The Insolvency Law Reform Act 2016 (Cth) (ILRA) makes a broad range of significant changes to corporate insolvency in Australia. This post will consider the changes to voluntary administration.
The ILRA makes a number of change to Pt 5.3A of the Corporations Act 2001 (Cth), most of which won’t commence until 1.9.17, but there are several important amendments to voluntary administration that commenced on 1.3.17.
Amendments from 1.3.17
The ILRA makes significant changes to the regulation of registered liquidators, which includes voluntary administrators under IPS s5-20, by the new 3 yearly registration requirements under IPS Div 20, and the new disciplinary regime under IPS Div 40. The new disciplinary regime also comes with new court powers in IPS Div 45. These provisions can apply to matters that arose before 1.3.17: see Corporations Act 2001 (Cth) ss1570-1575. The notification provisions in IPS Div 35 can also apply to events that occurred before 1.3.17. I’ll deal with this in a separate post.
Voluntary administrators must, as soon as practicable, lodge a copy of their DIRRI with ASIC under amendments made to Corporations Act ss436DA, 449CA (by inserting a new (4A) and (6A)). See new ASIC Form 531. A similar requirement is being introduced for liquidators but only from 1.9.17.
When preparing their s439A report, administrators will need to be mindful of the new relation-back day definition in s91 (replacing the former definition in s9). This will result in an earlier commencement for liquidation where there is a winding up application followed by a VA appointment as the relation-back day will be the date the application was filed rather than the current ss513A, 513C (the day the administration began).
Administrators will now need to include details of the location of property which is subject to a s443B notice if they are aware of the location or ‘could, by the exercise of reasonable diligence, know the location of the property’.
Disposal of property of the company under s442C(2)(a) has been amended by removing ‘of the company’ from s442C(4) so the court may direct the administrator not to dispose of any property in the ordinary course of business, not just property of the company. The property of the company includes PPSA ROT property (s435B), but this would still be property and so would still come within the court’s power in s442C(4).
A new s445HA has been included to require directors to notify deed administrators of actual or likely material breaches to a DOCA, and to require deed administrators to notify creditors of actual or likely breaches (including breaches that they themselves commit). At the time of writing (7.3.17) ASIC had not yet released the form for this notice.
Administrators (and not only deed administrators) are given standing to seek court approval to not use its former name on public documents under s161A.
A new transitional provision (s446AA) is inserted into the Act to provide for the deed administrator to become the voluntary liquidator where the court orders termination of the DOCA under s445D or where the DOCA terminates according to its terms (where those terms provide for voluntary liquidation). This replaces the former Corporations Regulations 2001 (Cth) reg 5.3A.07. This also results in changes to s499, including replacing s499(2) and inserting new provisions in s499(2D)-(2G) to deal with the appointment of the liquidator. Section 513B is also amended to include a new commencement day (s513(da)).
The end date of administration is amended slightly to deal with statutory management regimes for insurers (see new s435C(1)(h),(i))
All external administrators will have a new statutory power to assign causes of action given to them personally under the Act, under the new IPS s 100-5 (which is in force now). This is likely to be most significant for preparing the s439A report as administrators aren’t given the same causes of action in a personal capacity like liquidators are for insolvent trading and voidable transactions.
Amendments from 1.9.17
The changes that will affect VA from the ILRA reforms, including the IPS and IPRs will be significant and can’t be adequately here without making this a 5,000 word post so I’ll make further postings on different aspects of the 1 September changes. However, in broad overview the following major changes will come into force on 1.9.17:
- Committees of creditors will become committees of inspection and will be regulated under IPS and IPRs Div 80, which will include new powers to request information, reports and meetings of creditors and to monitor the conduct of the administration.
- The provisions for convening creditor meetings will change to the new IPS and IPRs Div 75, although the requirement to hold two meetings in VA will remain in ss436E and 439A. Note that the terms resolution and special resolution will be able to be passed without conducting a meeting in certain circumstances (IPS s75-40).
- The rules for the conduct of meetings will change from the current Corporations Regulations regs 5.6.11 onwards to the new Div 75 in the IPS and IPRs.
- There will be new court powers that will replace several existing provisions (such as ss447D and 447E) in IPS Div 90. Importantly, the current s1321 (appeals from decisions of liquidators, administrators and receivers) will also be replaced by this new regime (although receivers will have their own appeal provision in new s599).
- There will be new funds handling rules under Div 65.
- There will be a new regime for approving remuneration under Div 60. Note in particular IPS s60-20 which seems to prohibit an administrator’s staff from being paid without approval from the creditors (ARITA has raised this with Treasury to seek to have this rule made more workable).
- Creditors will be given a new power to remove administrators at any time by passing a resolution under IPS s90-35.
- A reviewing liquidator may be appointed either by ASIC or the court or by the creditors, although if the creditors appoint then the review is limited to remuneration and expenses and the creditors must pay for the review (see IPS ss90-23 to 90-29).
The ILRA and its IPS and IPRs will make a range of changes to the practice of voluntary administration. Voluntary administration has had the greatest number of changes from 1 March 2017 and it is important for administrators to be aware of their effect. There are however even more significant changes coming on 1 September.
Although some of these provisions are tidying up an streamlining the VA procedure, I can’t help but laugh at the suggestion that the ILRA will save $50m a year in compliance costs. Adjusting processes to this new ‘re-regulation’ of the ILRA will surely cost more than that across the economy.