Act, proposed subclause 25-1(4) of Schedule 2.
[118]. A
liquidator return year for a person who is a registered
liquidator is the period of 12 months beginning on the day on which that
registration first began and each subsequent period of 12 months. Corporations
Act, proposed subclause 30-1(2) of Schedule 2.
[119]. Corporations
Act, proposed subclauses 30-1(1) and (3) of Schedule 2.
[120]. Corporations
Act, proposed subclause 30-1(5) of Schedule 2
[121]. Corporations
Act, proposed subclause 35-1(1) of Schedule 2.
[122]. Corporations
Act, proposed subclause 35-1(2) of Schedule 2.
[123]. This
means that the maximum penalty is $18,000.
[124]. Corporations
Act, proposed subclause 35-5(2) of Schedule 2. The maximum penalty
is $900.
[125]. See
proposed subclauses 60-20(6), 65-5(3), 65-15(3), 65-25(2), 65-40(3),
70-10(4), 70-25(4), 80-55(7) and 80-60(6).
[126]. Standing
Committee on the Scrutiny of Bills, Alert
digest, 1, 2016, op. cit., p. 30.
[127]. ARITA,
Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, op. cit., p. 14.
[128]. Explanatory
Memorandum, Insolvency Law Reform Bill 2015, op. cit., p. 118.
[129]. Ibid.,
p. 119.
[130]. Companies
Auditors and Liquidators Disciplinary Board (CALDB), ‘Functions’, CALDB
website, last updated 19 October 2014, accessed 10 February 2016.
[131]. Senate
Economics Committee, The
regulation, registration and remuneration of insolvency practitioners in
Australia: the case for a new framework, op. cit., p. 45.
[132]. Ibid.,
p. 75.
[133]. Items
24–28 in Part 2 of Schedule 2 to the Bill.
[134]. Corporations
Act, proposed clause 40-5 of Schedule 2.
[135]. Corporations
Act, proposed subclauses 40-5(2) and (3) of Schedule 2.
[136]. Corporations
Act, section 1317C amended by item 251 in Part 2 of Schedule 2 to
the Bill.
[137]. Corporations
Act, proposed clause 40-15 of Schedule 2 sets out the power
of ASIC to give a direction not to accept further appointments.
[138]. Corporations
Act, proposed subclause 40-5(4) of Schedule 2. Proposed clauses
90-15 and 90-20 operate to give the Court broad powers to make orders in
relation to external administration either on its own initiative or on
application by (a) a person with a financial interest in the external
administration of the company; (b) an officer of the company; (c) a committee
of inspection upon a resolution by that committee; or (d) ASIC.
[139]. Corporations
Act, proposed clause 40-10 of Schedule 2.
[140]. Corporations
Act, section 1317C amended by item 251 in Part 2 of Schedule 2 to
the Bill.
[141]. Corporations
Act, proposed clause 40-20 of Schedule 2.
[142]. Corporations
Act, proposed subclauses 40-35(2) and (3) of Schedule 2.
[143]. Corporations
Act, proposed clause 40-50 of Schedule 2. Proposed clause 40-45
of the IPS Corporations permits ASIC to convene the committee. The composition
of the committee is the same as for the committee which is convened to decide
applications for registration and is governed by proposed clause 50-10.
Similarly, proposed clause 50-25 provides that the Insolvency Practice
Rules may set out the procedure and other rules of the committee—for instance,
dealing with conflicts of interest and the ability of a practitioner to object
to a proposed committee member.
[144]. Corporations
Act, proposed clause 40-55 of Schedule 2.
[145]. Proposed
subclause 40-55(2) of Schedule 2 provides a list of possible conditions
which may be imposed on the registered trustee.
[146]. Corporations
Act, proposed paragraphs 40-55(1)(e)–(g) of Schedule 2.
[147]. Corporations
Act, proposed clause 40-60 of Schedule 2.
[148]. Corporations
Act, proposed clause 40-65 of Schedule 2.
[149]. Corporations
Act, proposed clauses 40-70 to 40-95 of Schedule 2.
[150]. ASIC,
Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, 26 November 2014,
pp. 4–5, accessed 9 February 2016.
[151]. Chartered
Accountants Australia New Zealand, Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, 18 December 2014,
p. 2, accessed 10 February 2016.
[152]. Corporations
Act, proposed sections 1565–1569 inserted by item 322 in Part
3 of Schedule 2 to the Bill.
[153]. Australian
Securities and Investments Commission, Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, op. cit., p. 5.
[154]. Proposed
clause 40-110 of Schedule 2 provides that the Insolvency Practice Rules may
prescribe industry bodies.
[155]. Corporations
Act, proposed clause 40-100 of Schedule 2.
[156]. Corporations
Act, proposed subclauses 40-100(2) and (3) of Schedule 2.
[157]. Corporations
Act, section 1317C amended by item 251 in Part 2 of Schedule 2 to the Bill.
[158]. Corporations
Act, proposed subclauses 40-100(5) and (6) of Schedule 2.
[159]. Corporations
Act, proposed clause 45-1 of Schedule 2.
[160]. Corporations
Act, proposed subclauses 45-1(1)–(3) of Schedule 2.
[161]. Corporations
Act, proposed subclause 45-5(2) of Schedule 2.
[162]. Senate
Economics Committee, The
regulation, registration and remuneration of insolvency practitioners in
Australia: the case for a new framework, op. cit., p. 95.
[163]. Ibid., p. 97.
[164]. Ibid., p. 100.
[165]. Ibid., p. 105.
[166]. Corporations
Act, proposed clause 60-2 of Schedule 2.
[167]. Corporations
Act, proposed subclause 60-5(1) of Schedule 2
[168]. Corporations
Act, proposed subclause 60-10(1) of Schedule 2.
[169]. Corporations
Act, proposed subclause 60-10(2) of Schedule 2
[170]. Corporations
Act, proposed subclause 60-10(3) of Schedule 2.
[171]. Corporations
Act, proposed subclause 60-10(4) of Schedule 2.
[172]. Corporations
Act, proposed subclause 60-11(4) of Schedule 2.
[173]. Corporations
Act, proposed paragraph 60-12(a) of Schedule 2.
[174]. Corporations
Act, proposed paragraph 60-12(c) of Schedule 2.
[175]. Corporations
Act, proposed paragraph 60-12(d) of Schedule 2.
[176]. Corporations
Act, proposed paragraph 60-12(e) of Schedule 2.
[177]. Corporations
Act, proposed subclause 60-5(2) of Schedule 2.
[178]. Corporations
Act, proposed clause 60-15 of Schedule 2.
[179]. Explanatory
Memorandum, Insolvency Law Reform Bill 2015, op. cit., p. 172.
[180]. Corporations
Act, proposed clause 60-16 of Schedule 2.
[181]. Corporations
Act, proposed clause 60-17 of Schedule 2.
[182]. M
Evans, Outline
of equity and trusts, 3rd edn, Butterworths, Sydney, 1988, p. 76.
[183]. Corporations
Act, proposed paragraph 60-20(2)(c) of Schedule 2.
[184]. Chartered
Accountants Australia New Zealand, Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, op. cit. pp. 2–3.
[185]. This
means that the maximum penalty is $9,000. A defendant bears an evidential
burden in relation to the matters in proposed subclauses 60‑20(3),
(4) and (5).
[186]. Corporations
Act, proposed subclause 60-20(7) of Schedule 2.
[187]. Proposed
clause 5-30 provides that a person has a financial interest
in the external administration of a company if: (a) the person is the company,
a creditor of the company, an external administrator of the company or in a member’s
voluntary winding up, a member of the company; or (b) in any other
circumstances prescribed.
[188]. Corporations
Act, proposed clause 65-5 of Schedule 2.
[189]. Corporations
Act, proposed subclause 65-10(2) of Schedule 2.
[190]. Corporations
Act, proposed subclause 65-20(3) of Schedule 2.
[191]. Corporations
Act, proposed subclause 65-20(4) of Schedule 2.
[192]. Corporations
Act, proposed clause 65-25 of Schedule 2. This means that the
maximum penalty is $9,000.
[193]. Corporations
Act, proposed clauses 65-40 and 65-45 of Schedule 2.
[194]. Explanatory
Memorandum, Insolvency Law Reform Bill 2015, op. cit., p. 165.
[195]. Corporations
Act, proposed subclauses 70-5(3) and (5) of Schedule 2.
[196]. Corporations
Act, proposed subclause 70-5(4) of Schedule 2.
[197]. Corporations
Act, proposed subclause 70-5(6) of Schedule 2.
[198]. Corporations
Act, proposed subclause 70-5(7) of Schedule 2.
[199]. Proposed
clause 5-5 of the IPS Corporations provides that the end of an
external administration of a company means: (i) in relation to a
company under administration—the day worked out under paragraph 435C(1)(b)
of the Corporations Act; (ii) in relation to a company subject to a deed
of company arrangement—the day the deed is terminated; and (iii) in the case of
a winding up of a company—the day on which the affairs of the company are fully
wound up.
[200]. Corporations
Act, proposed subclauses 70-6(2) and (3) of Schedule 2.
[201]. Corporations
Act, proposed subclauses 70-6(4) and (5) of Schedule 2.
[202]. Corporations
Act, proposed clause 70-10 of Schedule 2. The IPS Bankruptcy
contains equivalent provisions in relation to registered trustees.
[203]. Corporations
Act, proposed clause 70-15 of Schedule 2.
[204]. Deloitte,
Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, op. cit.
[205]. Corporations
Act, proposed subclause 70-31(1) of Schedule 2.
[206]. Corporations
Act, proposed subclause 70-31(2) of Schedule 2. The maximum penalty
is $9,000.
[207]. Corporations
Act, proposed subclauses 70-31(3) and (4) of Schedule 2.
[208]. Corporations
Act, proposed subclauses 70-31(8) and (9) of Schedule 2.
[209]. Corporations
Act, proposed clauses 70-40 and 70-45 of Schedule 2.
[210]. Corporations
Act, proposed clauses 70-46 and 70-47 of Schedule 2.
[211]. Corporations
Act, proposed clauses 70-65 and 70-70 of Schedule 2.
[212]. Corporations
Act, section 1317C amended by item 251 in Part 2 of Schedule 2 to
the Bill.
[213]. Corporations
Act, proposed subclause 70-75(2) of Schedule 2.
[214]. Corporations
Act, proposed clause 70-85(1) of Schedule 2.
[215]. Corporations
Act, proposed clause 70-85(2) of Schedule 2.
[216]. Corporations
Act, section 1317C amended by item 251 in Part 2 of Schedule 2 to
the Bill.
[217]. Corporations
Act, proposed clause 70-90 of Schedule 2.
[218]. Corporations
Act, proposed clause 75-50 of Schedule 2.
[219]. Corporations
Act, proposed clause 75-10 of Schedule 2.
[220]. Corporations
Act, proposed clause 75-15 of Schedule 2.
[221]. Corporations
Act, proposed paragraph 75-15(1)(e) of Schedule 2.
[222]. Corporations
Act, proposed clause 75-40 of Schedule 2.
[223]. Corporations
Act, proposed subclause 75-41(4) of Schedule 2 provides that a related
creditor for the purposes of a vote, in relation to a company, means a
person who, when the vote was cast, was a related entity, and a creditor, of
the company.
[224]. Corporations
Act, proposed subclause 75-41(1) of Schedule 2.
[225]. Corporations
Act, proposed subclause 75-41(2) of Schedule 2.
[226]. Corporations
Act, proposed subclause 75-41(3) of Schedule 2.
[227]. Corporations
Act, proposed subclauses 75-42(2) and (3) of Schedule 2.
[228]. Corporations
Act, proposed clause 75-43 of Schedule 2.
[229]. Corporations
Act, proposed clause 80-10 of Schedule 2.
[230]. Corporations
Act, proposed subclause 80-35(1) of Schedule 2.
[231]. Corporations
Act, proposed subclause 80-35(2) of Schedule 2.
[232]. ARITA,
Submission
to Treasury, Insolvency Law Reform Bill 2014: exposure draft, op. cit., p. 14.
[233]. Corporations
Act, proposed subclauses 80-15(1) and (2) of Schedule 2.
[234]. Corporations
Act, proposed clause 80-20 of Schedule 2.
[235]. Corporations
Act, proposed clause 80-25 of Schedule 2.
[236]. See
footnote 70 for the effect of pooling under the Corporations Act.
[237]. Corporations
Act, proposed paragraph 80-27(1)(a) of Schedule 2.
[238]. Corporations
Act, proposed paragraph 80-27(1)(b) of Schedule 2.
[239]. Corporations
Act, proposed paragraph 80-27(1)(c) of Schedule 2.
[240]. Corporations
Act, proposed paragraph 80-27(1)(d) of Schedule 2.
[241]. Corporations
Act, proposed paragraph 80-27(1)(e) of Schedule 2.
[242]. Corporations
Act, proposed subclause 80-27(2) of Schedule 2. Note that proposed
clause 85-5 reiterates that the external administrator of a company must
have regard to any directions given by the creditors of that company but is not
required to comply with those directions. If there is a conflict between
directions given by the creditors and by the committee of inspection then the
directions given by the creditors override any directions given by the
committee.
[243]. Corporations
Act, proposed subclause 80-27(5) of Schedule 2.
[244]. Corporations
Act, proposed subclause 80-26(2) of Schedule 2.
[245]. Corporations
Act, proposed subclause 80-26(3) of Schedule 2.
[246]. Corporations
Act, proposed subclauses 80-26(5) and (6) of Schedule 2.
[247]. Corporations
Act, proposed clause 80-40 of Schedule 2.
[248]. Corporations
Act, proposed clause 80-50 of Schedule 2.
[249]. Corporations
Act, proposed subclause 80-55(3) of Schedule 2.
[250]. Corporations
Act, proposed clause 80-55 of Schedule 2.
[251]. Corporations
Act, proposed clause 80-60 of Schedule 2.
[252]. Corporations
Act, proposed subclause 90-20(1) of Schedule 2.
[253]. Section
9 of the Corporations Act sets out the formal definition of the term contributory.
A contributory is a person who is liable, as a member or past member, to
contribute to the property of the company in the event of its being would up,
including the holder of fully paid shares, and prior to the final determination
of the person who are contributories, any person alleged to be a contributory. Source:
Butterworths
concise Australian legal dictionary, 3rd edn, P Butt (ed.), LexisNexis
Butterworths, Sydney, 2004, p. 94.
[254]. Corporations
Act, proposed clause 90-21 of Schedule 2.
[255]. Corporations
Act, proposed subclauses 90-23(1) to 90-23(5) of Schedule 2.
[256]. Corporations Act, proposed subclauses 90-23(6) to 90-23(9) of
Schedule 2. Under proposed paragraph 40-40(1)(g), ASIC may give a
liquidator a show cause notice if the liquidator has been appointed to act as a
reviewing liquidator and has failed to properly exercise the powers or perform
the duties of a reviewing liquidator.
[257]. Corporations
Act, proposed subclause 90-23(10) of Schedule 2.
[258]. Corporations
Act, proposed clause 90-24 of Schedule 2.
[259]. Corporations
Act, proposed subclause 90-24(3) of Schedule 2.
[260]. Corporations
Act, proposed paragraph 90-27(1)(b) of Schedule 2.
[261]. Corporations
Act, proposed subclauses 90-24(4) and (5) of Schedule 2.
[262]. Corporations
Act, proposed paragraph 90-27(1)(a) of Schedule 2.
[263]. Corporations
Act, proposed subclause 90-24(7) of Schedule 2.
[264]. Corporations
Act, proposed clause 90-25 of Schedule 2.
[265]. Corporations
Act, proposed clause 90-26 of Schedule 2
[266]. Corporations
Act, proposed clause 90-28 of Schedule 2.
[267]. Corporations
Act, proposed paragraph clause 40-40(1)(g) of Schedule 2.
[268]. Senate
Economics Committee, The
regulation, registration and remuneration of insolvency practitioners in
Australia: the case for a new framework, op. cit., p. 53.
[269]. Ibid.,
p. 157.
[270]. Corporations
Act, proposed clauses 90-35(1) and (2) of Schedule 2.
[271]. Corporations
Act, proposed subclause 90-35(4) of Schedule 2.
[272]. Multi-Core Aerators
Pty Ltd v Dye [1999] VSC 205
(4 June 1999), accessed 11 February 2016.
[273]. Ibid., paragraph 48.
[274]. Arnold
Bloch Leibler, Submission
to Treasury, A modernisation and harmonisation of the regulatory framework
applying to insolvency practitioners in Australia: options paper, 5 August
2011, paragraph 50, accessed 11 February 2016.
[275]. V Brand (Senior Lecturer
in Law, Flinders Law School, Flinders University), Evidence
to Senate Economics Committee, Inquiry into liquidators and administrators,
Adelaide, 9 April 2011, pp. E14–15, accessed 11 February 2016.
[276]. Ibid., p. E4.
[277]. D Brown (Associate
Professor), Evidence
to Senate Economics Committee, Inquiry into liquidators and administrators,
Adelaide, 9 April 2011, p. E17, accessed 11 February 2016.
[278]. Items
247 and 248 of Part 2 of Schedule 2 of the Bill.
[279]. For
instance items 3 and 4 of Part 2 of Schedule 2 to the Bill amend the Aged Care (Accommodation
Payment Security) Act 2006; items 274–277 of Part 2 of Schedule 2 to the Bill
amend the Income Tax
Assessment Act 1997; item 289–293 of Part 2 of Schedule 2 to the
Bill amend the Medical
Indemnity Act 2002; and item 307 of Part 2 of Schedule 2 to the
Bill amends the Payment
Systems and Netting Act 1998.
[280]. For
instance item 273 of Part 2 of Schedule 2 to the Bill amends the Cross-Border Insolvency
Act 2008; item 308 of Part 2 of Schedule 2 to the Bill amends
the Private Health
Insurance (Prudential Supervision) Act 2015; and item 316 of
Part 2 of Schedule 2 to the Bill amends the Taxation Administration
Act 1953.
[281]. ASIC
Act, proposed subsection 30B(3).
[282]. CALDB,
‘About CALDB’, CALDB
website, accessed 1 February 2016.
[283]. Schemes
of arrangement are binding, court-approved agreements that allow the
reorganisation of the rights and liabilities of members and creditors of a
company. Source: ASIC, Schemes
of arrangement, regulatory guide, 60, ASIC, September 2011, accessed 18
February 2016.
[284]. A
reconstruction is a compromise or arrangement between an entity and its members
or between a managed investment scheme and the members of the scheme. Source:
ASIC, Disclosure
in reconstructions, regulatory guide, 188, ASIC, 23 February 2007,
accessed 18 February 2016.
[285]. This
amendment is consequential to the repeal of section 600A by item 195 of
Part 2 to Schedule 2 of the Bill.
[286]. For
instance, item 108 repeals section 438E of the Corporations Act.
Subsections 438E(1) and (2) are repealed because there is no longer an
obligation imposed on an administrator of a company under administration to
lodge six monthly accounts with ASIC. Subsections 438E(3)–(7) have been
replaced by requirements in the Insolvency Practice Schedule (Corporations)
relating to the administration of administration books. Source: Explanatory
Memorandum, Insolvency Law Reform Bill 2015, op. cit., p. 202.
[287]. Item
167 of Part 2 of Schedule 2 to the Bill.
[288]. Subsection
60(2) of the Corporations Act provides that a declaration of
relevant relationships, in relation to a liquidator of a company, means
a written declaration stating whether the liquidator, a partner in the
liquidator’s firm, the firm or an associate of the firm if it is a body
corporate has, or has had within the preceding 24 months, a relationship with
the company, an associate of the company, a former liquidator, or former
provisional liquidator, of the company, a former administrator of the company
or a former administrator of a deed of company arrangement executed by the
company and if so, the liquidator’s reasons for believing that none of the
relevant relationships result in the liquidator having a conflict of interest
or duty.
[289]. Section
9 of the Corporations Act defines a declaration of indemnities,
in relation to an administrator of a company under administration, as a written
declaration stating whether the administrator has, to any extent, been
indemnified, for any debts for which the administrator is, or may become,
liable; or his, or her, remuneration and if so, stating the identity of each
indemnifier and the extent and nature of each indemnity.
[290]. Explanatory
Memorandum, Insolvency Law Reform Bill 2015, op. cit., p. 206.
[291]. Bankruptcy Act,
section 54A.
[292]. Australian
Financial Security Authority (AFSA),
Formal options, AFSA website, accessed 22 February 2016.
[293]. An act of bankruptcy is any of the actions, events or declarations
which are listed in section 40 of the Bankruptcy Act.
[294]. Bankruptcy Act,
paragraph 40(1)(daa).
[295]. Bankruptcy Act,
section 43.
[296]. Bankruptcy
Act, section 18.
[297]. Bankruptcy Act,
section 188A.
[298]. AFSA,
‘Personal
insolvency agreement (PIA) overview’, AFSA website, accessed 4 January
2016.
[299]. Bankruptcy
Act, section 188.
[300]. Bankruptcy Act,
section 185C.
[301]. AFSA, Personal
insolvency information for debtors, booklet, AFSA, November 2015, accessed
4 January 2016.
[302]. Bankruptcy
Act, section 185C.
[303]. Bankruptcy
Act, paragraphs 185C(4)(b) and (c) and subsection 185C(5). AFSA, ‘Indexed amounts’,
AFSA website, 27 January 2016, accessed 19 February 2016.
[304]. Bankruptcy Act,
paragraph 185C(4)(d) and subsection 185C(5).
[305]. Bankruptcy
Act, paragraph 185C(2)(c).
[306]. Debt
agreement administrators are registered under the Bankruptcy Act,
section 186D.
[307]. AFSA,
Personal
insolvency practitioners compliance report 2014–15, 2015, pp. 8 and 9,
accessed 4 January 2016.
[308]. Item
2 of Schedule 1 of the Bill.
[309]. Bankruptcy
Act, proposed clause 1-1 of Schedule 2.
[310]. Bankruptcy
Act, subsection 11(2).
[311]. AFSA,
‘Our
roles’, AFSA website, accessed 4 January 2016. In addition, proposed
clause 90-21 empowers the Inspector-General to carry out a review of the
remuneration received by the trustee of a regulated debtor’s estate for
services performed by the trustee in relation to the administration of the
estate.
[312]. Bankruptcy
Act, proposed clause 15-1 of Schedule 2.
[313]. Bankruptcy
Act, proposed subclause 20-30(6) of Schedule 2.
[314]. Bankruptcy
Act, proposed clause 50-25 of Schedule 2.
[315]. Bankruptcy
Act, proposed clause 50-5 of Schedule 2.
[316]. Bankruptcy
Act, proposed clause 50-10 of Schedule 2.
[317]. Bankruptcy
Act, proposed subclause 50-15 of Schedule 2.
[318]. Bankruptcy
Act, proposed clause 20-40 of Schedule 2.
[319]. Bankruptcy
Act, proposed subclauses 20-40(3) and (4) of Schedule 2.
[320]. Bankruptcy
Act, proposed clause 20-50 of Schedule 2. Under proposed clause
20-45 the committee must comprise the Inspector‑General, a registered
trustee chosen by a prescribed body and a person appointed by the Minister.
[321]. Proposed
paragraph 96-1(b) provides that a decision by a committee to vary or remove
a condition of registration under clause 20-55 is reviewable by the
Administrative Appeals Tribunal.
[322]. Bankruptcy
Act, proposed clause 20-60 of Schedule 2.
[323]. The
renewal fee is determined by the Minister by legislative instrument.
[324]. Bankruptcy
Act, proposed clause 20-70 of Schedule 2.
[325]. Bankruptcy
Act, proposed subclause 25-1(3) of Schedule 2.
[326]. A
trustee return year for a person who is a registered trustee is the
period of 12 months beginning on the day on which that registration first began
and each subsequent period of 12 months. Bankruptcy Act, proposed subclause
30-1(2) of Schedule 2.
[327]. Bankruptcy
Act, proposed subclauses 30-1(1) and (3) of Schedule 2.
[328]. Bankruptcy
Act, proposed subclause 35-1(1) of Schedule 2.
[329]. Bankruptcy
Act, proposed subclause 35-5(2) of Schedule 2.
[330]. Bankruptcy
Act, sections 155H and 155I.
[331]. Bankruptcy
Act, proposed clauses 40-25 and 40-30 of Schedule 2 respectively. Proposed
paragraphs 96-1(d) and (e) provide that decisions by the Inspector-General
to cancel or suspend registration respectively under clauses 40-25 and 40-30
are reviewable by the Administrative Appeals Tribunal.
[332]. Bankruptcy
Act, proposed subclauses 40-35(2) and (3) of Schedule 2.
[333]. Bankruptcy
Act, proposed clause 40-50 of Schedule 2. Proposed clause 40-45 of
Schedule 2 permits the Inspector-General to convene the committee.
[334]. Proposed
subclauses 40-55(1) and (2) of Schedule 2 provides a list of possible
conditions which may be imposed on the registered trustee. Proposed
paragraph 96-1(f) provides that a decision by a committee to take
disciplinary action against a registered trustee under clause 40‑55 is
reviewable by the Administrative Appeals Tribunal.
[335]. Bankruptcy
Act, proposed clause 40-65 of Schedule 2.
[336]. Proposed
clause 40-110 of Schedule 2 provides that the Insolvency Practice Rules may
prescribe industry bodies.
[337]. Bankruptcy
Act, proposed clause 40-100 of Schedule 2.
[338]. Bankruptcy
Act, proposed clause 45-1 of Schedule 2.
[339]. Bankruptcy
Act, proposed subclauses 45-1(1)–(3) of Schedule 2.
[340]. Bankruptcy
Act, proposed subclause 45-5(2) of Schedule 2.
[341]. Bankruptcy
Act, proposed clause 5-20 of Schedule 2.
[342]. Bankruptcy
Act, proposed clause 60-5 of Schedule 2.
[343]. Bankruptcy
Act, proposed clause 60-15 of Schedule 2.
[344]. Bankruptcy
Act, proposed clause 60-5 of Schedule 2.
[345]. Bankruptcy
Act, proposed clause 60-21 of Schedule 2.
[346]. Explanatory
Memorandum, Insolvency Law Reform Bill 2015, p. 11.
[347]. Bankruptcy
Act, proposed clause 60-26 of Schedule 2.
[348]. Proposed
clause 85-5 of Schedule 2 provides that the trustee of a regulated debtor’s
estate must have regard to the directions given by the creditors of the estate
but is not obliged to comply with those directions if they are unreasonable.
[349]. The
percentage value of the creditors is to be worked out by reference to the value
of the creditors’ claims against the regulated debtor’s estate that are known
at the time the direction is given. Bankruptcy Act, proposed clause
75-15 of Schedule 2.
[350]. Bankruptcy
Act, proposed clause 75-20 of Schedule 2.
[351]. Bankruptcy
Act, proposed clauses 90-35(1) and (2) of Schedule 2.
[352]. Bankruptcy
Act, proposed subclause 90-35(5) of Schedule 2.
[353]. Bankruptcy
Act, proposed clause 80-10 of Schedule 2.
[354]. Bankruptcy
Act, proposed clause 80-35 of Schedule 2.
[355]. Bankruptcy
Act, proposed clause 80-20 of Schedule 2.
[356]. Bankruptcy
Act, proposed clause 80-25 of Schedule 2.
[357]. Bankruptcy
Act, proposed clause 80-40 of Schedule 2.
[358]. For
instance, item 24 removes Divisions 5 and 5A from Part IV of the Bankruptcy
Act, which relate to meetings of creditors and committees of inspection and
item 47 removes sections 154A–155K of Part VIII of the Bankruptcy Act,
which relate to the registration of trustees.
[359]. Items
42-44, 61-62, 70 and 84-85 in Part 2 of Schedule 1 to the Bill.
[360]. Items
19, 20 and 22 in Part 2 of Schedule 1 to the Bill.
[361]. Item
103–125 in Part 3 of Schedule 1 to the Bill. See Bankruptcy Act,
proposed clause 40-40 of Schedule 2 for the matters on which the
Inspector-General may rely in giving a registered trustee notice to show cause
why he, or she, should continue to be registered.
[362]. Items
127–177 in Part 3 of Schedule 1 to the Bill. See, for example, items
133–140 which relate to funds handling.
[363]. Item
178 in Part 3 of Schedule 1 to the Bill.
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