The Insolvency Law Reform Act 2016 (Cth) imposes a range of new notification requirements for both personal and corporate insolvency practitioners. This post considers the scope of Div 35 of the Insolvency Practice Schedule and notes its retrospective operation.
The Insolvency Practice Schedules (IPS) inserted into the Bankruptcy Act 1966 (Cth) and the Corporations Act 2001 (Cth) impose a range of new disclosure obligations on insolvency practitioners. Some of these requirements, such as the obligation to respond to creditor requests for information under Division 70, do not commence until 1.9.17.
Division 70 (in both personal and corporate) also creates a new periodic reporting obligation in the form of the ‘Annual Administration Return’ for particular appointments, although these provisions don’t commence until 1.9.17. These are in addition to the Annual Trustee Return and Annual Liquidator Return that are required under IPS Div 30, which commenced on 1.3.17.
This note is concerned with the new notice requirements under IPS Div 35.
IPS Div 35 has a 2 year retrospective operation
Division 35 sits in Part 2 of the IPS and so it commenced on 1.3.17. However, practitioners need to be aware that the transitional provisions in both the Bankruptcy Act and the Corporations Act state that the notification requirements under IPS s35-1 apply to events that occurred within 2 years before 1.3.17 that would have fallen within the list in s35-1 and that the practitioner has not yet notified either ASIC (for corporate matters) or the Inspector General in Bankruptcy (for personal appointments). This is set out in Corporations Act 2001 (Cth) s1562 (check your hard copy legislation for this, or go directly to the ILRA as the online consolidations have not, as at 9.3.17, incorporated the ILRA amendments) and (for bankruptcy) in the Insolvency Law Reform Act 2016 (Cth) Sch 1 item 114 (this sits in Part 3 Div 2 of Sch 1, which is outside of the IPS-contained in Sch 1 Part 1).
Practitioners have until 1.4.17 to lodge notice of matters arising up to 2 years before 1.3.17 under IPS s35-1: see the transitional provision in Corps Act s1562(2) and ILRA Sch 1 item 114(2). Where a practitioner was not aware (and could not have been reasonably aware) of the matters within IPS s35-1 that arose up to 2 years before 1.3.17, then they have one month to lodge notice once they ought reasonably to have been aware of the matter. It is an offence to either recklessly or intentionally fail to lodge notice in respect of s35-1 matters.
Scope of IPS Div 35
IPS s35-1 is similar in both personal and corporate insolvency. The Bankruptcy provision applies to all registered trustees and the corporate provision applies to all registered liquidators. Note that this is broader than the concept of a ‘trustee of a regulated debtor’s estate’ in bankruptcy (see IPS (Bankruptcy) s5-20) and an ‘external administrator’ in corporate insolvency (see IPS (Corporations) s 5-20). An intentional or reckless failure to comply with s35-1 is an offence (s35-1(2)). IPS s35-1(1) requires notice to either ASIC or the Inspector-General in Bankruptcy (I-G) where the practitioner:
- becomes an insolvent under administration;
- is served a bankruptcy notice as a debtor, including under a corresponding law of an external territory or foreign country;
- is convicted of an offence involving fraud or dishonesty;
- is disqualified from managing corporations under either the Corporations Act or under the corresponding law of an external territory or foreign country;
- ceases to have adequate professional indemnity or fidelity insurance; or
- a show cause notice under IPS s40-40 (see my earlier post on this here) has been issued to a registered trustee in their capacity as a liquidator or to a liquidator in their capacity as a registered trustee or their registration in cancelled in that capacity.
ASIC states in its recently released RG 258 that the requirement to notify under s35-1 cannot be complied with merely by including the information in your annual return even though both notices may contain similar information: RG258.104.
IPS s 35-5 also requires a registered trustee or registered liquidator to give notice of anything in their annual returns (there are annual returns both for the practitioner and in respect of each particular matter) becomes inaccurate in a material particular. There are also several categories of ‘prescribed events’ that also require notice under IPS s35-5 and Insolvency Practice Rules s35-5, where the practitioner:
- ceases to practice;
- changes their name or their firm changes their name; or
- the address where they practice changes.
Practitioners have 5 business days to lodge notice for the s35-1 matters and 10 business days for the s35-10 matters. These time frames start once the registered trustee or registered liquidator ‘could reasonably be expected to be aware that the event has occurred.’
Both ASIC and the I-G can direct a liquidator (or trustee in the I-G’s case) to comply with their obligations under Div 35 (IPS ss40-5, 40-10). A failure to comply with such a direction can then lead to a direction from ASIC or the I-G not to accept further appointments and ultimately to a show cause notice under IPS s40-40 and a disciplinary committee being convened under IPS Part 2 Div 40.
While the new information request provisions (IPS Div 70) don’t start until 1.9.17, insolvency practitioners need to be aware of the extent of their notification obligations under IPS Div 35 now.