The first stage of the Insolvency Law Reform Act 2016 (Cth) started on 1 March 2017, with the second and final stage due to commence on 1 September 2017. This post gives a short summary of the new law.
The Insolvency Law Reform Act 2016 (Cth) (ILRA) has been a long time coming, after being initially flagged following the criminal charges laid against former liquidator Stuart Ariff (who was convicted and went to gaol for fraud) back in 2011. Several draft versions of the law were issued for public and industry consultation from 2011-2016 with the final version passing the Parliament in February 2016.
The ILRA makes hundreds of changes to both the Corporations Act 2001 (Cth), the Bankruptcy Act 1966 (Cth) and to their respective regulations. The major reform is the introduction of the Insolvency Practice Schedule (IPS) that will be included into both Acts and the creation of the Insolvency Practice Rules (bankruptcy) and Insolvency Practice Rules (corporations). The IPS contains mirrored provisions to promote greater harmony between personal and corporate insolvency.
I will cover aspects of the IPS regime in future postings, but as a quick summary it includes:
- a new 3 year registration system for bankruptcy trustees and corporate insolvency practitioners;
- a new disciplinary committee regime for insolvency practitioners;
- new investigation and discipline powers for ASIC and the I-G in Bankruptcy including the power to issue show cause notices, suspend registration, request documents and to require prior information to be updated and completed;
- new court powers under IPS Div 45;
- a new definition of relation-back day in s91 of the Corporations Act;
- a new power for insolvency practitioners to assign personal rights conferred on them by the respective statutes;
- removing the position of ‘official liquidator’ for court winding up orders (liquidations will now involve a registered liquidator);
- requiring voluntary administrators to lodge their DIRRI forms with ASIC.
All of these changes start on 1.3.17 and cover Parts 1,2 and 4 of the IPS, parts of Schedule 2 of the ILRA and all of Schedule 3 of the ILRA.
The second stage of the ILRA reforms (to commence on 1.9.17) involve practice management and other substantive reforms including:
- new powers for creditors to request information, and to request creditor meetings be convened;
- new powers for committees of creditors;
- new powers for creditors in corporate insolvency to remove external administrators (liquidators, provisional liquidators, voluntary administrators, deed administrators-but not receivers);
- powers for ASIC or the court to appoint, or for creditors to seek a court order appointing, a reviewing liquidator in corporate insolvency (in bankruptcy the review is undertaken by the I-G in bankruptcy);
- consolidation of court supervision powers in the new IPS Div 90 (removing a range of regime specific powers in the Corporations Act);
- new reporting rules for insolvency practitioners;
- liquidators will need to lodge their DIRRI forms with ASIC;
- new rules for determining remuneration of insolvency practitioners (IPS Div 60).
Structure of the Insolvency Practice Schedule
Provisions in the IPS commencing on 1.3.17
- Part 1 Div 1 (Introduction); Div 5 (Definitions)
- Part 2 Div 10 (Introduction); Div 15 (Register of liquidators/trustees); Div 20 (Registering liquidators/trustees); Div 25 (Insurance); Div 30 (Annual liquidator/trustee returns); Div 35 (Notice requirements); Div 40 (Disciplinary and other action); Div 45 (Court oversight); Div 50 (Committees under Pt 2)
- Part 4 Div 95 (Introduction); Div 100 (Other matters); Div 105 (The IPRs)
Provisions in the IPS commencing on 1.9.17
- Part 3 Div 55 (Introduction); Div 60 (Remuneration); Div 65 (Funds handling); Div 70 (Information); Div 75 (Meetings); Div 80 (Committees of inspection); Div 85 (Directions by creditors); Div 90 (Review of ext admin)
The Insolvency Practice Rules maintain a similar structure.
As at 1 March 2017, neither Austlii nor the Federal Register of Legislation has consolidated the ILRA amendments, so you’ll either need a 2017 hard copy of the legislation (published by LexisNexis, Thomsonreuters and CCH) or visit the link at the top of the page for the ILRA and go to Schedule 1 Part 1 (bankruptcy) and Schedule 2 Part 1 (corporations).
A new era in insolvency law and practice starts today. This post is obviously just a brief overview. I think I’ll have plenty to write about for the new few years with the hundreds of pages of law reform that comes with the ILRA!
P.S. Wondering why the thumbs down logo for this post? You can probably tell what my view is on the law reform. While there are many beneficial elements of the ILRA changes, overall in my personal view this is a retrograde step that involves over-regulation of the insolvency profession, largely as a knee jerk reaction to a criminal fraud matter almost a decade ago. This will increase the costs of insolvency and reduce returns to creditors.
While other jurisdictions such as Singapore, Hong Kong, the EU, England and the US are reviewing their insolvency laws to promote efficiency and restructuring, our law reforms are focussed on regulating insolvency practitioners. To call the ILRA, as the product of 6 years of law reform debate, disappointing is a massive understatement.
Australia needs to realise that we are in a global competition for restructuring capital and if we keep looking inwardly and navel gazing over practitioners lodging forms late we will quickly get left behind. Singapore in particular is positioning itself as the regional restructuring hub and funds will easily shift off shore if our legal regime and administrative costs fall out of step with global standards.
You can probably guess what my next few articles will say…