ILRA: Is this all just a bad dream?

The Insolvency Law Reform Act 2016 (Cth) (‘ILRA’) is scheduled to commence in two stages: initially on 1 March 1 2017 and the remainder on 1 September 2017. This is achieved through a deferral of the commencement by regulation. However, someone forgot to tell the courts! In several recent cases, courts across the country are applying the entire ILRA as if it started on 1 March.

What if all of the planning for the deferred commencement was just a bad dream and all of the the law, with more than 1,000 changes, has already started?

In my post of 7 April 2017, I made the point that there was a view that the deferred commencement is invalid because a regulation cannot change a substantive Act of parliament. While I favour the view that the deferred commencement is possible through the use of regulation making powers in the substantive Act, I can see the alternative argument. It should be noted that this is not uncommon in other statutory amendments unrelated to insolvency, so if the invalidity view is right we could have problems well beyond the ILRA. Let’s now have a brief look at the first 6 cases to discuss the ILRA in published decisions.

The first case to apply the ILRA was Szepesvary v Weston (Trustee), in the matter of Szepesvary (Bankrupt) [2017] FCA 344 (4.4.17), which concerned and application for an inquiry into conduct of a bankruptcy trustee under s179 of Bankruptcy Act 1966 (Cth). This provision is due to be repealed on 1.9.17 and will be replaced by the new Insolvency Practice Schedule (Bankruptcy) Div 90 (ss90-5; 90-10). The court held that s179 had already been repealed on 1.3.17 but as the matter had commenced prior to that s179 could still be used. No mention was made of Insolvency Law Reform (Transitional Provisions) Regulations 2016 (Cth) item 5(2)(p) which defers this repeal until 1.9.17.

The second case was Campbell-Wilson v Australian Securities and Investments Commission [2017] FCA 391 (11.4.17), which considered an application under s509 of the Corporations Act 2001 (Cth) to deregister the a company in voluntary liquidation. The court held that s509 was repealed, but noted the operation of s1604 of the Corporations Act (at [3]):

‘The repeal and substitution of section 509 by Schedule 2 to the Insolvency Law Reform Act 2016 applies where the external administration of the company ends during a financial year starting on or after 1 July 2017.’

In this case, the company had lodged accounts prior to 1.7.17 and so s509 was applied by the court.

The third case was Re Golden Sands Hospitality Pty Ltd (in liq) [2017] NSWSC 410 (11.4.17), where Gleeson JA held that an application by a liquidator to resign and be replaced under s473 was not permitted because s473 had been substantially amended by the ILRA and the power to replace was now found in (new) s473A. There was no mention of new s10.25.03(3)(g) (inserted into the Corporations Regulations 2001 (Cth) by Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth)) which defers the amendment to s473 and introduction of s473A to 1.9.17.

The fourth case was Re Linc Energy Ltd [2017] QSC 53 (13.4.17), where the court held that s511 had been repealed on 1.3.17 but, as the case had commenced prior to the repeal, s511 still applied. No mention was made of new s10.25.03(3)(h) (inserted into the Corporations Regulations 2001 (Cth) by Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth)) which defers the repeal of s511 to 1.9.17. Section 511 will be replaced by the new s90-15 of the IPS (Corporations).

The fifth case was Re Queensland Nickel Pty Ltd (in liq) [2017] QSC 56 (19.4.17) where the court held that the ‘recent repeal’ of ss479 and 511 did not affect the case because it started before the repeal on 1.3.17. Again, no mention was made of s10.25.03 or the COLA regulations and the deferred commencement.

There is one case that has upheld the deferred commencement, which is Re Hayes Steel Framing Systems Pty Ltd (Administrators Appointed) [2017] NSWSC 385 (19.4.17). In that case, Justice Black stated (at [41]):

‘the Plaintiffs initially also brought an application under s600A of the Corporations Act. That section was repealed by the Insolvency Law Reform Act 2016 (Cth), with effect from 1 March 2017, but reg 10.25.02(3)(i) of the Corporations Regulations 2001 (Cth), inserted by Schedule 2 of the Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth) preserves the application of that section in relation to external administrations until 1 September 2017.’

Conclusion

What can we make of this? We have a mix of judges from multiple jurisdictions who are applying provisions that are not operative. Surely this must come back to how lawyers are putting their submissions to the court. Lawyers who are ARITA members can refer to the ARITA website for helpful guidance on commencement issues.

It would be one thing if the courts were rejecting the deferral on principles of statutory law, the invalidity argument: that regulations cannot change the operation of a substantive Act of parliament (and as I flagged above that would raise bigger problems than the ILRA given how prevalent that practice is). But that is not what is happening here. 5 out of 6 cases to consider the ILRA have simply ignored the deferred commencement.

Part of the blame for this can be laid at the Federal Register of Legislation which has published all of the ILRA changes as applying from 1.3.17, and this has been copied by AustLII. I have told my students to simply ignore the online versions of the legislation till 1.9.17 because they are currently wrong. It is understandable that judges are getting confused about the ability to apply for directions under s 511 when that provision is no longer found in the online version of the legislation.

What if the common understanding that large swathes of the ILRA don’t start till 1 September was just a dream. That’s a nightmare scenario, because no one is ready for the whole ILRA to be operative now: not the courts, the profession nor the regulators.

4 responses to “ILRA: Is this all just a bad dream?

  1. Judges can’t access ARITA’s comments but I will make sure the Courts are aware of yours.
    AFSA has explained it well enough, based on OPC advice.
    All a lesson for your law students, don’t accept or assume anything….

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  2. Why doesnt ARITA just bring an urgent application/injunction through the courts under equity to compel the Register of Legislations and Austlli to amend the publication of the corporations and bankruptcy Acts to only include those relevant from 1.3.17 and delay the publication of amendments of the other provisions until after 1.9.17. Wouldnt that solve the issue? I doubt ASIC or AFSA or anyone really would challenge such an application and ARITA, as the industry’s professional body, would be the most suitable applicant for such an application. But that is more a question for a lawyer and not this accountant.

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  3. Pingback: ILRA new concepts | Australian Insolvency Law·

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