After many years of effort, the Commonwealth Parliament has tonight finally passed the Insolvency Law Reform Bill 2015.
The various provisions of what will be the Insolvency Law Reform Act 2016 (Cth) are long and complex, and are best summarized in the Explanatory Memorandum. Key amongst them is a new regime for the modern discipline of insolvency practitioners, bringing into alignment the governance of liquidators and registered trustees.
The regulation of insolvency practitioners, particularly corporate insolvency practitioners, has been the subject of a number of reviews in the past two decades by a range of bodies including the Australian Law Reform Commission; the Working Party to review the regulation of corporate insolvency practitioners; the Parliamentary Joint Committee on Corporations and Financial Services; and most recently the Senate Economics References Committee in 2010.
The 2010 Senate Inquiry was particularly concerned with the high profile cases of misconduct by members of the corporate insolvency industry before 2009 and the questions that this raised for the adequacy of efforts to oversee and regulate the insolvency system. In the period following the 2010 Senate Report it is apparently received wisdom that "confidence in the insolvency profession has not recovered".
Reform efforts date back to a 2012 exposure draft, the Insolvency Law Reform Bill 2013 being introduced by the former Labour government but then abandoned when the new government assumed office. In November 2014 the current Government's proposal were released for consultation in the form of the Insolvency Law Reform Bill 2014.
The Senate Inquiry Report had highlighted the divergence between the regulatory systems for corporate and personal insolvency and expressed a desire for greater harmonisation of the two. Two of the key objectives of the Amending Act are to align the registration and disciplinary frameworks that apply to registered liquidators and registered trustees and also align a range of specific rules relating to the handling of corporate external administrations and personal bankruptcy. The Insolvency Practice Schedule (Corporations) introduces new rules for the registration, regulation, discipline and deregistration of registered liquidators. These rules are similar to the corresponding rules for registered trustees which are introduced by the Insolvency Practice Schedule (Bankruptcy).
Following commencement of the amending provisions, insolvency practitioners will be required to be interviewed and assessed by a three-person expert committee prior to registration to demonstrate their competence. Practitioner registrations will be required to be renewed every three years rather than continuing indefinitely. There will also be new requirements to undertake insolvency-specific education and to obtain and maintain appropriate professional indemnity and fidelity insurance.
Increased ASIC Powers
Other changes strengthen mechanisms to monitor practitioners and discipline them where there has been misconduct or wrongdoing. The Government did not accept the Senate Committee recommendation that the corporate insolvency arm of ASIC be transferred to AFSA to form a new personal and corporate insolvency regulator. ASIC will now have the power to give a 'show cause' notice to a corporate insolvency practitioner in particular situations—for example, where it believes the practitioner has breached a condition of his or her registration. If ASIC is not satisfied with the response, it may refer the matter to a disciplinary committee, which will have a range of options available to discipline the practitioner, including stripping the practitioner of his or her registration. (The Companies Auditors and Liquidators Disciplinary Board will no longer have jurisdiction over liquidators).
The amendments also provide for creditors to remove insolvency practitioners through a resolution of creditors rather than having to go through the lengthier and more burdensome process of seeking court orders.
22 February 2016
Dominique Hogan-Doran SC is a commercial silk based in Sydney, Australia.
Liability limited pursuant to a scheme approved under Professional Standards Legislation.