House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Small Business, Assistant Treasurer, the Hon Kelly O'Dwyer MP and the Attorney-General, the Hon Senator George Brandis)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Outline

The Insolvency Law Reform Bill 2015 (Bill) amends the Corporations Act 2001 (Corporations Act), the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Bankruptcy Act 1966 (Bankruptcy Act) to create common rules that would:

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remove unnecessary costs and increase efficiency in insolvency administrations;

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align the registration and disciplinary frameworks that apply to registered liquidators and registered trustees;

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align a range of specific rules relating to the handling of personal bankruptcies and corporate external administrations;

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enhance communication and transparency between stakeholders;

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promote market competition on price and quality;

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improve the powers available to the corporate regulator to regulate the corporate insolvency market and the ability for both regulators to communicate in relation to insolvency practitioners operating in both the personal and corporate insolvency markets; and

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improve overall confidence in the professionalism and competence of insolvency practitioners.

Date of effect: This Bill commences on proclamation.

Proposal announced: The reform package was announced by the Government on 7 November 2014.

Financial impact: $2.8 million will be reappropriated from 2012-13 and 2013-14 into 2016-17 to implement the Bill, past revenue collected has already offset this expenditure. The Bill will result in revenue of $1 million per annum from commencement. '

Human rights implications: This Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 8, paragraphs 8.1 to 8.15.

Compliance cost impact: This Bill and accompanying regulations and ministerial rules are forecast to result in $50.1 million reduction in compliance costs for the insolvency industry.

Summary of regulation impact statement

Regulation impact on business

Impact: The reforms will result in a net reduction in compliance costs on corporate insolvency practitioners in the areas of registration, the maintaining of registration and discipline. There will also be compliance cost savings by reducing mandatory information provision and meeting obligations in favour of ad hoc requirements to provide information to creditors.

The reforms will result in net regulatory savings for insolvency practitioners (and by extension business and personal creditors).

Main points:

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The reforms relating to the registration as a liquidator for corporate insolvency practitioners are expected to result in net regulatory savings. The new requirements applying to the registration as a trustee in personal insolvency are expected to result in a small increase in regulatory compliance costs. The new obligations applying to a registered liquidator and a registered trustee to notify the regulator of certain significant events relating to their registration will result in a small increase in compliance costs.

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The introduction of the new disciplinary regime for registered liquidators based on the existing model for personal insolvency practitioners, which will involve the removal of the liquidator function from CALDB, is expected to result in net regulatory savings. There may be a small increase in regulatory compliance costs for registered trustees to comply with notices from the regulator to lodge documents or correct information.

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The introduction of a statutory minimum default remuneration amount in corporate insolvency, which will remove the existing need for creditors meetings in assetless and low asset windings up, will result in substantial regulatory compliance cost savings. There is no increase in compliance costs or savings in personal insolvency because a statutory default remuneration amount already exists under the Bankruptcy Act.

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The reduced retention period in relation to the books of a personal insolvency administration will result in compliance cost savings for registered trustees.

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There will be substantial net regulatory cost savings for corporate insolvency practitioners as a result of the reforms relating to the provision of information to creditors and the convening of creditor meetings, including the removal of the mandatory initial meeting in a creditors' voluntary winding up, the removal of the existing requirement for annual meetings/reports in a creditors' voluntary winding up, the removal of the need for a final meeting in a creditors' voluntary winding up, permitting practitioners to provide information to creditors using a website and allowing creditor resolutions to be passed without the holding of a physical meeting.

Chapter 1 - Introduction - Insolvency Practice Schedule (Bankruptcy)

Outline of chapter

1.1 Schedule 1 to this Bill inserts the Insolvency Practice Schedule (Bankruptcy) (the Schedule) as Schedule 2, to the Bankruptcy Act.

1.2 Part 1 of the Schedule contains an Introduction to the Schedule which sets out the object of the Schedule, a simplified outline of the Schedule and the Dictionary of definitions.

Context of amendments

1.3 Two of the key objectives of the Bill are to align and modernise the registration and disciplinary frameworks that apply to registered liquidators and registered trustees and also to align and modernise a range of specific rules relating to the handling of corporate external administrations and personal bankruptcy. This is achieved by introducing new Schedules into the Bankruptcy Act and the Corporations Act containing common rules in relation to these subject matters.

Summary of new law

1.4 The Schedule has three objectives:

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to ensure that any person registered as a trustee:

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has an appropriate level of expertise;

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behaves ethically; and

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maintains sufficient insurance to cover his or her liabilities in practising as a registered trustee;

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to ensure that the Inspector-General has the necessary powers to protect the integrity of the personal insolvency system; and

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to regulate the administration of bankruptcies and personal insolvency agreements to give greater control to creditors.

Comparison of key features of new law and current law

Detailed explanation of new law

1.5 A new section 4A is inserted into the Bankruptcy Act. The new section provides that the Insolvency Practice Schedule (Bankruptcy) (the Schedule) has effect. [Schedule 1, Part 1, item 1]

1.6 The Insolvency Practice Schedule (Bankruptcy) (the Schedule) is inserted into the Bankruptcy Act. [Schedule 1, Part 1, item 2]

1.7 The Dictionary defines terms used in the Schedule. In some cases, the definition is a signpost to another provision in the Schedule in which the meaning of the term is explained. [Schedule 1, Part 1, Division 2, Subdivision B, section 5-5]

1.8 Subdivision C of Division 2 defines: current conditions, regulated debtor, regulated debtor's estate, meaning of trustee of a regulated debtor's estate and references to the trustee of a regulated debtor's estate. [Schedule 1, Part 1, Division 2, Subdivision C, section 5-10, 5-15, 5-16, 5-20 and 5-25]

1.9 Subdivision C of Division 2 also provides a definition for the end of an administration of a regulated debtor's estate. This definition specifies when administration of a bankruptcy ends (that is, the date of discharge or annulment, whichever happens first) and where administrations under Part X and Part XI of the Bankruptcy Act end (that is, three years after the insolvency agreement took effect or the administration is taken to have commenced under section 247A). The end of administration triggers the retention period for books relating to the administration of the estate for the purposes of section 70-35. This definition for the end of administration is not intended to prevent a trustee from continuing to work on the administration of the bankruptcy after annulment or discharge, where necessary. [Schedule 1, Part 1, Division 2, Subdivision C, section 5-5 and Division 70, Subdivision C, section 70-35]

1.10 The Schedule refers to people with a financial interest in the administration of a regulated debtor's estate and provides a power for such persons to apply to the Court in relation to that administration. The Dictionary at section 5-5 signposts the definition financial interest, which is at section 5-30. It provides that such persons include: the regulated debtor, a creditor, the trustee or a person under 'any other circumstances prescribed'. Currently, there are no other prescribed circumstances under this definition. The inclusion of that phrase allows for the definition to extend to other persons, should there be a requirement in future. [Schedule 1, Part 1, Division 2, Subdivision C, section 5-5 and 5-30]

1.11 A provision of Schedule 2, does not apply to the Official Trustee unless the provision is expressed to apply to the Official Trustee. [Schedule 2, Part 1, Division 3, section 6-1]

Strict liability offences

1.12 Both Schedules create new strict liability offences and retain strict liability offences existing in the Bankruptcy Act and the Corporations Act. It is worth noting from the outset that the application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for individuals who may be accused of breaching such offences.

1.13 Strict liability offences are appropriate in this area of commercial regulation, as it is necessary to strongly deter misconduct that can have serious consequences for affected parties. Strict liability offences also reduce non-compliance, which bolsters the integrity of the regulatory regime enforced by ASIC and AFSA. Strict liability is particularly beneficial to these regulatory bodies as they need to deal with offences expeditiously to maintain public confidence in their regulatory regimes.

1.14 With the exception of section 60-21 discussed in detail below, the strict liability offences in the Bill meet all the conditions listed in the Guide to Framing Commonwealth Offences (pages 23 and 24). For example, the fines for the offences do not exceed 60 penalty units for an individual.

1.15 The majority of strict liability offences relate to conduct by an insolvency practitioner. For example, Division 65 of the Schedule provides strict liability offences around payments into and out of an administration account. By providing a strict liability enforcement regime for duties of insolvency practitioners, the Bill significantly enhances the likelihood of compliance by practitioners.

1.16 Insolvency practitioners possess statutory powers they may use with a high level of discretion in the exercise of these powers. Further, given the financial responsibilities associated with their duties, the consequences of an abuse of power can have far-reaching and significant consequences. (For example, if a practitioner were to sell off a debtor's family home to benefit themselves). As such, practitioners should be subject to a higher level of scrutiny in the performance of their duties as registered trustees and liquidators. Insolvency practitioners should, therefore, not only refrain from consciously doing wrong but actively take steps to fulfil their obligations and uphold the professional standards imposed upon them. Any changes to practitioner rules and standards do not take effect until 2017. Practitioners will, therefore, have sufficient time to familiarise themselves with any new requirements and guard against the possibility of any contravention.

1.17 Further, many of the strict liability offences relate to conduct where a requirement for proof of intention would be difficult to establish and would render the offence unenforceable. For example, where the prosecution has to prove the accused intended to refrain from paying money into the appropriate administration account when he or she failed to do so. Further, a requirement to establish intent will draw a level of resources for investigation and prosecution from the regulators that cannot always be justified, especially for offences with such a low maximum penalty.

1.18 Some strict liability offences relate to creditor conduct (such as sections 80-55 and 80-60). For example, section 80-60 makes it an offence for a creditor to directly or indirectly become the purchaser of any part of the regulated debtor's estate, subject to certain exceptions. Strict liability is only imposed on non-practitioners for more serious misconduct that may have significant consequences for innocent third parties. Such as, people who purchase the property in good faith only to have the transaction set aside by the Court.

1.19 Section 60-21 creates an offence (in personal insolvency) for a person to offer an inducement to securing the appointment or nomination of their preferred trustee. It provides that a person commits an offence of strict liability with a penalty of 50 penalty units, or 3 months imprisonment, or both. This provision, and its corresponding penalty, is modelled on section 595 of the Corporations Act. The severity of the penalty recognises the importance of appointing an impartial trustee who would have significant power to determine the outcome of an estate for creditors and for the regulated debtor. The conduct described in this offence amounts to an abuse of the insolvency process that could see favourable treatment for the creditors involved in the breach at the expense of innocent creditors. Such conduct would significantly undermine the integrity of the insolvency regime and have far-reaching consequences for insolvency practitioners, debtors, creditors and financial institutions.

Consequential amendments to the Bankruptcy Act

Definitions

1.20 A new definition of approved form is inserted under section 6D of the Schedule. The definition of 'approved form' in subsection 5(1) is accordingly repealed. [Schedule 1, Part 2, item 3]. A new definition is inserted and incorporates the existing definition in paragraph 6D(1)(a), and also provides that an 'approved form' must satisfy additional requirements under paragraphs 6D(1)(b) and (c). [Schedule 1, Part 2, item 12]

1.21 Section 185 of the Bankruptcy Act contains a definition of bank, however this only applies to debt agreements in Part IX. A new definition of 'bank' is inserted to apply to the entire Act. The definition clarifies that 'bank' includes an authorised deposit-taking institution and any other bank [Schedule 1, Part 2, item 4]. The following sections are amended to repeal existing definitions of 'bank' which currently only have limited application within various provisions of the Bankruptcy Act:

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Subsection 125(3) [Schedule 1, Part 2, item 39]

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Section 185 [Schedule 1, Part 2, item 58]

1.22 The phrase 'working day' is currently used in the Bankruptcy Act. In view of updated drafting conventions, the Schedule replaces the phrase 'working day' with 'business day'. A new definition of business day is accordingly inserted in subsection 5(1) of the Bankruptcy Act [Schedule 1, Part 2, item 5]. The following consequential changes are made to delete 'working day' and insert 'business day' throughout the Act:

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Subsection 73(1A) [Schedule 1, Part 2, item 25]

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Section 139ZIB [Schedule 1, Part 2, item 41]

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Subparagraph 139ZIE(1)(a)(i) [Schedule 1, Part 2, item 42]

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Subsection 139ZIE(5) [Schedule 1, Part 2, item 43]

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Paragraph 139ZIF(1)(a) [Schedule 1, Part 2, item 44]

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Section 185 [Schedule 1, Part 2, item 61]

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Subsections 185LB(1), 185LC(1) and 185N(5) [Schedule 1, Part 2, item 62]

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Subsection 188(5) [Schedule 1, Part 2, item 70]

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Subsection 224A(5) [Schedule 1, Part 2, item 84]

1.23 Subsection 188(5A) and a subsection 224A(6) also provide additional constraints on the definition of 'working day', so these subsections are repealed by items 72 and 86 respectively. [Schedule 1, Part 2, item 72 and 85]

1.24 A definition of Insolvency Practice Rules is inserted. [Schedule 1, Part 2, item 6]

1.25 The definition of registered trustee is updated to refer to section 5-5 of the Schedule. [Schedule 1, Part 2, item 7]

1.26 The Schedule creates a 'Register of Trustees'. A definition of Register of Trustees is accordingly inserted to refer to section 15-1 of the Schedule. [Schedule 1, Part 2, item 8].

1.27 The definition of 'resolution' is currently contained in the Bankruptcy Act, however under paragraphs 75-50(2)(k) and 75-40(5)(b), a resolution may be prescribed under the Insolvency Practice Rules. Accordingly, the existing definition of resolution in the Bankruptcy Act is repealed and replaced to reflect the scope for further prescription in the Insolvency Practice Rules. [Schedule 1, Part 2, item 9]

1.28 The definition of 'special resolution' is currently contained in the Bankruptcy Act, however under paragraphs-50(2)(k) and 75-40(5)(b), a special resolution may be prescribed under the Insolvency Practice Rules. Accordingly, the existing definition of special resolution in the Bankruptcy Act is repealed and replaced to reflect the scope for further prescription in the Insolvency Practice Rules. [Schedule 1, Part 2, item 10]

1.29 The Schedule provides the Minister with the ability to make the Insolvency Practice Rules. The Bankruptcy Act therefore must include the Insolvency Practice Rules, so the definition of this Act in subsection 5(1) is amended to refer to the Insolvency Practice Rules. [Schedule 1, Part 2, item 11]

Administration

1.30 Subsection 12(4) of the Bankruptcy Act is repealed as the Inspector-General's right to attend and participate in meetings is now contained in section 75-30 of the Schedule. [Schedule 1, Part 2, item 13]

1.31 A new subsection 12(5) is inserted which provides that the Inspector-General may disclose information obtained by the Inspector-General in the course of exercising powers or performing functions under the Bankruptcy Act to any of the following bodies, if the Inspector-General is satisfied that the information will enable or assist the body to exercise any of its powers or perform any of its functions:

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a Commonwealth entity (within the meaning of the Public Governance, Performance and Accountability Act 2013); or

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a prescribed professional disciplinary body. [Schedule 1, Part 2, item 13]

1.32 Paragraph 19(1)(d) of the Bankruptcy Act is repealed because that paragraph overlaps with the duties to provide information imposed under the Schedule (see section 70-50). [Schedule 1, Part 2, item 14]

1.33 Subsection 19(1) of the Bankruptcy Act is amended to clarify that the duties of the trustee of the estate of a bankrupt include duties imposed under the Schedule (section 70-40 of the Schedule provides that the Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for a trustee to comply with a request of a kind mentioned in subsection 70-40(1)). [Schedule 1, Part 2, item 15]

1.34 Section 19B is inserted at the end of Division 1 of Part II to facilitate the Official Receiver's capacity to carry out inspections. [Schedule 1, Part 2, item 16]

Proceedings in connexion with bankruptcy

1.35 Details regarding the requirements for a resolution of creditors will now be contained in the Insolvency Practice Rules, so paragraph 40(1)(f) is amended to remove the requirement for a resolution 'of a majority of the creditors present at the meeting either in person or by attorney'. [Schedule 1, Part 2, item 17]

1.36 The reference to subsection 74(5) is repealed and replaced with subsection 74(1). This is because subsection 74(5) is being repealed and replaced by subsection 74(1). [Schedule 1, Part 2, item 18, 21 & 23]

1.37 Subsection 54(1) is amended to change the penalty units from 25 to 50 penalty units for failure to comply with subsection 54(1) of the Bankruptcy Act. Similarly, subsection 54(2) is amended to change the penalty unit amount from 5 to 50. The statement of affairs is a crucial document for the administration of a bankruptcy so it is reasonable to ensure that the penalties associated with non-compliance with subsections 54(1) and 54(2) reflect the seriousness of the offence. [Schedule 1, Part 2, item 19 and 20]

1.38 Subsection 56(1) is amended to change the penalty unit amount from 25 to 50. The statement of the member's affairs and statement of the affairs of the partnership are crucial documents. Accordingly, it is reasonable to ensure that the penalty associated with non-compliance with subsection 56F(1) reflects the seriousness of the offence. [Schedule 1, Part 2, item 223].

1.39 Divisions 5 and 5A of Part IV are repealed. This is because the substance of Division 5 has been moved to the Schedule (see section 75-50). The substance of Division 5A is reproduced in Division 80 (Committees of inspection) of the Schedule or may also be dealt with in regulations made in reliance on the regulation making power. [Schedule 1, Part 2, item 24].

1.40 Subsection 73(1B), subsections 73(2) to (5), sections 73A and 73C are repealed as the meeting rule-making powers will be used instead. The meeting rule-making powers (section 75-50) deal with the circumstances in which a meeting of the creditors may or must be called. [Schedule 1, Part 2, item 26, 27, 28 & 30]

1.41 Subsection 73B(4) is repealed as a consequence of the amendment to section 73. The requirement for a trustee to provide a declaration of relationships to creditors will be in the Insolvency Practice Rules. [Schedule 1, Part 2, Section 29]

1.42 Subsection 74(5) is amended to refer to the Insolvency Practice Rules instead of referring to subsection 73(4), which will be repealed by Schedule 1, Part 2, item 24. [Schedule 1, Part 2, item 31]

1.43 Subsection 74A(4) is amended to correct a cross-reference to section 64A in 74A(4). Subsection 74A(5) is to remain because the variation taking effect turns on the date specified in the notice of the meeting. [Schedule 1, Part 2, item 32]

1.44 The heading in section 76 of the Bankruptcy Act currently reads 'Application of Part VIII to trustee of a composition or arrangement' and is being repealed and substituted with 'Application of Part VIII and Schedule 2, to trustee of a composition or arrangement'. This amendment reflects the fact that parts of Part VIII have been replaced by the Schedule 2, of the Insolvency Law Reform Act. [Schedule 1, Part 2, item 33]

1.45 A composition or arrangement with creditors is a statutory process that is carried out under the Bankruptcy Act. Currently, there are different requirements for trustees regarding compositions and arrangements and the provisions relating to trustees apply to the extent possible. Subsection 76(1) is accordingly amended to refer to Schedule 2, which contains further detail regarding compositions and arrangements. [Schedule 1, Part 2, item 34]

1.46 Item 33 of Part 2 of the Schedule amends subsection 76(2) to include a reference to 'Schedule 2'. Part VIII is largely being replaced by the Insolvency Practice Rules, so a reference to Schedule 2, of the Insolvency Law Reform Act is necessary, as the power to make rules is contained in the Schedule. [Schedule 1, Part 2, item 35]

1.47 Section 76A is repealed. Section 76A applied Division 5 of Part IV to meetings under Division 6. The new meetings rules in Division 74 (Meetings) of the Schedule apply to all meetings of creditors in relation to a regulated debtor's estate and so section 76A is now redundant. [Schedule 1, Part 2, item 36]

Administration of property

1.48 Paragraph 109(1)(a) is amended to omit 'section 175' and substitute 'section 70-15 or section 70-20 of Schedule 2'. This is because the rules in relation to an audit under section 175 are now contained in those provisions of the Schedule. [Schedule 1, Part 2, item 37]

1.49 Subsections 109(7) to (7B) are repealed because rules in relation to meetings are now contained in section 74-40 and the relevant Insolvency Practice Rules. [Schedule 1, Part 2, item 38]

1.50 Subsection 134(4) and the accompanying note are repealed because the Court's power to make orders in relation to the administration of an estate is now contained in section 90-15 of the Schedule. [Schedule 1, Part 2, item 40]

1.51 The Insolvency Practice Rules may set the powers and duties of the Inspector-General in conducting a review of a trustee's decision and may deal with issues relating to the review process. Subsection 139ZIO(2) requires the Inspector-General to review a reviewable decision if requested to do so by the Ombudsman. Subsections 139ZIO(2A) and (2B) outline how this requirement interacts with the Insolvency Practice Rules. Subsection 139ZIO(2) is accordingly amended to ensure that the operation of that subsection is subject to subsection 139ZIO(2A). For example, where a Court is exercising its power under section 90-15 the Inspector-General may refuse the Ombudsman's request to review the decision .[Schedule 1, Part 2, item 45]

1.52 As discussed above, the Insolvency Practice Rules may set the powers and duties of the Inspector-General in conducting a review and may deal with issues relating to the review process. Subsections 139ZIO(2A) and (2B) are inserted to clarify the interaction between the Inspector-General's power to review decisions as contained in section 139ZIO and the Insolvency Practice Rules. Specifically, subsection 139ZIO(2B) extends the time for the Inspector-General to review a decision, or decide not to review the trustee's decision, for the duration of any Court proceedings under sections 45-1, 90-5, 90-10 or 90-15 of Schedule 2. [Schedule 1, Part 2, item 46]

Debt Agreements

1.53 The definition of 'externally-administered body corporate' is deleted and replaced by the label Chapter 5 body corporate under the Insolvency Law Reform Bill. Accordingly, a new definition of 'Chapter 5 body corporate' is inserted in alignment with the Corporations Act [Schedule 1, Part 2, item 59] and the definition of 'externally-administered body corporate' is repealed. [Schedule 1, Part 2, item 60]

1.54 Paragraph 186A(1)(d) of the Bankruptcy Act provides that an individual does not pass the basic eligibility test (for registration as a debt agreement administrator) if during the 10 year period beforehand, their registration as a liquidator was cancelled under subsections 1292(2) and (3) of the Corporations Act. These subsections of the Corporations Act will be repealed by item 217 of Part 2 of Schedule 2. These references have, therefore, been replaced with a general reference to cancellation of registration as a liquidator under the Corporations Act. Cancellation of registration upon request by the individual has been intentionally excluded from this general reference to avoid voluntary cancellation preventing an individual's registration under section 186. [Schedule 1, Part 2, item 63]

1.55 References to section 155I and section 155H in paragraph 186A(1)(e) are deleted because these sections will be repealed by item 47 of Part 2 of Schedule 1. Similarly to the previous paragraph, these references have been replaced with a general reference to cancellation of registration as a trustee (except where the cancellation was voluntary). [Schedule 1, Part 2, item 64]

1.56 The definition of externally-administered body corporate is deleted and replaced by the label 'Chapter 5 body corporate' under the Insolvency Law Reform Bill. Accordingly, the reference to 'externally-administered body corporate' in paragraph 186A(3)(a) is substituted with 'a Chapter 5 body corporate'. [Schedule 1, Part 2, item 65]

1.57 The following cross-references are amended as follows, as the detail contained in the proceeding cross-reference is contained in the subsequent cross-reference:

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Subparagraph 186LA(1)(b)(ii): Omit '155H(1)', substitute 'section 40-40(1) of Schedule 2' [Schedule 1, Part 2, item 66]

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Paragraph 186LA(1)(c): Omit '155H(1)(fa)', substitute 'section 40-40(1)(m) of Schedule 2' [Schedule 1, Part 2, item 67]

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Subparagraph 186LB(1)(b)(ii): Omit '155H(1)', substitute 'section 40-40(1) of Schedule 2' [Schedule 1, Part 2, item 68]

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Paragraph 186LB(1)(c): Omit '155H(1)(fa)', substitute 'section 40-40(1)(m) of Schedule 2' [Schedule 1, Part 2, item 69]

1.58 Subsections 190(4A) and (4B) are repealed because the power of the controlling trustee to apply to the Court for directions have been subsumed within section 80-40 of the Schedule (see section 5-20 which includes 'controlling trustee' in the meaning of 'trustee', and section 90-20, which allows a trustee to apply for an order under section 80-40). [Schedule 1, Part 2, item 72]

1.59 Item 73 fixes a drafting error by omitting (1). The substance of (1) remains unchanged. [Schedule 1, Part 2, item 73]

1.60 Paragraph 190A(1)(b) is repealed from the Schedule because the detail in paragraph 190A(1)(b) is now contained in section 70-40, which allows a creditor to request information from a trustee. [Schedule 1, Part 2, item 74]

1.61 Paragraph (j) is added to subsection 190A(1) to ensure that any additional duties of the controlling trustee in Schedule 2, are included within the ambit of subsection 190A(1) [Schedule 1, Part 2, item 75].

1.62 Sections 194 to 196 are repealed for the following reasons:

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Section 194 deals with the timing of meetings. This requirement may be dealt with in the Insolvency Practice Rules.

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Section 194A deals with statements of affairs and declarations to be tabled at meetings. This requirement may be dealt with in the Insolvency Practice Rules.

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Section 195 deals with the debtor's obligation to attend meetings. This requirement may be dealt with in the Insolvency Practice Rules.

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Section 196 refers to the extent to which Part IV applies. Part IV is being repealed. Section 196 deals with the procedure for calling and holding meetings. This is now contained in Division 75 of the Schedule and in the Insolvency Practice Rules. [Schedule 1, Part 2, item 76]

1.63 The reference to 'in accordance with the regulations' in subsection 217(1) is omitted because the calling of meetings will be dealt with under section 75-50 of Division 75 of the Schedule, rather than in the Bankruptcy Regulations. The power for the Insolvency Practice Rules to deal with the calling of meetings is prescribed under section 75-50. [Schedule 1, Part 2, item 77]

1.64 Section 223 prescribes the trustee's and creditors' right to call meetings. This section is being repealed, so the creditor and/or debtor's right to call a meeting is prescribed at the end of subsection 220(1). [Schedule 1, Part 2, item 78]

1.65 The cross-reference in subsection 221A(3) to section 64A is deleted as it is no longer relevant given that section 64A is being repealed and replaced by the meetings regulation-making power in section 75-50. [Schedule 1, Part 2, item 89]

1.66 The cross-reference to subsection 194A(3) in paragraph 222(5)(f) is being substituted for a reference to Division 75, and the cross-reference to subsection 194A(5) in paragraph 222(5)(h) of the Bankruptcy Act is being substituted for a reference to Division 75, because section 194A is being repealed and the details relating to meetings will be contained in Division 75 of the Schedule. [Schedule 1, Part 2, item 80 and 81]

1.67 The cross-reference in subsection 222A(2) to section 64A is omitted as it is no longer relevant given that section 64A is being repealed and replaced by the meetings regulation-making power in section 75-50. [Schedule 1, Part 2, item 82].

1.68 Sections 223 and 223A are repealed for the following reasons:

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The trustee's and creditor's right to call meeting (as contained in section 223) is now dealt with in Division 75. The creditor and/or debtor's right to call a meeting is to be prescribed at the end of subsection 220(1). [Schedule 1, Part 2, item 78]

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Section 223A deals with the extent to which Division 5 of Part IV and section 195 apply in relation to meetings. These provisions are being repealed, and meetings are instead dealt with in Division 75 of the Schedule and the Insolvency Practice Rules. [Schedule 1, Part 2, item 83]

1.69 The references to sections 70, 71 and 72 in subsection 231(3) are omitted because the sections appear in Division 5A of Part IV, which is being repealed. [Schedule 1, Part 2, item 86]

Deceased estates

1.70 Subsection 248(1) refers to Division 5 of Part IV and sections 70 to 76. Division 5 of Part IV and sections 70, 71 and 72 are being repealed, so these references are omitted. [Schedule 1, Part 2, item 87]

Offences

1.71 The definition of voting document contained in subsection 263C(2) currently refers to section 64D, which is being repealed and the substance of which is being moved into subsection 263C(2). The practical effect of the definition and section 64D remain largely the same. [Schedule 1, Part 2, item 88]

1.72 The table at subsection 277B(2) provides for the penalty amounts payable as an alternative to prosecution under infringement notices (as per subsection 277B(1)). Items 6 to 11 of the table at subsection 277B(2) are repealed because they refer to sections 155J, 168, 170A, 173, 175 and 182 (respectively) and these sections have been repealed. [Schedule 1, Part 2, item 89] Additionally, penalty amounts relating to new offences (established by the Schedule) have been added to the table at subsection 227B(2). [Schedule 1, Part 2, item 90]

Provisions relating to the Bankruptcy (Estate Charges) Act 1997

1.73 The current definition of 'trustee account' in subsection 280(5) refers to section 169 of the Bankruptcy Act. Section 169 is being repealed and the substance of this section has been moved to section 65-10. The existing definition is accordingly repealed and a new definition of trustee account is inserted which refers to section 65-10. [Schedule 1, Part 2, item 91]

1.74 Subsection 306B(1) refers to subsections 155A(6), 155F(2) and 155I(4) of the Bankruptcy Act. These subsections contain details regarding the appointment of trustees which are now contained in Division 20 (Registering trustees) of the Insolvency Law Reform Bill. The cross-references in subsection 306B(1) are updated accordingly. [Schedule 1, Part 2, item 92]

1.75 Section 312 is repealed because the details regarding the retention and return or destruction of books are now located in section 70-35 and section 70-36 [Schedule 1, Part 2, item 93]

1.76 Paragraph 315(2)(i) provides that the Bankruptcy Regulations may indicate the manner in which committees referred to in Division 1 of Part VIII are to perform their functions. This is now dealt with in section 50-20 so paragraph 315(2)(i) is repealed. [Schedule 1, Part 2, item 94]

1.77 The Register of Trustees is no longer part of the National Personal Insolvency Index so a separate reference to the Register of Trustees is inserted in subparagraphs 315(2)(j)(ii) and (iii). [Schedule 1, Part 2, item 95]

1.78 The cap in setting penalty units for breaches of offences under the Bankruptcy Regulations in paragraph 315(2)(k) are now considered inadequate. The cap is increased from 10 to 50 penalty units in the Schedule to reflect the gravity of a breach of offences under the Bankruptcy Regulations. [Schedule 1, Part 2, item 96]

1.79 Paragraph 316(1)(a) contains reference to paragraphs 154A(3)(b), 155C(1)(b) and 155D(1)(b). These paragraphs have been repealed, so the reference is now irrelevant and is accordingly removed. [Schedule 1, Part 2, item 97]

1.80 Section 316 permits the Minister to make legislative instruments determining the amounts of fees. Cross references to relevant subsections of the Schedule under which the Minister may make legislative instruments to determine fees accordingly need to be updated to refer to subsection 20-5(3), paragraph 20-30(1)(c) and subsection 20-70(3). [Schedule 1, Part 2, item 98] Consequential amendments to the Bankruptcy Estate Charges Act 1997

1.81 Subsection 5(1) of Bankruptcy (Estate Charges) Act 1997 refers to subsection 169(1B) of the Bankruptcy Act, which is being repealed. The relevant details are now contained in subsection 65-31(1) of the Insolvency Law Reform Bill, so this cross reference is updated. [Schedule 1, Part 2, item 99]

1.82 Subsection 5(2) refers to the extent to which subsection 169(1B) of the Bankruptcy Act applies. Given that this subsection is being repealed, subsection 5(2) is no longer necessary and is accordingly repealed. [Schedule 1, Part 2, item 100]

Application and transitional provisions

Definitions

1.83 The Dictionary defines terms used in Part 3 of the Schedule, in relation to transitional provisions. In some cases, the definition is a signpost to another provision in the Schedule in which the meaning of the term is explained [Schedule 1, Part 3, Division 1, section 102]

1.84 Commencement day means the day on which this Schedule commences. [Schedule 1, Part 3, Division 1, section 102]

1.85 Old Act means the Bankruptcy Act, as in force immediately before the commencement day and includes the old Regulations. [Schedule 1, Part 3, Division 1, Subdivision A, section 102]

Application of other consequential amendments

1.86 In circumstances where proposals are put to creditors in a meeting, the repeal and substitution of the definitions of resolution and special resolution in subsection 5(1) of the Bankruptcy Act by the Schedule apply in relation to proposals put at a meeting where the requirement to hold the meeting arises on or after the commencement day. Similarly, in circumstances of proposals without meetings, the repeal and substitution of the definitions of resolution and special resolution in subsection 5(1) of the Bankruptcy Act by the Schedule apply in relation to proposals put to creditors on or after the commencement day. [Schedule 1, Part 3, Division 5, section 168]

1.87 Section 6D of the Bankruptcy Act (as inserted by the Schedule) applies to documents made, given or lodged on or after the commencement day. [Schedule 1, Part 3, Division 5, section 169]

1.88 Subsection 12(5) of the Bankruptcy Act (as inserted by the Schedule) applies whether or not the information was obtained, or is in relation to events that occurred, before, on or after the commencement day. [Schedule 1, Part 3, Division 5, section 170]

1.89 Section 19B of the Bankruptcy Act (as inserted by the Schedule applies) whether or not the books were made before, on or after the commencement day [Schedule 1, Part 3, Division 5, section 171]

1.90 The amendments of subsections 54(1), 54(2) and 56F(1) of the Bankruptcy Act made by the Schedule apply in relation to offences committed on or after the commencement day. [Schedule 1, Part 3, Division 5, section 172]

1.91 The repeal of section 72 of the Bankruptcy Act by this Schedule applies in relation to property purchased before the commencement day. [Schedule 1, Part 3, Division 5, section 173]

1.92 If a person is required to do something within a period of time after a particular event, the amendment to subsection 73(1A), subparagraph 139ZIE(1)(a)(i), subsection 139ZIE(5) and paragraph 139ZIF(1)(a) applies if the event occurs on or after the commencement day. [Schedule 1, Part 3, Division 5, section 174]

1.93 If, before the commencement day, the Inspector-General has asked a person under subsection 155H(1) of the Bankruptcy Act to provide written explanation as to why the person should continue to be registered as a trustee, sections 186LA and 186LB of the old Act continue to apply on and after the commencement day in relation to the bank with which the person holds or held an account as if the amendments to those sections made by the Schedule had not been made. [Schedule 1, Part 3, Division 5, section 175]

1.94 Items 6 to 11 under the table in subsection 277B(2) of the Bankruptcy Act continue to apply in relation to offences committed before the commencement day (despite the repeal of those items under that table). [Schedule 1, Part 3, Division 5, section 176]

1.95 Despite the amendments and repeals made by the Schedule, subsection 306B(1) of the Bankruptcy Act continues to apply in relation to reports given under subsections 155A(6), 155F(2) or 155I(4) of the Bankruptcy Act. [Schedule 1, Part 3, Division 5, section 177]

1.96 The Governor-General may make regulations prescribing matters of a transitional nature (including prescribing any saving or application provisions) relating to the amendments and repeals made by the Schedule. This will allow for the creation of any transitional provisions that may have been overlooked by Part 3 of the Schedule. The regulations may provide that certain provisions of the Schedule are taken to be modified as set out in the regulations. Those provisions then have effect as if they were so modified. The provisions of the Schedule that provide for regulations to deal with matters do not limit each other [Schedule 1, Part 3, Division 6, section 1178]

Chapter 2 - Registration and disciplining registered trustees

Outline of chapter

2.1 The Insolvency Practice Schedule (Bankruptcy) introduces new rules relating to the registration, regulation, discipline and deregistration of registered trustees. These rules will be common (with some exceptions) with the corresponding rules in relation to registered liquidators which are introduced by the Insolvency Practice Schedule (Corporations).

2.2 The new rules regarding the registration and discipline of registered trustees are based on the existing framework for the registration and discipline of registered trustees under the Bankruptcy Act and the Bankruptcy Regulations.

Context of amendments

2.3 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 (Senate Committee) in 2010.

2.4 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 confidence in the insolvency profession has not recovered.

2.5 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 confidence in the insolvency profession has not recovered.

2.6 The insolvency profession must be skilled, honest and accountable in order for the insolvency regime to operate efficiently. Creditors and stakeholders are often unable to tell how the overall result of a liquidation or administration corresponded to the quality of the service provided by the insolvency practitioner and whether the costs incurred are reasonable. They must therefore be able to place a high degree of trust in the insolvency practitioner's integrity. Regulation that promotes a high level of professionalism and competence of insolvency practitioners is therefore essential to retaining confidence in the insolvency system as a whole.

2.7 Australia has always had separate personal and corporate insolvency systems. This includes separate laws, regulators, agencies responsible for policy development, and ministerial responsibility. The Senate Inquiry Report highlighted the current divergence between the regulatory systems for corporate and personal insolvency and expressed a desire for greater harmonisation of the two.

2.8 The Government has not accepted the Senate Committee recommendation that the corporate insolvency arm of ASIC be transferred to AFSA to form a new personal and corporate insolvency regulator. The Government has, however, recognised that providing for greater alignment of the laws that govern insolvency administration and insolvency practitioner regulation would benefit insolvency practitioners, creditors, shareholders, regulators and other stakeholders.

Summary of new law

2.9 The Schedule introduces a new framework in relation to the regulation of registered trustees:

•

applications to the Inspector-General to be registered as a trustee;

•

the referral of an application by the Inspector-General to a committee for consideration which will assess the application against specified criteria;

•

the registration of the applicant by the Inspector-General (in the event their application is successful), which may be subject to conditions;

•

a requirement that a registered trustee lodge an annual return with the Inspector-General;

•

a requirement that a registered trustee must give the Inspector-General notice if the person's circumstances change or if certain specified events occur;

•

the Inspector-General's powers in circumstances where a registered trustee fails to lodge a document or give information;

•

the Inspector-General's powers to suspend or cancel a registered trustee's registration in certain circumstances;

•

the Inspector-General's powers to give a show-cause notice and if no sufficient explanation is given, the Inspector-General can refer the matter to a committee to determine what action should be taken;

•

Inspector-General's powers to take further disciplinary action on the decision of a committee;

•

a committee's powers to take disciplinary action and the Inspector-General's obligation to give effect to the committee's decision;

•

a right given to prescribed industry bodies to notify the Inspector-General where they suspect there are grounds for disciplinary action to be taken against a registered trustee.

2.10 The Schedules create new strict liability offences and retain strict liability offences existing in the Bankruptcy Act and the Corporations Act. It is worth noting from the outset that the application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for individuals who may be accused of breaching such offences.

2.11 Strict liability offences are appropriate in this area of commercial regulation, as it is necessary to strongly deter misconduct that can have serious consequences for affected parties. Strict liability offences also reduce non-compliance, which bolsters the integrity of the regulatory regime enforced by ASIC and AFSA. Strict liability is particularly beneficial to these regulatory bodies as they need to deal with offences expeditiously to maintain public confidence in their regulatory regimes.

2.12 With the exception of section 60-21 discussed in detail below, the strict liability offences in the Bill meet all the conditions listed in the Guide to Framing Commonwealth Offences (pages 23 and 24). For example, the fines for the offences do not exceed 60 penalty units for an individual.

2.13 The majority of strict liability offences relate to conduct by an insolvency practitioner. For example, Division 65 of the Schedule provides strict liability offences around payments into and out of an administration account. By providing a strict liability enforcement regime for duties of insolvency practitioners, the Bill significantly enhances the likelihood of compliance by practitioners.

2.14 Insolvency practitioners possess statutory powers they may use with a high level of discretion in the exercise of these powers. Further, given the financial responsibilities associated with their duties, the consequences of an abuse of power can have far-reaching and significant consequences. (For example, if a practitioner were to sell off a debtor's family home to benefit themselves). As such, practitioners should be subject to a higher level of scrutiny in the performance of their duties as registered trustees and liquidators. Insolvency practitioners should, therefore, not only refrain from consciously doing wrong but actively take steps to fulfil their obligations and uphold the professional standards imposed upon them. Any changes to practitioner rules and standards are not expected to take effect until 2017. Practitioners will, therefore, have sufficient time to familiarise themselves with any new requirements and guard against the possibility of any contravention.

2.15 Further, many of the strict liability offences relate to conduct where a requirement for proof of intention would be difficult to establish and would render the offence unenforceable. For example, where the prosecution has to prove the accused intended to refrain from paying money into the appropriate administration account when he or she failed to do so. Further, a requirement to establish intent will draw a level of resources for investigation and prosecution from the regulators that cannot always be justified, especially for offences with such a low maximum penalty.

2.16 Some strict liability offences relate to creditor conduct (such as sections 80-55 and 80-60). For example, section 80-60 makes it an offence for a creditor to directly or indirectly become the purchaser of any part of the regulated debtor's estate, subject to certain exceptions. Strict liability is only imposed on non-practitioners for more serious misconduct that may have significant consequences for innocent third parties. Such as, people who purchase the property in good faith only to have the transaction set aside by the Court.

2.17 Section 60-21 creates an offence (in personal insolvency) for a person to offer an inducement to securing the appointment or nomination of their preferred trustee. It provides that a person commits an offence of strict liability with a penalty of 50 penalty units, or 3 months imprisonment, or both. This provision, and its corresponding penalty, is modelled on section 595 of the Corporations Act. The severity of the penalty recognises the importance of appointing an impartial trustee who would have significant power to determine the outcome of an estate for creditors and for the regulated debtor. The conduct described in this offence amounts to an abuse of the insolvency process that could see favourable treatment for the creditors involved in the breach at the expense of innocent creditors. Such conduct would significantly undermine the integrity of the insolvency regime and have far-reaching consequences for insolvency practitioners, debtors, creditors and financial institutions.

Comparison of key features of new law and current law

Detailed explanation of new law

Working cooperatively with ASIC

2.18 The Inspector-General must work cooperatively with ASIC in relation to persons who are, have been or may become both registered trustees under the Bankruptcy Act and registered liquidators under the Corporations Act. This provision will allow the Inspector-General and ASIC to work cooperatively by sharing information in relation to people who work as registered trustees and as registered liquidators. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 10, section 10-5)]

Register of Trustees

2.19 The Inspector-General must establish and maintain a Register of Trustees which may be kept in any form that the Inspector-General considers appropriate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 15, subsection 15-1(1) and (2)]

2.20 The Insolvency Practice Rules may provide further detail in relation to the Register of Trustees. This may include what information is to be entered on the Register and whether that information is publically available. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 15, subsection 15-1(3) and (4)]

2.21 Without limiting the details to be entered in the Register, the details may include details of any disciplinary action recommended by a committee against a registered trustee and the details of persons who have had their registration suspended or cancelled. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 15, subsection 15-1(5)]

Registering trustees

2.22 An individual may apply to the Inspector-General to be registered as a trustee. An application is properly made if it is lodged with the Inspector-General in the approved form. The application must be accompanied by the application fee as determined by the Minister by legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, subsections 20-5]

2.23 If an application is properly made the Inspector-General may convene a committee to consider an application. The committee must consist of the Inspector-General, a registered trustee chosen by a prescribed body (for example, ARITA) and a person appointed by the Minister. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, section 20-10]

2.24 The Inspector-General must refer an application for registration that is properly made to a committee to consider within 2 months of receiving the application. This 2 month period allows the Inspector-General time to consider whether the application is properly made and to convene a committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, section 20-15]

2.25 The committee must consider an application referred to it by the Inspector-General and must interview the applicant for the purposes of its consideration. The committee may also require the applicant to sit for an exam. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, Subsections 20-20(1) and (2)]

2.26 Within 45 business days after interviewing the applicant, regardless of whether the applicant is also required to sit for an exam, the committee must decide whether the applicant should be registered as a trustee or not. The committee must decide that the applicant should be registered if it is satisfied that the applicant:

•

has the qualifications, experience, knowledge and abilities prescribed in the Insolvency Practice Rules;

•

will take out adequate and appropriate professional indemnity and fidelity insurance;

•

has not been convicted, within 10 years before making the application, of an offence involving fraud or dishonesty;

•

is not, and has not been within 10 years before making the application, an insolvent under administration;

•

has not had his or her registration as a trustee under the Bankruptcy Act cancelled within 10 years before making the application, other than in response to a written request by the applicant to have the registration cancelled;

•

has not had his or her registration as a liquidator under the Corporations Act cancelled within 10 years before making the application, other than in response to a written request by the applicant to have the registration cancelled (this ensures that liquidators who voluntarily cancel their registration, for example due to retirement, are distinguished from liquidators who have had their registration cancelled involuntarily, for example as a result of disciplinary proceedings);

•

is not disqualified from managing corporations under this Act, or under a law of an external Territory or a law of a foreign country;

•

is otherwise a fit and proper person; and

•

is resident in Australia or a prescribed country. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, subsection 20-20(4)]

2.27 The committee may decide that the applicant should be registered even if the committee is not satisfied that the applicant:

•

has the qualifications, experience, knowledge and abilities prescribed in the Insolvency Practice Rules; or

•

has not had his or her registration as a trustee or liquidator cancelled within 10 years before making the application, other than by his or her own request for cancellation; or

•

is resident in Australia or a prescribed country;

provided that the committee is satisfied that the applicant would be suitable to be registered if the applicant complied with conditions specified by the committee. This provides the committee with greater flexibility to determine, on a case-by-case basis, what conditions may be appropriate to alleviate concerns raised by a failure to satisfy these requirements. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, subsection 20-20(5)]

2.28 The committee may decide that the applicant's registration is to be subject to any other conditions specified by the committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, subsection 20-20(6)]

2.29 The registration requirements do not affect the operation of Part VIIC of the Crimes Act 1914 (Crimes Act) that, in certain circumstances, relieves a person from disclosing spent convictions. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, subsection 20-20(7)]

2.30 The committee must give the applicant and the Inspector-General a report setting out the committee's decision on the application, and its reasons for the decision and if the committee decides that the registration should be subject to conditions:

•

the condition; and

•

the committee's reasons for imposing the condition. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, section 20-25]

2.31 When the committee decides that an applicant should be registered, the Inspector-General must register the person upon the payment of the prescribed fee and the production of evidence that the person has taken out adequate and appropriate professional indemnity and fidelity insurance against the liabilities that the person may incur working as a registered trustee. [ Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, subsection 20-30(1)]

2.32 The Inspector-General registers an applicant by entering on the Register of Trustees the details relating to the applicant prescribed in the Insolvency Practice Rules. The registration is subject to the current conditions imposed on the registered trustee. After registering a person, the Inspector-General must give the person a certificate of registration which may be given electronically. The registration has effect for 3 years. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, subsection 20-30(2), (3), (4), (5) and (6)]

2.33 The Insolvency Practice Rules may prescribe conditions applying to the registration of all registered trustees or registered trustees of a specified class. A condition may be imposed limiting the kinds of activity in which a registered trustee may engage, either for the duration of the registration or for a shorter period. For example, if the applicant lacks relevant experience, the committee may impose a condition to limit the types of matters that may be accepted by the registered trustee to exclude the administration of debt agreements. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision B, section 20-35]

Variation of conditions

2.34 A registered trustee whose registration has conditions imposed on him or her may apply to the Inspector-General to have those conditions varied or removed. This recognises the fact that conditions placed on trustees can be temporary, for example, if the condition is imposed pending completion of certain qualifying courses. However, an application cannot be made if the person's registration as a trustee is suspended or the condition is of a prescribed kind or in prescribed circumstances. The application must be lodged with the Inspector-General in the approved form. A single application by a registered trustee may deal with more than one condition. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision C, section 20-40]

2.35 The Inspector-General may convene a committee to consider an application to vary conditions. The committee must consist of the Inspector-General, a registered trustee chosen by a prescribed body (for example, ARITA) and a person appointed by the Minister. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision C, section 20-45]

2.36 Within 2 months of receiving an application to vary a condition that is properly made, the Inspector-General must refer the application to a committee which the Inspector-General has convened for that purpose. This 2 month period allows the Inspector-General time to consider whether the application is properly made and to convene a committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision C, section 20-50]

2.37 If an application to vary or remove a condition is referred to a committee, the committee must consider the application and, unless the applicant otherwise agrees, the committee must interview the applicant. Specifically, this means the applicant can choose to have the application determined without being interviewed. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision C, subsection 20-55(1) and( 2)]

2.38 The committee must, within 20 business days after interviewing the applicant or obtaining the agreement of the applicant to forgo the interview, either decide whether the condition should be varied or removed and, if the condition is to be varied, specify the way in which it is to be varied. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision C, subsection 20-55(3)]

2.39 The committee must give the applicant and the Inspector-General a report setting out the committee's decision and the reasons for the decision. If the committee decides that a condition should be varied, the committee must set out the variation that is to be made. The condition is varied or removed in accordance with that decision. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision C, section 20-60 and section 20-65]

Renewal of registration

2.40 If a registered trustee wishes to continue practising after the current registration period, the individual must apply to have their registration renewed. The application must be lodged with the Inspector-General in the approved form and must be made before the applicant's registration as a trustee ceases to have effect. The note in this provision refers to paragraph 33(1)(c) of the Bankruptcy Act, which allows the Court to extend or abridge this time limit. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision D, subsection 20-70(1) and (2)]

2.41 If an individual applies to have his or her registration as a trustee renewed, the individual must, at least 1 month before the registration ceases to have effect, pay the renewal fee determined by the Minister by legislative instrument. If the renewal fee is not paid before that time, an additional amount equal to 20 per cent of the renewal fee is payable by the applicant by way of penalty. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision D, subsection 20-70(3)]

2.42 The application is properly made if it is lodged with the Inspector-General, in the approved form, before the applicant's registration as a trustee ceases to have effect. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision D, subsection 20-70(4)]

2.43 The Inspector-General must renew the registration where:

•

the application is properly made;

•

the applicant has produced evidence in writing to the Inspector-General that the applicant maintains adequate and appropriate professional indemnity insurance and adequate and appropriate fidelity insurance;

•

the applicant has complied with any condition dealing with continuing professional education to which the applicant is subject;

•

the applicant has paid the renewal fee and any late payment penalty; and

•

the applicant does not owe more than the prescribed amount of notified estate charges. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision D, subsection 20-75(1), (2) and (3)]

2.44 The Inspector-General renews the registration by entering or maintaining in the Register of Trustees the details relating to the applicant which are prescribed in the Insolvency Practice Rules. After renewing the registration, the Inspector-General must give the person a certificate of registration which may be given electronically. The renewed registration has effect for 3 years and is subject to the current conditions imposed on the registered trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision D, subsection 20-75(2), (3), (4), (5) and (6)]

2.45 For the purposes of renewal of registration a person owes a notified estate charge if:

•

the person owes either of the following: a charge under the Bankruptcy (Estate Charges) Act 1997, a penalty under section 281 (late payment penalty) of the Bankruptcy Act; and

•

the Inspector-General notified the person of the unpaid estate charge at least one month and 10 business days before the person's registration as a trustee ceases to have effect. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision D, subsection 20-75(7)]

Offence relating to registration

2.46 A person commits an offence with a penalty of 30 penalty units if the person represents that he or she is a registered trustee and the representation is false. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 20, Subdivision E, section 20-80]

Insurance

2.47 A registered trustee must maintain adequate and appropriate professional indemnity and fidelity insurance. If a registered trustee fails to comply with this requirement, he or she commits an offence. The Inspector-General may, by legislative instrument, determine what constitutes adequate and appropriate professional indemnity and fidelity insurance, in relation to either or both of the following:

•

specified circumstances;

•

one or more specified classes of registered trustees. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 25, subsection 25-1(1) and (2)]

2.48 Where the registered trustee intentionally or recklessly fails to comply with the insurance requirements, the maximum penalty is 1,000 penalty units, otherwise there is a strict liability offence with a maximum penalty of 60 penalty units. The severity of the penalty for intentionally or recklessly failing to comply with this requirement and the need for a strict liability offence reflects the importance of adequate and appropriate insurance for registered trustees. As providers of professional services who often deal with large sums of money, registered trustees must hold adequate and appropriate insurance to mitigate the risks associated with the profession. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 25, subsection 25-1(3) and (4)]

Annual trustee returns

2.49 A registered trustee must, within one month after the end of a return year, lodge with the Inspector-General an annual return. This applies whether the trustee is registered for all or part of the return year. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 30, subsection 30-1(1)]

2.50 A return year for a person who is registered as a trustee is the annual anniversary of that person's registration as a trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 30, Subsection 30-1(2)]

2.51 A return must be in the approved form and include evidence that the person has, during the whole of any period of the year during which the person was registered as a registered trustee, maintained adequate and appropriate professional indemnity and fidelity insurance against the liabilities that the person may incur working as a registered trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 30, subsection 30-1(3)]

2.52 Inspector-General may extend the period for lodging a return if the registered trustee applies for an extension before the end of that return period. The provision allows the Inspector-General to give further extensions. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 30, subsection 30-1(4)]

2.53 A registered trustee commits a strict liability offence, punishable by 5 penalty units, if the trustee fails to lodge a return. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 30, subsection 30-1(5)]

Notice requirements

2.54 Division 35 of Part 2 provides for notice requirements where:

•

a significant event occurs (section 35-1); and

•

other events, as prescribed, occur (section 35-5).

2.55 A registered trustee must notify the Inspector-General, in the approved form, where any of the following significant events occur that may affect the ability of the registered trustee to continue to practice:

•

the trustee becomes an insolvent under administration;

•

a bankruptcy notice is issued under the Bankruptcy Act in relation to the trustee as a debtor, or a corresponding notice is issued in relation to the registered trustee as debtor under a law of an external Territory or a law of a foreign country;

•

the registered trustee is convicted of an offence involving fraud or dishonesty;

•

the registered trustee is disqualified from managing corporations under the Corporations Act, or under a law of an external Territory or a law of a foreign country;

•

the registered trustee ceases to have adequate and appropriate professional indemnity insurance or fidelity insurance against the liabilities that the registered trustee may incur working as a registered trustee;

•

the registered trustee is issued with a show-cause notice under the Corporations Act in relation to the registered trustee's registration as a trustee under that Act;

•

the registered trustee's registration as a liquidator under the Corporations Act is suspended or cancelled;

•

any other prescribed event.

The notice must be lodged by the registered trustee within 5 business days after the registered trustee could reasonably be expected to be aware that the event has occurred. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 35, subsection 35-1(1)]

2.56 Where a trustee intentionally or recklessly fails to notify the Inspector-General that a significant event has occurred, the registered trustee commits an offence punishable by a maximum penalty of 100 penalty units. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 35, subsection 35-1(2)]

2.57 A registered trustee must notify the Inspector-General if certain prescribed events occur. A registered trustee also has an obligation to notify the Inspector-General if there are material inaccuracies in the information provided in an annual trustee return or in an annual administration return. Failure to notify the Inspector-General within 10 business days after the registered trustee could reasonably be expected to be aware that the event has occurred commits an offence punishable by a maximum penalty of 5 penalty units. Such notices must be provided in the approved form. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 35, section 35-5]

Direction to comply

2.58 The Inspector-General may give a registered trustee a direction in writing to comply with a requirement under the Bankruptcy Act to lodge documents or provide information required under the Bankruptcy Act within 10 business days after the direction is given. On the application of the registered trustee, the Inspector-General may extend, or further extend, that period. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, subsections 40-5(1), (2) and (3)]

2.59 Where the document or information is not provided within 10 business days after the direction has been given (or that period as extended), the Inspector-General may give a direction that the registered trustee not accept any further appointments or apply to the Court for an order that the registered trustee comply with the Inspector-General's direction. However, a decision of the Inspector-General to give such a direction is reviewable by the AAT under subsection 96-1(c). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, subsection 40-5(4)]

2.60 A direction to comply is not a legislative instrument. Nothing in section 40-5 limits the operation of any other provision of the Bankruptcy Act, or any other law, in relation to a person who fails to comply with a requirement to lodge a document with, or give information or a document to, the Inspector-General. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, subsection 40-5(5) and (6)]

2.61 Where the Inspector-General reasonably suspects that any information that a registered trustee is required under the Bankruptcy Act to give to the Inspector-General is incomplete or incorrect in any particular, the Inspector-General may direct the trustee to do one or more of the following within 10 business days after the direction (the period can be extended on the application of the registered trustee):

•

confirm to the Inspector-General that the information is complete and correct;

•

complete or correct the information;

•

notify any person specified by the Inspector-General of the addition or correction. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, subsections 40-10(1), (2) and (3)]

2.62 Where the registered trustee does not comply within the period of 10 business days (or the period as extended), the Inspector-General may give a direction that the registered trustee not accept further appointments or apply to the Court for an order directing the trustee to comply with the requirement within such time specified in the order. However, a decision of the Inspector-General to give such a direction is reviewable by the AAT under section 96-1(c). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, subsection 40-10(4)]

2.63 A direction to correct inaccuracies is not a legislative instrument. Nothing in section 40-10 limits the operation of any other provision of the Bankruptcy Act, or any other law, in relation to a person given incomplete or incorrect information. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, subsections 40-10(5) and (6)]

2.64 The Inspector-General may, in writing, direct a registered trustee not to accept any further appointments as a registered trustee or not to accept any further appointments for a period specified in the direction if:

•

the registered trustee has failed to comply with a direction to remedy a failure to lodge documents, or give information or documents; or

•

the registered trustee has failed to comply with a direction to correct inaccuracies; or

•

a committee has decided that the Inspector-General should direct that a trustee not accept any further appointments as trustee, or not to accept any further appointments as trustee during the period specified in the direction; or

•

the registered trustee has failed to comply with a direction to give relevant information to the Inspector-General; or

•

the registered trustee has failed to comply with a direction given to the trustee under subsection 75-20(1) or (2), which relates to a direction to convene a creditor meeting or to comply with requirements in relation to such a meeting.

2.65 This provision empowers the Inspector-General to enforce obligations on a registered trustee without initial recourse to the Court, noting that the Inspector-General may apply to a Court for an order to compel the registered trustee to comply with a direction. However, a decision of the Inspector-General to give such a direction is reviewable by the AAT under subsection 96-1(c). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 16, Subdivision B, subsection 40-15(1)]

2.66 If the Inspector-General gives a direction not to accept further appointments, it is a condition of the registered trustee's registration that the registered trustee must comply with the direction. The Inspector-General may withdraw a direction not to accept further appointments. Upon the direction being withdrawn the condition is removed from the trustee's registration. A direction not to accept further appointments is not a legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, subsections 40-15(2), (3) (4) and (5)]

2.67 The Inspector-General's power to direct a registered trustee not to accept further appointments, does not limit the operation of any other provision of the Bankruptcy Act, or any other law, relating to the lodgement of a document or a person giving incomplete or incorrect information or any matter relating to a decision by a committee in relation to the Inspector-General giving a direction that a registered trustee not accept further appointments. The Inspector-General's power to apply to a Court for an order that a registered trustee comply with a direction under subsection 40-15(1) is also not affected. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision B, Subsections 40-15(6) and (7)]

Automatic cancellation

2.68 The registration of a registered trustee is automatically cancelled if:

•

the person becomes an insolvent under administration; or

•

the person dies. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision C, subsection 40-20(1)]

2.69 The cancellation takes effect on the day that the person becomes an insolvent under administration or the day that the person dies. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision C, subsection 40-20(2)]

The Inspector-General may suspend or cancel registration

2.70 The Inspector-General may suspend or cancel the registration of a registered trustee if:

•

the person is disqualified from managing corporations under Part 2D.6 of the Corporations Act, or under a law of an external Territory or a law of a foreign country;

•

the person ceases to have adequate and appropriate professional indemnity and fidelity insurance against the liabilities that the person may incur working as a registered liquidator;

•

the person's registration as a liquidator under the Corporations Act has been cancelled or suspended, other than in compliance with a written request by the person to cancel or suspend the registration;

•

the person owes more than the prescribed amount of notified estate charges;

•

the person fails to repay remuneration in accordance with an order of the Court;

•

the person has been convicted of an offence involving fraud or dishonesty;

•

the person lodges a request with the Inspector-General in the approved form to have the registration suspended. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision D, subsections 40-25(1) and 40(30(1)]

2.71 The powers given to the Inspector-General to suspend or cancel a person's registration as a trustee does not affect the operation of Part VIIC of the Crimes Act which in certain circumstances relieves a person from disclosing spent convictions. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision D, subsections 40-25(2) and 40-30(2)]

2.72 Where the Inspector-General decides to suspend or cancel a person's registration as a trustee, the Inspector-General must, within 10 business days of making the decision, give the person a written notice setting out the decision and the reasons for the decision. The decision comes into effect on the day after the notice is given to the person. However, a failure by the Inspector-General to give the notice within 10 business days, does not affect the validity of the decision. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision D, section 40-35]

Disciplinary action by committee

2.73 The Inspector-General may issue a show cause notice to a registered trustee where, in the Inspector-General's opinion:

•

the registered trustee no longer has the prescribed qualifications, experience, knowledge and abilities;

•

the registered trustee has committed an act of bankruptcy, within the meaning of the Bankruptcy Act or a corresponding law of an external Territory or a foreign country;

•

the registered trustee is disqualified from managing corporations under Part 2D.6 of the Corporations Act, or under a law of an external Territory or a law of a foreign country;

•

the registered trustee has ceased to have adequate and appropriate professional indemnity or fidelity insurance against the liabilities that the person may incur working as a registered trustee;

•

the registered trustee has breached a current condition imposed on the registered trustee;

•

the trustee has contravened a provision of the Bankruptcy Act;

•

the trustee's registration as a liquidator has been cancelled or suspended other than in compliance with a written request by the trustee to cancel or suspend the registration;

•

the trustee owes more than the prescribed amount of notified estate charges;

•

the trustee fails to repay remuneration in accordance with an order from the Court;

•

the trustee has been convicted of an offence involving fraud or dishonesty;

•

the trustee is permanently or temporarily unable to perform the functions and duties of a trustee, for example, because of physical or mental incapacity;

•

the trustee has failed to carry out adequately and properly the duties of a trustee or any other duties or functions that under a law of the Commonwealth or of a State or Territory, or the general law that a trustee is required to carry out;

•

the trustee has failed to carry out adequately and properly (whether in Australia or in an external Territory, or in a foreign country) the duties of an administrator in relation to a debt agreement;

•

the trustee is not a fit and proper person;

•

the trustee is not resident in Australia or a prescribed country; or

•

the trustee has failed to comply with prescribed standards applicable to the exercise of powers, or the carrying out of duties, of registered trustees. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, Subsection 40-40(1)]

2.74 A show cause notice issued by the Inspector-General is not a legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, subsection 40-40(2)]

2.75 The Inspector-General's powers to issue a show cause notice do not affect the operation of Part VIIC of the Crimes Act 1914 which in certain circumstances relieves a person from disclosing spent convictions. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, subsection 40-40(3)]

2.76 The Insolvency Practice Rules may prescribe standards applicable to the exercise of powers, or the carrying out of duties, of registered trustees. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, subsection 40-40(4)]

2.77 The Inspector-General may convene a committee to consider disciplinary action in relation to a registered trustee. The committee convened by the Inspector-General must consist of the Inspector-General, a registered trustee chosen by a prescribed body (for example, ARITA) and a person appointed by the Minister. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, subsections 40-45(1) and (2)]

2.78 The Inspector-General may refer a registered trustee to a committee which they have convened if they have given a show cause notice to the registered trustee and either:

•

the Inspector-General does not receive an explanation within 20 business days after the notice is given; or

•

the Inspector-General is not satisfied by the explanation given by the registered trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, section 40-50]

2.79 Where a registered trustee is referred to a committee, the committee must decide one or more of the following:

•

that the trustee should continue to be registered;

•

that the trustee's registration should be suspended for a period, or until the occurrence of an event, specified in the decision;

•

that the trustee's registration be cancelled;

•

that the Inspector-General should direct the trustee not to accept any further appointments as trustee, or not to accept any further appointments as trustee during the period specified in the decision;

•

that the trustee should be publicly admonished or reprimanded;

•

that a condition specified in the decision should be imposed on the trustee;

•

that a condition should be imposed on all other registered trustees that they must not allow the trustee to carry out any of the functions or duties, or exercise any of the powers of a registered trustee on their behalf for a period specified in the decision of no more than 10 years;

•

that the Inspector-General should publish specified information in relation to the committee's decision and the reasons for that decision. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, subsection 40-55(1)]

2.80 The conditions imposed by a committee on a registered trustee may include one or more of the following:

•

a condition that the trustee engage in, or refrain from engaging in, specified conduct;

•

a condition that the trustee engage in, or refrain from engaging in, specified conduct except in specified circumstances;

•

a condition that the trustee publish specified information;

•

a condition that the trustee notify a specified person or class of persons of specified information;

•

a condition that the trustee publish a specified statement;

•

a condition that the trustee make a specified statement to a specified person or class of persons. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, subsection 40-55(2)]

2.81 In making its decision, the committee may have regard to:

•

any information provided to the committee by the Inspector-General;

•

any explanation given by the trustee;

•

any other information given by the trustee to the committee;

•

if the trustee is or was also a registered liquidator under the Corporations Act - any information in relation to the trustee given to the committee by ASIC or a committee convened under the Insolvency Practice Schedule (Corporations); and

•

any other matter that the committee considers relevant. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, subsection 40-55(3)]

2.82 The committee is required to give the registered trustee and the Inspector-General a report setting out:

•

the committee's decision in relation to the trustee;

•

the committee's reasons for that decision;

•

if the committee decides that the trustee should be registered subject to a condition the report should set out the condition and the reasons for imposing the condition; and

•

if the committee decides that a condition should be imposed on all other registered trustees in relation to the registered trustee the report should set out the condition and the committee's reasons for imposing the condition. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision E, section 40-60]

2.83 The Inspector-General is required to give effect to the committee's decision. [Schedule 1, Insolvency Practice Schedule (Bankruptcy, Part 2, Division 40, Subdivision E, section 40-65]

Lifting or shortening suspension

2.84 A person whose registration as a registered trustee has been suspended may apply to the Inspector-General in the approved form for the suspension to be lifted or for the period to be shortened. If the application is lodged in the approved form the application is properly made. [Schedule 1, Insolvency Practice Schedule (Bankruptcy, Part 2, Division 40, Subdivision F, section 40-70]

2.85 The Inspector-General may convene a committee for the purposes of considering an application, or applications, made to have a suspension shortened or lifted. The committee must consist of the Inspector-General, a registered trustee chosen by a prescribed body (for example, ARITA) and a person appointed by the Minister. [Schedule 1, Insolvency Practice Schedule (Bankruptcy, Part 2, Division 40, Subdivision F, section 40-75]

2.86 The Inspector-General must refer an application to a committee which the Inspector-General has convened within 2 months after receiving the application. This 2 month period allows the Inspector-General time to convene a committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision F, section 40-80]

2.87 The committee must consider the application referred to it and, unless the applicant otherwise agrees, the committee must interview the applicant for the purposes of considering the application. Within 10 business days after the interview the committee must decide whether the suspension should be lifted, or the period of the suspension shortened, and if it is to be shortened, specify when the suspension is to end. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision F, section 40-85]

2.88 The committee must give the applicant and the Inspector-General a report setting out the committee's decision, the committee's reasons for the decision and if the committee has decided that the period of suspension should be shortened, when the suspension is to end. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision F, section 40-90]

2.89 If the committee decides that a suspension should be lifted or the period of suspension shortened, the lifting or shortening of the suspension comes into effect in accordance with the decision. [Schedule 1, Insolvency Practice Schedule (Bankruptcy),Part 2, Division 40, Subdivision F, section 40-95]

Action initiated by industry body

2.90 An industry body (as prescribed in the Insolvency Practice Rules) may lodge a notice (an industry notice) stating that the body reasonably suspects that there are grounds for the Inspector-General to take disciplinary action against a registered trustee. The industry body must identify the registered trustee and include the information and copies of any documents upon which the suspicion is founded. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision G, subsection 40-100(1)]

2.91 The Inspector-General must consider the information and documents included in the industry notice and take action as follows:

•

If the Inspector-General decides to take no action the Inspector-General must give the industry body a notice within 45 business days after the industry notice is lodged.

•

However, such a notice does not preclude the Inspector-General from taking action based wholly or partly on the basis of information in the industry notice of the following kind:

-

suspending or cancelling the registration of the registered trustee;

-

giving the registered trustee a show cause notice; or

-

imposing a condition on the registered trustee.

•

If the Inspector-General does take action based wholly or partly on the information included in an industry notice, the Inspector-General must give the industry body notice of that fact. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision G, subsections 40-100(2-6)]

2.92 An industry notice is not a legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2,Division 40, Subdivision G, subsection 40-100(7)]

2.93 Section 40-105 specifies that if an industry body gives a notice under section 40-100 in good faith and based on a reasonable suspicion then that body is not liable for any civil, criminal or administrative process for giving that notice. This protection also extends to a person who provides information or makes a decision that causes the industry body to give notice under section 40-100. This provision provides immunity from civil, criminal or administrative liability (including disciplinary action or dismissal) for industry bodies and individuals making public interest disclosures. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 40, Subdivision G, section 40-105]

2.94 The Insolvency Practice Rules may prescribe industry bodies, such as ARITA, for the purposes of Subdivision G of Division 40. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), 2 Part 2, Division 40, Subdivision G, section 40-110]

Court oversight of registered trustees

2.95 The Court may make such orders as it thinks fit in relation to a registered trustee. The Court may exercise this power on its own initiative, during proceedings before the Court or on application by the trustee or the Inspector-General. This provision recognises the overarching authority the Court may exercise over registered trustees. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 45, subsections 45-1(1), (2) and (3)]

2.96 Without limiting the matters which the Court may take into account when making orders the Court may take into account:

•

whether the registered trustee has faithfully preformed, or is faithfully performing, the registered trustee's duties;

•

whether an action or failure to act by the registered trustee is in compliance with an order of the Court;

•

whether any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the registered trustee; and

•

the seriousness of the consequences of any action or failure by the registered trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 45, section 45-1(4)]

2.97 Section 45-1 does not limit the Court's powers under any other provision of the Bankruptcy Act or under any other law. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 45, subsection 45-1(5)]

2.98 The Court may also make orders in relation to a registered trustee that deal with the costs of a matter considered by the Court. The orders may order that the registered trustee is personally liable for some or all of the costs and that the registered trustee is not entitled to be reimbursed by a regulated debtor's estate or creditors in relation to some or all of those costs. Section 45-5 does not limit the Court's powers under any other provision of the Bankruptcy Act or under any other law. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 45, section 45-5]

Committees under this Part

2.99 If a prescribed body appoints a person to a committee, that person must have the knowledge or experience prescribed in the Insolvency Practice Rules or if no knowledge is prescribed , the knowledge and experience necessary to carry out the functions to be performed. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, section 50-5]

2.100 If the Minister appoints a person to a committee, that person must have knowledge or experience in one or more fields of business, law (including the law relating to bankruptcy), economics, accounting, public policy relating to bankruptcy. Previously, under sections 155, 155E and 155H the committee would consist of 'an APS employee'. This has been repealed and replaced by provisions such as this to ensure that only persons with the appropriate knowledge or experience are appointed to a committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, section 50-10]

2.101 A single committee may consider more than one matter relating to the application for registration of one or more applicants for registration as a trustee and a matter or matters relating to one or more registered trustees. This recognises that it is more efficient to allow a committee to consider multiple matters given the time it can take to convene a committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, section 50-15]

2.102 The consideration of a matter is not affected by a change in the membership of the committee. A matter may be adjourned or transferred to another committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, section 50-20]

2.103 The Insolvency Practice Rules may provide for and in relation to the manner in which the committees perform their functions including: meetings, requirements for a quorum, disclosure of interests, the manner in which questions are to be decided by the committee, the reconstitution of a committee and the termination of the consideration of a matter by committee, and the transfer of matters to another committee. The detail of how a committee will perform its functions is more appropriately dealt with by the Insolvency Practice Rules, which can be more readily amended where an alteration of procedures is necessary and appropriate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, section 50-25].

2.104 A member of a committee is entitled to receive the remuneration that is determined by the Remuneration Tribunal but if no determination by the Tribunal is in operation, the member is entitled to receive such remuneration as the Minister determines in writing. A member is entitled to receive such allowances as the Minister determines in writing. The operation of the requirements in relation to the remuneration of a member of a committee has effect subject to the Remuneration Tribunal Act 1973. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, section 50-30]

2.105 A member of a committee commits an offence if information or a document is given to the member for the purposes of exercising powers or functions as a member of the committee and the member uses or discloses the information or document and none of the exceptions under subsection 50-35(2) apply. The penalty is 50 penalty units. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, subsection 50-35(1)]

2.106 The restriction on the use of information or a document disclosed to a member of a committee does not apply in the circumstances listed in 50-35(2). These exceptions allow disclosure or use of information where there is a legitimate purpose for such disclosure or use. For example, to provide information to assist a body in the execution of its disciplinary function. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 2, Division 50, subsection 50-35(2)]

Consequential amendments to the Bankruptcy Act

Trustees

2.107 Sections 154A to 155K are repealed as the details regarding the appointment of trustees are now contained in Division 8 (Registering trustees) of the Schedule. [Schedule 1, Part 2, item 47]

2.108 Subsections 156A(4) to (7) are repealed as the Court's power to make orders in relation to estate administration is now contained in section 90-15 of the Schedule. [Schedule 1, Part 2, item 48]

2.109 Subsections 157(6) to (9) are repealed as the provisions are considered to no longer be necessary due to the following reasons:

•

Section 90-15 contains a general power for the Court to 'make orders as it thinks fit in relation to the administration of the regulated debtor's estate', whilst section 90-20 allows a creditor to apply for an order under section 90-15. This sufficiently covers the ability for a creditor to file an objection to an appointment with the Court under subsection 157(6).

•

Subsection 157(7A) contains a requirement for the provision of notice to the Official Receiver of the cancellation of a trustee's appointment and reappointment of a new trustee. It is not necessary that this requirement be legislated, because standard practice is that the Official Receiver is made aware of the cancellation/appointment of trustees via other measures.

•

Subsection 157(8) currently requires that the Official Receiver issue a person with a certificate of appointment following their appointment as a trustee. Subsection 157(9) provides for the date of effect of a certificate under the previous subsection. These provisions relating to a certificate are superfluous, so the Schedule repeals these subsections. [Schedule 1, Part 2, item 49]

2.110 Section 161A is repealed because the requirement to provide the Inspector-General notice if the trustee is convicted of an offence involving fraud or dishonesty is now contained in section 35-1. [Schedule 1, Part 2, item 50]

2.111 The heading of Division 2 Part VIII is amended to include the words 'of the Official Trustee and Official Receiver' to clarify the application of the Division. [Schedule 1, Part 2, item 51]

2.112 Sections 161B and 162 are repealed as the details regarding the constraints on a trustee's remuneration are now contained in section 60-15 and the Insolvency Practice Rules. [Schedule 1, Part 2, item 52]

2.113 Sections 164 to 167 of the Bankruptcy Act are repealed for the following reasons:

•

Section 164: Details regarding remuneration of trustees where one trustees succeeds another will now be contained in the Insolvency Practice Rules.

•

Section 165: Details from section 165, which precludes a trustee from accepting extra benefits, are modified to align with the Corporations Act and will now be contained in section 60-20 of the Insolvency Law Reform Bill.

•

Section 166: An obligation to provide creditors with notice of the trustee's engagement of services in connection with the administration of the estate is now contained in section 60-26.

•

Section 167: The substance of section 167, which relates to a review of a trustee's remuneration by the Inspector-General, is replaced by Subdivision C in Division 90. [Schedule 1, Part 2, item 53].

2.114 Divisions 3 and 4 of Part VIII are repealed for the following reasons:

•

Section 168 and 169, which relate to trustee's requirements to pay moneys into a bank account that is not a private account, are now replaced by section 65-10 and section 90-15.

•

Subsection 170(2), which relates to the provision of information by the trustee to a bankrupt, is now contained in section 70-56.

•

Section 170A, as details regarding the provision of a return in relation to the administration of an estate during a financial year are now contained in section 70-5.

•

Section 171, which requires a trustee to give and retain receipts, is repealed without replacement as the provision of receipts can be dealt with by ordinary business practices without a statutory requirement.

•

Section 173, which relates to the books to be kept by a trustee, is now covered by section 70-10.

•

Section 174, which relates to the books a trustee must keep when trading, is now covered by section 70-11.

•

Section 175, which relates to an audit of administration books by the Inspector-General, is now covered by sections 70-15 and 70-25. Further, section 70-20 provides that a Court may order the Inspector-General to audit books on application of a person with financial interest.

•

Section 176, which relates to a Court order against a trustee to 'make good' loss caused by a breach of duty, is now covered by the general power of the Court in relation to bankruptcy administrations under section 90-15.

•

Section 177, which relates to a requirement for the trustee to have regard to any lawful directions by creditors' resolutions or by the committee of inspection. This is now covered in sections 80-35 and 85-5.

•

Section 178: the right to make an application to the Court to appeal against a trustee's decision is contained in section 90-20.

•

Section 179 is to be repealed because subsection 179(1) is replaced by section 90-15, and subsection 179(2) is replaced by a creditor's right to request information contained in Subdivision C of Division 70 of Schedule 2, and section 70-60. The Court's power to make orders as it thinks fit in relation to the administration of the regulated debtor's estate is contained in section 90-5. [Schedule 1, Part 2, item 54]

2.115 Section 181 is repealed because removal by creditors is now dealt with in Subdivision D of Division 90 (Removal by creditors) of the Schedule. [Schedule 1, Part 2, Section 55]

2.116 Subsection 181A(2) is being amended to remove the cross-reference to section 64A as this reference is no longer relevant given that section 64A is being repealed and replaced by the meetings regulation-making power in section 75-50. [Schedule 1, Part 2, item 56]

2.117 Section 182 is repealed for the following reasons:

•

Because subsection 182(1) provides for the automatic cancellation of a trustee's registration if the trustee becomes bankrupt, enters into a debt agreement or signs an authority under section 188 (Part X). This detail is now contained in section 40-20 of the Schedule and so can be repealed.

•

Subsections 182(4) and (5), which relate to notification requirements upon the death of a registered trustee, are no longer required as this is adequately covered by the automatic cancellation provision in section 40-20 of the Schedule. [Schedule 1, Part 2, item 57]

Application and transitional provisions

Registering trustees

2.118 If, before the commencement day, a person applies for registration as a trustee under section 154A of the old Act and the person's application is pending (that is, it has not been refused nor has the person been registered), the application will be considered to have never been made. In these circumstances, the Inspector-General must, on behalf of the Commonwealth, refund to the person an amount equal to the fee paid in relation to the application and the person is open to reapply for registration under Division 20 of the Schedule. A person will be considered to be registered as a trustee if the person is registered as a trustee under the National Personal Insolvency Index. [Schedule 1, Part 3, Division 2, Subdivision A, item 103(1) and (2)]

2.119 If, before the commencement day, a person has applied for registration as a trustee to be extended under section 155D of the old Act and the person's application has not been refused and the person's registration as a trustee has not been extended, section 155D of the old Act continues to apply in relation to the application as if that section had not been repealed by the Schedule. At the time for renewal, instead of extending a persons' registration under the old Act, the Inspector-General must renew the registration of the person as a trustee under the Schedule. [Schedule 1, Part 3, Division 2, Subdivision A, item 104]

2.120 If a person is registered as a trustee immediately before the commencement day, on the commencement day the person is taken to be registered as a trustee under Subdivision B of Division 20 of the Schedule. That is, persons registered under the old Act will continue to be registered under the Schedule. However, a person will not be considered to be registered as a trustee if the person is an insolvent under administration or the person is dead [Schedule 1, Part 3, Division 2, Subdivision A, items 105(1) and (2)]

2.121 An old Act registrant is a person who is taken to be registered under Subdivision B of Division 20 of the Schedule because of section 107. [Schedule 1, Part 3, Division 2, Subdivision A, Section 105(3)]

2.122 The Inspector-General must enter the details of old Act registrants on the Register of Trustees. The details must be those prescribed under subsection 15-1(3) of the Schedule that relate to the old Act registrant. [Schedule 1, Part 3, Division 2, Subdivision A, section 106(1)]

2.123 If the Inspector-General holds information in relation to old Act registrants, the Inspector-General may use and disclose that information to establish and maintain the Register of Trustees. [Schedule 1, Part 3, Division 2, Subdivision A, section 106(2)]

2.124 An old Act registrant's registration on the Register of Trustees is for 3 years after the old Act registration day in relation to that person. The old Act registration day is the day on which registration began; or the most recent extension of that registration began; whichever is the later. That is, the continuation of a trustee's registration under item 105 does not restart the time for a 3-year period of registration. [Schedule 1, Part 3, Division 2, Subdivision A, section 107]

2.125 Conditions may be imposed on old Act registrants in accordance with the Schedule. [Schedule 1, Part 3, Division 2, Subdivision A, section 108]

2.126 If a condition applies to an old Act registrant under sections 155E, 155F or 155I of the old Act; and that condition is still in force immediately before the commencement day, that condition (including any modifications under sections 155F or 155I of the old Act) will be a current condition imposed on the old Act registrant. Subdivision C of Division 20 of the Schedule applies to a condition imposed under subsection (1) in the same way as it applies to a condition imposed by a committee under that Schedule. [Schedule 1, Part 3, Division 2, Subdivision A, section 109]

2.127 If a condition applies to an old Act registrant under sections 155A, 155F or 155I of the old Act; and the old Act registrant has applied for the condition to be changed or removed under section 155E of the old Act before the commencement day; and a decision on the application has not been made before the commencement day under section 155F of the old Act; the application is taken never to have been made and the Inspector-General must, on behalf of the Commonwealth, refund to the person an amount equal to the fee paid in relation to the application. The trustee may then apply under section 20-40 of the Schedule for the condition to be varied or removed. [Schedule 1, Part 3, Division 2, Subdivision A, Section 110]

2.128 The old Act will apply in relation to the decision if an old Act registrant has applied for a condition to be changed or removed under section 155E of the old Act before the commencement day; and before the commencement day, a committee has made a decision on the application under section 155F. The same matter may not be dealt with under Division 20 of the Schedule. [Schedule 1, Part 3, Division 2, Subdivision A, section 111]

2.129 If an old Act registrant does not apply for renewal of their registration under the Schedule before their period of registration ends under section 108 ('the expiry day'), the old Act registrant may not accept further appointments after their registration expires. [Schedule 1, Part 3, Division 2, Subdivision A, section 112(1)].

2.130 An old Act registrant is taken to be registered as a trustee under Subdivision B of Division 20 of the Schedule after the expiry day, subject to a condition that they must not accept any further appointments as trustee of an estate. That condition is a current condition imposed on the old Act registrant. [Schedule 1, Part 3, Division 2, Subdivision A, section 112(2) and (3)]

2.131 The old Act registrant will be considered to have lodged a request to have their registration as a trustee cancelled on the day after the end of the administration of all estates for which the old Act registrant is a trustee and the Inspector-General is taken to have cancelled the registration under subsection 40-30(1) of the Schedule. [Schedule 1, Part 3, Division 2, Subdivision A, Section 112(4)]

Annual Returns

2.132 For the purposes of determining a 'return year' under subsection 30-1(2) of the Schedule, 'the day on which that registration first began', means 'the old Act registration day for that person (as defined for the purpose of Part 3 of Schedule 1 of the Insolvency Law Reform Act 2015)' Section 30-1 of the Schedule applies in relation to return years that begin on or after the commencement day. [Schedule 1, Part 3, Division 2, Subdivision B, Section 113]

Notice Requirements

2.133 If a significant event (as per section 35-1 of the Schedule) occurs within 2 years before the commencement day, the old Act registrant must inform the Inspector-General of the event before the commencement day. The notice must be lodged within one month of the commencement day or within one month after the old Act registrant is or could reasonably be expected to be aware of the event. [Schedule 1, Part 3, Division 2, Subdivision C, subsections 114(1) and (2)]

2.134 The old Act registrant will be taken to have committed an offence if they intentionally or recklessly fail to comply with this requirement within the relevant period. The penalty for this offence will be 100 penalty units. The penalty for this offence is consistent with the equivalent offence under section 35-1 of the Schedule. [Schedule 1, Part 3, Division 2, Subdivision C, subsection 114(3)]

Cancellation by the Inspector-General under the old Act

2.135 If a person gives the Inspector-General a written request to cease their registration as a trustee under section 155G of the old Act and that request has not come into effect, then the Inspector-General may not accept the request under section 155G. However, the person is taken to have lodged a request under paragraph 40-30(1)(g) of the Schedule. [Schedule 1, Part 3, Division 2, Subdivision D, section 115]

Disciplinary proceedings before a committee

2.136 Where, before the commencement day, the Inspector-General has issued a show-cause notice under subsection 155H(1) of the old Act to an old Act Registrant but has not convened a committee to consider whether the old Act registrant should continue to be registered, the notice is taken never to have been made. This does not preclude the Inspector-General from giving notice to the old Act registrant under section 40-40 of the Schedule. Further information on the operation of section 40-40 in relation to an event that occurs before commencement is provided for in the explanation of section 123. Item 116 does not apply for the purposes of sections 186LA and 186LB, which relate to trust accounts for debt agreement administrations. [Schedule 1, Part 3, Division 2, Subdivision E, section 116]

2.137 This item applies where, before the commencement day, a committee has decided to cancel registration of a trustee under section 115I of the old Act, but the Inspector-General has not yet given effect to the decision. Under these circumstances, the committee is taken to have made a decision under section 40-55 of the Schedule and the decision takes effect on the commencement day. For committee decisions to continue registration under section 115I of the old Act, item 109 provides that any conditions imposed will be carried over as a 'current condition'. This item does not affect any right or obligation that any person has before the commencement day (including any right to review by the AAT) in relation to the consideration of the matter by the committee. [Schedule 1, Part 3, Division 2, Subdivision E, Section 117]

2.138 If, before the commencement day, the Inspector-General convened a committee under section 155H of the old Act to consider whether a trustee should continue to be registered; and the committee has not made a decision in relation to the trustee under section 155I of the old Act before the commencement day, the committee must cease its consideration of the matter on the commencement day without making a decision. The fact that the committee has ceased to consider the matter does not preclude the matter, or any aspect of the matter, from being dealt with under Division 40 of the Schedule. To avoid doubt, nothing in this item affects any right or obligation that any person has before the commencement day, including any right to review, in relation to the consideration of the matter by the committee. [Schedule 1, Part 3, Division 2, Subdivision E, section 118]

Suspension, cancellation and disciplinary action

2.139 Subdivision B of Division 40 of the Schedule (Direction to comply) applies whether or not a requirement mentioned in that Subdivision to lodge a document or give information or a document arises before, on or after the commencement day. [Schedule 1, Part 3, Division 2, Subdivision F, Section 119]

2.140 Section 40-25 of the Schedule (Suspension of registration) applies whether or not an event mentioned in subsection 40-25(1) occurs before, on or after the commencement day. However, paragraph 40-25(1)(c) of the Schedule does not apply where a liquidator's registration is cancelled or suspended under the Corporations Act as in force at any time before the commencement day). The reason for this exception to the general rule is that AFSA has no power under the legislation, prior to the commencement day, to suspend a person's registration as a trustee on the grounds that the person's registration as a liquidator under the Corporations Act has been cancelled. [Schedule 1, Part 3, Division 2, Subdivision F, Section 120]

2.141 Section 40-30 of the Schedule (Cancellation of registration) applies whether or not an event mentioned in subsection 40-30(1) occurs before, on or after the commencement day. However, paragraph 40-30(1)(c) of the Schedule does not apply where a liquidator's registration is cancelled or suspended under the Corporations Act (as in force at any time before the commencement day). The reason for this exception to the general rule is that AFSA has no power under the legislation, prior to the commencement day, to cancel a person's registration as a trustee on the grounds that the person's registration as a liquidator under the Corporations Act has been cancelled. [Schedule 1, Part 3, Division 2, Subdivision F, Section 121]

2.142 Subdivision E of Division 40 of the Schedule applies whether or not an event mentioned in subsection 40-40(1) of the Schedule occurs before, on or after the commencement day. However, in relation to an event that occurs before the commencement day, paragraph 40-40(1)(p) of the Schedule has effect as if the reference in that paragraph to 'a standard prescribed for the purposes of subsection (4)' was a reference instead to 'a standard prescribed by regulations made for the purpose of subsection 155H(5) of the old Act'. This is to avoid retrospective application of the Insolvency Practice Rules. [Schedule 1, Part 3, Division 2, Subdivision F, Section 122]

2.143 Section 40-100 of the Schedule, which relates to notice by an industry body, applies whether or not the grounds to which a notice under that section relates arise because of an action, a failure to act or circumstance that occurs before, on or after the commencement day. [Schedule 1, Part 3, Division 2, Subdivision F, section 123]

Powers of the Court and other bodies

2.144 Regardless of whether or not an event in relation to which (or because of which) an order is made occurs before, on or after the commencement day, the Court may exercise its powers to make an order under section 45-1 of the Schedule. [Schedule 1, Part 3, Division 2, Subdivision G, section 124]

2.145 The Inspector-General, the Administrative Appeals Tribunal, the Court or any other body (relevant body) may decide to register or cancel a person's registration (or impose conditions on registration) as a trustee under the old Act where there is a continued application of the old Act on or after commencement day. Alternatively, the relevant body may instead act under the Schedule and modify the application of Part 3 of Schedule 2, or the Schedule by order. [Schedule 1, Part 3, Division 2, Subdivision G, Section 125]

Chapter 3 - Remuneration and regulation of trustees

Outline of chapter

3.1 This chapter relates to rules regarding the remuneration of trustees, interactions between trustees and creditors and the review of a trustee's actions. These rules will be common (with some exceptions) with the corresponding rules in relation to registered trustees which are introduced by the Insolvency Practice Schedule (Bankruptcy).

3.2 Many of the rules are based on the existing framework that exists for registered trustees.

Context of amendments

3.3 The interaction between trustees and creditors was the subject of a significant amount of attention in the Senate Inquiry. Concerns were raised that creditors lacked the ability to influence the actions taken by insolvency practitioners and to monitor the actions taken by insolvency practitioners.

3.4 A fundamental issue with regards to the regulation of insolvency practitioners is that generally creditors are disinterested in the details of the administration. This creditor disinterest can sometimes encourage bad behaviour by rogue insolvency practitioners. The rules detailed in this chapter seek to empower creditors to seek information with regards to an administration, should they so wish.

Summary of new law

3.5 The parts of the Schedule that this chapter is concerned with will provide for:

•

a maximum default amount of remuneration for trustees;

•

the making of remuneration determinations by the creditors and/or the Inspector-General;

•

rules relating to the receipt of benefits by trustees;

•

requirements relating to fund handling by trustees;

•

requirements relating to record keeping by trustees;

•

rules relating to the provision of information;

•

rules relating to meetings;

•

rules relating to committees;

•

rules relating to the review of the administration of regulated debtor's estates; and

•

rules relating to committees of inspection.

Comparison of key features of new law and current law

Detailed explanation of new law

3.6 A trustee's remuneration will be determined on the basis of whether a remuneration determination has been made or not. If a remuneration determination is made (there may be more than one) the trustee of a regulated debtor is entitled to receive remuneration for the necessary and work properly performed by the trustee in relation to the administration of the regulated debtor's estate in accordance with the remuneration determination [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-5(1)].

3.7 The qualifier 'necessary work properly performed' seeks to ensure that (if asked to) trustees can justify the work undertaken in relation to the administration of a regulated debtor's estate for which they are seeking remuneration.

3.8 If no remuneration determination is made the trustee is entitled to receive reasonable remuneration for the work undertaken by the trustee in relation to the administration of the regulated debtor's estate. However that remuneration must not exceed the maximum default amount (that is, $5,000 plus any indexation). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-5(2)]

3.9 For example if a trustee carries out work in relation to the administration of a regulated debtor's estate and the reasonable remuneration the trustee would be entitled to is less than the maximum default amount then they are not entitled to the maximum default amount. They may however claim reasonable remuneration for the work they have carried out on the regulated debtor's estate even if the amount they would be entitled to is less than the maximum default amount.

3.10 The remuneration is to be paid from the funds in the regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-5(3)]

3.11 A remuneration determination may be made by resolution of the creditors or (if no resolution has been made by the creditors) by the committee of inspection [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, section 60-10]

3.12 In circumstances as prescribed by the Insolvency Practice Rules, the Inspector-General may make a determination specifying the remuneration that a trustee is entitled to receive for necessary work properly performed in relation to the administration of the estate. This provision replaces repealed subsection 162(4) of the Bankruptcy Act. Regulation 8.09 provides the circumstances under which subsection 162(4) applies and will be replicated in the rules. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-11(1)]

3.13 When making a remuneration determination the Inspector-General must have regard to any matter prescribed by the Insolvency Practice Rules. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsections 60-11(2) and (3)]

3.14 A remuneration determination may specify the remuneration that the trustee is entitled to receive by: providing an amount of remuneration; or a method of calculating an amount of remuneration; or a combination of these two approaches. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-12(1)]

3.15 If a remuneration determination specifies that the trustee is entitled to receive remuneration worked out wholly or partly on a time-cost basis, the determination must include a cap on the amount of remuneration worked out on a time-cost basis that the trustee is entitled to receive. [Schedule 1, Insolvency Practice Schedule Bankruptcy, Part 3, Division 60, Subdivision B, subsection 60-12(2)]

3.16 If a remuneration determination specifies that the trustee is entitled to receive remuneration worked out wholly or partly on the basis of a specified percentage of money received by the trustee in respect of the regulated debtor's estate the determination must specify the money to which the specified percentage applies and the specified percentage must not be greater than the prescribed percentage. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-12(3)]

3.17 A remuneration determination may, for example, specify that a trustee is entitled to receive part of his or her remuneration on the basis of a specified percentage of money received from the sale of an asset that forms part of the regulated debtor's estate.

3.18 More than one remuneration determination may be made in relation to a particular trustee and a particular regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 22, Subdivision B, subsection 60-12(4)]

3.19 The maximum default amount does not seek to establish an industry average for remuneration in an insolvency. Rather, this provision seeks to facilitate a trustee being able to draw a base amount of remuneration without incurring the expense of convening a meeting to obtain creditor approval. This provision is expected to be particularly valuable for a no (or low) asset administration. The maximum default amount for a trustee is an amount (exclusive of GST) worked out as follows:

•

$5,000, if the trustee is appointed as the trustee of the regulated debtor's estate during the financial year beginning on 1 July 2016; otherwise,

•

if the trustee is appointed as the trustee of the regulated debtor's estate during a financial year beginning on or after 1 July 2017 the greater of:

(i)

the amount worked out by multiplying the indexation factor for the financial year (worked out in accordance with subsections 60-15(3) and (4)) by the maximum default amount for a trustee appointed as the trustee of a regulated debtor's estate during the previous financial year; and

(ii)

the amount (if any) prescribed for the purposes of subparagraph 60-15(1)(b)(ii).

The $5,000 figure reflects the current statutory minimum for trustee remuneration under paragraph 161B(1)(a) of the Bankruptcy Act, which will be preserved for the first financial year after the commencement of the Bill. From that financial year onwards, the amount will be indexed against this $5,000 figure. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 22, Subdivision B, subsection 60-15(1)]

3.20 Amounts worked out under the formula for the maximum default amount must be rounded to the nearest whole dollar. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 22, Subdivision B, subsection 60-15(2)]

3.21 Subject to subsection 60-15(4), the indexation factor for a financial year is the number worked out by dividing the index number for the March quarter immediately preceding that financial year by the index number of the March quarter immediately preceding that first mentioned March quarter. Where the indexation factor would be less than 1 it is to be increased to 1. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B. subsection 60-15(3) and (4)]

3.22 When working out the indexation factor for section 60-15:

•

use only the index numbers published in terms of the most recently published index reference period for the Consumer Price Index; and

•

disregard index numbers published in substitution for previously published index numbers (except where the substituted numbers are published to take account of changes in the index reference period). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-15(5)]

3.23 With regards to a reference in section 60-15 to the 'index number', the 'index number' in relation to a quarter means the All Groups Consumer Price Index, being the weighted average of the 8 capital cities, published by the Australian statistician in respect of that quarter. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision B, subsection 60-15(6)]

Duties of trustees relating to remuneration and benefits etcetera

3.24 A trustee of a regulated debtor's estate must not directly or indirectly derive any profit or advantage from a transaction, sale or purchase for or on account of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsection 60-20(1)]

3.25 To avoid doubt, a trustee of a regulated debtor's estate is taken to derive a profit or advantage from the administration of the estate if:

•

the trustee directly or indirectly derives a profit or advantage from a transaction (including a sale or purchase) entered into for, or on account of, the estate;

•

the trustee directly or indirectly derives a profit or advantage from a creditor of the estate; or

•

a related entity of the trustee directly or indirectly derives a profit or advantage from the administration of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsection 60-20(2)]

3.26 Subsection 60-20(1) does not apply to the extent that another provision of the Bankruptcy Act, or of another law, requires or permits the trustee to derive the profit or advantage or the Court gives leave to the trustee to derive the profit or advantage [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsection 60-20(3)]

3.27 Subsection 60-20(4) provides a further exception where the profit or advantage arises because the trustee employs or engages a related entity of the trustee to provide services in relation to the administration. In these circumstances, subsection 60-20(1) does not apply if one of the following is satisfied:

(i)

the trustee does not know, and could not reasonably be expected to know, that the person employed or engaged is a related entity of the trustee-this provides an exception where the trustee is unaware that the person is a related entity;

(ii)

the creditors, by resolution, agree to the related entity being employed or engaged-this provides a mechanism for creditors to agree to engagement or employment of a related entity; or

(iii)

it is not reasonably practicable in all the circumstances to obtain the agreement, by resolution, of the creditors to the related entity being employed or engaged and the cost of employing the related entity is reasonable in all the circumstances-this provision anticipates that there may be circumstances where a trustee is unable or prevented from seeking creditors' agreement to the engagement or employment of a related entity. It limits this exception to circumstances where the costs paid to the related entity are reasonable.

3.28 In many cases a trustee may structure their business so that they have a service company that provides services relating to their practice. Trustees will be able to engage their service firms (as a related entity) to provide services in relation to the administration of a regulated debtor's estate provided creditors consent, by resolution, to that arrangement or, where it is not reasonably practicable to obtain creditors' consent, the costs of that employment or engagement are reasonable in all the circumstances. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsection 60-20(4)]

3.29 Subsection 60-20(1) does not apply to the extent that the profit or advantage is a payment that is made to the trustee by or on behalf of the Commonwealth, or an agency or authority of the Commonwealth, and is of a kind prescribed. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsection 60-20(5)]

3.30 A trustee commits an offence of strict liability and incurs a penalty of 50 penalty units if they fail to comply with the requirements of subsection 60-20(1). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsection 60-20(6)]

3.31 A transaction, sale or purchase or any other arrangement entered into in contravention of the requirements under section 60-20 may be set aside by the Court. This allows the Court discretion to determine the effect of a contravention of section 60-20 in consideration of the circumstances surrounding that contravention. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsection 60-20(7)]

3.32 A person commits an offence of strict liability with a penalty of 50 penalty units, or 3 months imprisonment, or both if they offer an inducement for the purposes of securing their appointment or nomination as trustee of the debtor's estate, or for the purpose of securing or preventing the appointment or nomination of another person as a trustee of the debtor's estate. This provision, and its corresponding penalty, is modelled after section 595 of the Corporations Act. The severity of the penalty recognises the importance of appointing an impartial trustee who would have significant power to determine the outcome of an estate for creditors and for the regulated debtor. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsections 60-21(1) and (2)]

3.33 Section 60-26 provides that if another person performs the trustee's ordinary duties, they must not be paid unless the creditors or committee of inspection authorise that payment. A person who fails to comply with this requirement commits an offence of strict liability with a penalty of 50 penalty units. This provision replaces and reflects section 166 of the Bankruptcy Act, which was created in 2010 as part of the new remuneration notice regime to replace the taxation of costs requirements. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 60, Subdivision E, subsections 60-26(1), (2) and (3)]

Funds handling

3.34 An administration account is a bank account in relation to a regulated debtor's estate where it is maintained in relation to that estate and complies with prescribed requirements, if any. This provision replaces section 169 of the Bankruptcy Act, which will be repealed under item 55 of Schedule 1, Part 2. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, section 65-10]

3.35 The trustee must pay all money received by the trustee on behalf of, or in relation to, the estate into an administration account for the estate within five business days after receipt. This provision replaces section 168 of the Bankruptcy Act. It provides greater certainty by specifying that the trustee must pay all administration funds into the administration account and provides greater clarity around the offence by creating a timeframe of 5 business days for compliance with the requirement. [Schedule 1, Part 3, Division 65, subsection 65-5(1)]

3.36 There is an exception to this requirement where the Court gives an inconsistent direction, in which case the Court direction prevails to the extent of the inconsistency. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-5(2)]

3.37 A trustee commits an offence of strict liability with a penalty of 50 penalty units if they fail to meet this requirement. This penalty is higher than the section 168 penalty of 10 penalty units as this penalty better reflects the importance of account keeping practices in the handling of funds for bankruptcy administrations. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-5(3)]

3.38 Further to the requirement of section 65-10, section 65-15 provides that the trustee of a regulated debtor's estate must not pay any money into the administration account for the estate if it is not received by the trustee on behalf of, or in relation to, the estate or where the trustee maintains the account in relation to the relevant estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-15(1)]

3.39 There is an exception to this requirement where the Court gives an inconsistent direction, in which case the Court direction prevails to the extent of the inconsistency. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-15(2)]

3.40 A trustee commits an offence of strict liability with a penalty of 50 penalty units if they pay any money into the administration account for the estate if it is not received in relation to the estate. As with the penalty under subsection 65-10(3), this penalty reflects the importance of account keeping practices in the handling of funds for bankruptcy administrations. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-15(3)]

3.41 If the trustee fails to pay any money into an administration account as per section 65-10 and the amount exceeds $50 (or another prescribed amount) and an exception does not apply, the trustee must pay an interest penalty on the excess. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsections 65-20(1) and (2)]

3.42 The penalty must be paid to the Commonwealth at the rate of 20% a year (or a prescribed rate if applicable) for the period during which the trustee fails to comply with the requirement. The trustee is personally liable for, and is not entitled to be reimbursed by the estate in relation to, the payment of that interest. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsections 65-20(3) and (4)]

3.43 The trustee of a regulated debtor's estate must not pay any money out of the administration account for the estate otherwise than for purposes related to the administration of the estate; or in accordance with the Bankruptcy Act or in accordance with a direction of the Court. A person who fails to comply with this requirement will be committing an offence of strict liability with a penalty of 50 penalty units. As with the penalty under subsection 65-10(3), this penalty reflects the importance of account keeping practices in the handling of funds for bankruptcy administrations. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsections 65-25(1) and (2)]

3.44 The trustee of a regulated debtor's estate is entitled, in his or her personal capacity, to each payment of interest on the administration account for the estate, less an amount equal to the bank fees or charges (if any) paid or payable on the account during the period to which the interest relates. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-31(1)]

3.45 If the trustee is only entitled to part of a payment of interest, the rest of that payment:

•

forms part of that estate where the administration account contains money from only one estate of a regulated debtor; or

•

forms part of those estates in proportion to the respective amounts of money held in the administration account on account of each of those estates where the administration account contains money from more than one estate of a regulated debtor or regulated debtors. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-31(2])

3.46 Interest on money in the administration account for a regulated debtor's estate is not subject to taxation under a law of the Commonwealth, a State, or a Territory except as provided for in Part 2 of the Bankruptcy (Estate Charges) Act 1997. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-31(3)]

3.47 If a trustee maintains a single bank account for more than one estate of a regulated debtor or regulated debtors the trustee must maintain separate records for each of these estates of:

•

money received by the trustee from the regulated debtor in relation to the estate;

•

payments made by the trustee in relation to the estate;

•

the balance of money held by the trustee in relation to the estate; and

•

at least once every 25 business days the trustee must reconcile the balance relating to each estate held in the account with the corresponding separate record. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsections 65-32(1) and (2)]

3.48 The trustee of a regulated debtor's estate must deposit in a bank: bills of exchange, promissory notes and any other negotiable instrument or security payable to the regulated debtor or the trustee as soon as practicable after they are received by the trustee. If a Court gives a direction that is inconsistent with this requirement then that requirement does not apply. A person commits an offence of strict liability with a penalty of 5 penalty units if they are required to comply with this requirement and they fail to do so. The bills, notes or other instruments must be delivered out on the signed request of the trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsections 65-40(1), (2), (3) and (4)]

3.49 The Court may, on application, give directions regarding the payment, deposit or custody of money and securities that are payable to, or held by, the trustee of a regulated debtor's estate. [Schedule 1, Part 3, Division 65, subsection 65-45(1)]

3.50 The Court may, on application, give directions authorising the trustee of a regulated debtor's estate to make payments into and out of a special bank account. Without limiting the scope of the directions the Court may:

•

authorise the payments for the time and on the terms it thinks fit; and

•

if the Court thinks the account is no longer required-at any time order it to be closed. An order to close an account must be served by the trustee on the relevant bank. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsections 65-45(2) and (3)]

3.51 A copy of a Court direction authorising the trustee of a regulated debtor's estate to make payments into and out of a special bank account must be served by the trustee on the bank with which the special account was opened. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-45(4)]

3.52 An application for the Court to give directions may be made by a person with a financial interest in the administration of the debtor's estate. This is defined by section 5-30 to include:

•

a creditor;

•

the regulated debtor;

•

the trustee; or

•

any other person in circumstances as prescribed. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-45(5)]

3.53 The Insolvency Practice Rules may provide for the review by the Inspector-General of a bill of costs for services provided by a person in relation to the administration of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, subsection 65-46(1)

3.54 Without limiting the scope of what the Insolvency Practice Rules may provide for and in relation to the review of payments to third parties the Insolvency Practice Rules may provide for:

•

the application for the review (including who may apply);

•

the powers available to the Inspector-General in relation to the review;

•

the provision of information or documents to the Inspector-General for the purposes of the review;

•

the decisions that may be made by the Inspector-General in relation to the review;

•

the notification of decisions made by the Inspector-General; and

•

the consideration of the decisions made by the Inspector-General in relation to the review by the Court. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, section 65-46(2)]

3.55 The Insolvency Practice Rules may provide for rules in relation to consequences for failure to comply with Division 65. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 65, section 65-50]

Annual Administration Return

3.56 If a person is the trustee of a regulated debtor's estate during all or part of a financial year the person must lodge a return in relation to the person's administration of that estate during that year (or part year). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Subdivision B, Division 70, subsections 70-5(1) and (2)]

3.57 The return must be in the approved form; and be lodged with the Inspector-General within 25 business days after the end of the financial year. If the person does not lodge the return within this time period the person must pay a late lodgement fee determined by the Minister by legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Subdivision B, Division 70, subsections 70-5(3) and (4)]

Record-keeping

3.58 Subdivision C of Division 70 (Record-keeping) applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, section 70-6]

3.59 The trustee of a regulated debtor's estate must keep proper books in which the trustee must cause to be made:

•

entries of minutes of proceedings at meetings relating to the administration of the estate; and

•

such other entries as are necessary to give a complete and correct record of the trustee's administration of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy). Part 3, Division 70, Subdivision C, subsection 70-10(1)]

3.60 The trustee must:

•

ensure that the books are available at the trustee's office for inspection; and

•

permit a creditor, or another person acting on the creditor's behalf, to inspect the books at all reasonable times. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-10(2)]

3.61 The requirements to keep proper books and to allow for the books to be inspected do not apply if the trustee has a reasonable excuse. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Subdivision C, Division 70, subsection 70-10(3)].

3.62 A person commits an offence of strict liability with a penalty of five penalty units if they are subject to the requirement to keep proper books or to allow for the books to be inspected and they do not comply with the requirement. This reflects the penalty in the previous equivalent provision under section 173 of the Bankruptcy Act. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-10(4)]

3.63 If the trustee of a regulated debtor's estate carries on a business previously carried on by the regulated debtor, the trustee must:

•

keep such books as are usually kept in relation to the carrying on of a business of that kind; and

•

permit a creditor or another person acting on the creditor's behalf, to inspect the books at all reasonable times. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-11(1)]

3.64 A person commits an offence with a penalty of five penalty units if they are subject to the requirements in subsection 70-11(1) regarding the keeping of books while trading and they fail to comply with it. [Schedule 1, Insolvency Practice Schedule (Bankruptcy) , Part 3, Division 70, Subdivision C, subsection 70-11(2)]

3.65 The Inspector-General may audit, or cause to be audited administration books, administration returns or books kept when trading. The auditor must prepare a report and the audit may be conducted:

•

on the Inspector-General's own initiative;

•

at the request of the regulated debtor; or

•

at the request of a creditor [Schedule 1, Insolvency Practice Schedule (Bankruptcy). Part 3, Division 70, Subdivision C, subsections 70-15(1) and (2)]

3.66 The person carrying out the audit must prepare a report of the audit. The Inspector-General must give a copy of the report to the trustee of the estate and the person who requested the report (if any). The costs of an audit must be determined by the Inspector-General and are to be borne by the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsections 70-15(3), (4) and (5)]

3.67 A person who conducts an audit under section 70-15 has qualified privilege (within the meaning of the Corporations Act) in respect of any report prepared that is given to the trustee of the estate or the person who requested the report (if any). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-15(6)]

3.68 Qualified privilege is defined in section 89 of the Corporations Act. If the person who conducts an audit did not have qualified privilege they may be unable to present all the facts of the case candidly without risk of breaching defamation laws.

3.69 The Court may order that the Inspector-General audit, or cause to be audited, the administration books or books kept when trading. The order may be made on application of any person with a financial interest in the administration of the regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsections 70-20(1) and (2)]

3.70 The Court may make such orders in relation to the audit as it thinks fit, including:

•

the preparation and provision of a report on the audit; and

•

orders as to the costs of the audit. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-20(3)]

3.71 If books of an estate are being audited the trustee must give to the person carrying out the audit such books, information and assistance as the person reasonably requires (unless the trustee has a reasonable excuse). A trustee commits an offence with a penalty of five penalty units if they fail to comply with this requirement. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsections 70-25(1), (2), (3) and (4)]

3.72 In cases where a trustee succeeds another trustee the former trustee must transfer to the new trustee, within the handover period, any books relating to the administration of the estate that are in the former trustee's possession or control. The handover period being defined as 10 business days from the day after the appointment of the new trustee, or another period agreed between the former trustee and the new trustee. The former trustee may take a copy of any part of the books before transferring them to the new trustee. The new trustee must take possession or accept control of any books; that is, the obligation rests with the new trustee to accept the books. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsections 70-30(1), (2), (3) and (4)]

3.73 The new trustee must take possession or accept control of any books. That is, the obligation rests with the new trustee to accept the books. The words possession and control allow for circumstances where the books are physical, electronic or a combination of both. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-30(5)]

3.74 After possession or control of the books is transferred, the new trustee must allow the former trustee to inspect them at any reasonable time and take a copy of any part of the books. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-30(6)]

3.75 A person commits an offence with a penalty of 50 penalty units if a former trustee intentionally or recklessly fails to transfer the books or a new trustee intentionally or recklessly fails to allow the former trustee to inspect the books and the trustee does either of these things. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-30(7)]

3.76 If the new trustee is entitled to take possession of the books under section 70-30 a person is not entitled, as against the new trustee, to claim a lien on the books and such a lien is not otherwise prejudiced. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-30(8)]

3.77 Unless the trustee has a reasonable excuse, the last trustee to administer a regulated debtor's estate must retain all books that:

•

relate to the administration of the estate; and

•

are in the last trustee's possession or control at the end of the administration;

for a period of 7 years from the end of the administration. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsections 70-35(1) and (2)]

3.78 Despite the requirement to retain books, the books that the regulated debtor has given to the trustee of the estate may be returned to the regulated debtor within the retention period as directed by a committee of inspection (if any) and, otherwise, by a creditors' resolution. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-35(3)]

3.79 The trustee may return the books to the regulated debtor, or destroy the books at the end of the retention period. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-35(4)].

3.80 A person commits an offence with a penalty of 50 penalty units if the person is subject to this requirement and the person intentionally or recklessly fails to comply with the requirements regarding the retention and return or destruction of books. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-35(5)]

3.81 If the trustee is obligated to retain the books, or part of the books, under another provision of the Bankruptcy Act or under any other law, then the trustee must retain the relevant books despite the operation of subsections 70-35(3) and (4). For example laws relating to taxation may prohibit the destruction of some records. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-35(6)]

3.82 The trustee of a regulated debtor's estate may, at any time during the administration of the estate, return to the regulated debtor, or destroy, any books that:

•

the regulated debtor has given to any trustee of the estate; and

•

the trustee considers will not help the administration of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, subsection 70-36(1)]

3.83 Despite subsection 70-36(1) the trustee is not permitted to return the books to the regulated debtor, or destroy them, if the trustee knows, or reasonably ought to know, that:

•

another person had a lien over the books before the trustee took possession of them;

•

another person has a legal right to possession of the books; or

•

the trustee is not permitted to return the books to the regulated debtor or destroy them (as the case requires) because of another provision of the Bankruptcy Act, or a provision of any other law. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision C, section 70-36(2)]

Giving information etc. to creditors

3.84 Subdivision D of Division 70 applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, section 70-37]

3.85 The creditors may by resolution request the trustee of a regulated debtor's estate to give information, provide a report, or produce a document to the creditors. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, subsection 70-40(1)]

3.86 The trustee must comply with a request made under section 70-40 unless:

•

the information, report or document is not relevant to the administration of the regulated debtor's estate; or

•

the trustee would breach his or her duties in relation to the administration of the regulated debtor's estate if the trustee complied with the request; or

•

it is otherwise not reasonable for the trustee to comply with the request. [Schedule 1, Insolvency Practice Schedule, Part 3, Division 70, Subdivision D, section 70-40(2)]

3.87 The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for a trustee to comply with a request of a kind mentioned in subsection 70-40(1). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, section 70-40(3)]

3.88 A creditor may request the trustee of a regulated debtor's estate to give information, provide a report or produce a document to the creditor. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, subsection 70-45(1)]

3.89 The trustee must comply with the request under subsection 70-45(1) unless:

•

the information, report or document is not relevant to the administration of the regulated debtor's estate;

•

the trustee would breach his or her duties in relation to the administration of the regulated debtor's estate if the trustee complied with the request; or

•

it is otherwise not reasonable for the trustee to comply with the request. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, section 70-45(2)]

3.90 The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for the trustee of a regulated debtor's estate to comply with a request of a kind mentioned in subsection 70-45(1). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, section 70-45(3)]

3.91 The Insolvency Practice Rules may provide for and in relation to the obligations of trustees of regulated debtors' estate to give information, provide reports and produce documents to the creditors. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, subsection 70-50(1)]

3.92 Without limiting subsection 70-50(1) the Insolvency Practice Rules may provide for and in relation to:

•

other circumstances in which the trustee of a regulated debtor's estate must give information, provide a report, or produce a document to a creditor or a regulated debtor;

•

the manner and form in which the information is to be given, a report provided or a document produced;

•

the timeframes in which information is to be given, a report provided or a document produced; and

•

who is to bear the cost of giving information, providing a report or producing a document. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, subsection 70-50(2)]

3.93 The Insolvency Practice Rules may:

•

make different provisions in relation to different kinds of estate administration; and

•

provide that specified requirements imposed under the Insolvency Practice Rules may be replaced or modified, by resolution, by:

(i)

the creditors; or

(ii)

if there is a committee of inspection-the committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision D, subsection 70-50(3)]

Other requests for information

3.94 Subdivision E of Division 70 (Other requests for information etc.) applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate.

3.95 Employees who are owed certain employee entitlements after the insolvency of their employer may be able to have some or all of their entitlements paid by the Commonwealth under the operation of the Fair Entitlements Guarantee Act 2012 and the General Employment Entitlements and Redundancy Scheme. Section 70-55 is designed to facilitate the operation of this Act and Scheme. It empowers the Commonwealth to request information from a trustee where a former employee of a regulated debtor has made, or is likely to make, a claim for financial assistance in relation to unpaid employment entitlements. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision E, subsections 70-55(1), (2) and (3)]

3.96 The Insolvency Practice Rules may provide for and in relation to who is to bear the cost of providing the information, reports or documents. This will provide flexibility for the Commonwealth to bear the costs of providing the information, where appropriate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision E, subsection 70-55(4)]

3.97 Under section 70-56 the trustee must provide information to the regulated debtor if requested to do so. The trustee is not required to comply with the request if:

•

the information, report or document is not relevant to the administration of the regulated debtor's estate;

•

the trustee would breach his or her duties in relation to the administration of the regulated debtor's estate if the trustee complied with the request; or

•

it is otherwise not reasonable for the trustee to comply with the request. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision E, subsection 70-56(1) and (2)]

3.98 The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for a trustee of a regulated debtor's estate to comply with a request of a kind mentioned in subsection 70-56(1). This will allow the provision of further detail on the application of the provision and factors that may be considered by the trustee to determine whether or not to provide the information. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision E, subsection 70-56(3)]

Reporting to the Inspector-General

3.99 The Insolvency Practice Rules may provide for reporting to the Inspector-General in relation to the obligations of trustees of regulated debtors' estates. This may include a requirement to provide information, reports and/or to produce documents to the Inspector-General. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision F, subsection 70-60(1)]

3.100 Subsection 70-60(2) specifies that the Insolvency Practice Rules may specify how the report is to be given, timeframes for the provision of the report to the Inspector-General and who will bear the costs. This may include rules around reporting that are specific to a particular kind of estate administration. For clarity, the note after subsection 70-60(3) links a failure to comply with this provision to the disciplinary regime under Subdivision B of Division 40 of Part 2 of the Schedule. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision F, Subsections 70-60(2) and (3)]

Trustee may be compelled to comply with requests for information etc.

3.101 This subdivision (Subdivision G of Division 70) applies if the trustee of a regulated debtor's estate refuses a request made for information, a report or a document by a creditor or creditors, a regulated debtor, the Commonwealth and a committee of inspection. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-65(1)]

3.102 For clarity, subsection 70-65(2) specifies the meaning of the terms relevant material, request for relevant material, and giving the relevant material in this subdivision. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-65(2)]

3.103 The Inspector-General may direct a trustee to comply with the request for information within 5 business days after the direction is given. The direction can specify that all or part of the relevant material must be provided. A direction is not a legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision F, subsection 70-70(1) and (2)]

3.104 Before giving the trustee a direction under section 70-70, the Inspector-General must give the trustee notice in writing and allow the trustee a right of reply. Specifically the notice must:

•

state that the Inspector-General proposes to give the trustee a direction under section 70-70;

•

identify the relevant material and who the relevant material is to be provided to; and

•

invite the trustee to make a written submission to the Inspector-General within 10 business days after the notice is given, stating:

(i)

whether the trustee has any objection to giving the relevant material, or that part of the relevant material, to a person or persons as proposed; and

(ii)

the reasons for that objection, if any. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 26, Subdivision F, subsection 70-75(1)]

3.105 If the trustee objects then the Inspector-General must take into account the reasons for that objection when deciding whether to direct that the relevant material be given to the person. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-75(2)]

3.106 A notice under subsection 70-75(1) is not a legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-75(3)]

3.107 The Inspector-General must not give a direction under section 70-70 to give the relevant material or part of the relevant material, to a person if the Inspector-General is satisfied that the trustee was entitled, under a provision of the Bankruptcy Act, or any other law, not to comply with the request for the relevant material. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-80]

3.108 The Inspector-General may, by notice in writing to the person or persons to whom the relevant material is to be given, impose conditions on the use and disclosure of the relevant material, or part of the relevant material, by the person or persons [Schedule 1, Insolvency Practice Schedule, Part 3, Division 70, Subdivision G subsection 70-85(1)]

3.109 A person commits an offence with a penalty of 10 penalty units or 3 months in prison, or both if:

•

the Inspector-General directs that the relevant material, or part of the relevant material, be given to the person;

•

the Inspector-General has given the person notice under subsection 70-85(1) imposing a condition in relation to the use or disclosure of the that material by the person; and

•

the person does not comply with the condition. [Schedule 1, Insolvency Practice Schedule, Part 3, Division 70, Subdivision G. Subsection 70-85(2)]

3.110 A notice under subsection 70-85(1) is not a legislative instrument. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-85(3)]

3.111 The person or persons who made the request for the relevant material may apply to the Court for an order that the trustee give the person all or part of the relevant material. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-90(1)]

3.112 If:

•

the Inspector-General gives the trustee a direction under section 70-70 in relation to all or part of the relevant material; and

•

the trustee does not comply with the direction;

the Inspector-General may apply to the Court for an order that the trustee comply with the direction. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-90(2)]

3.113 On application under subsection70-90(1) or 70-90(2) the Court may:

•

order the trustee to give the person, or any or all of the persons, who made the request for the relevant material all or part of that material; and

•

make such other orders, including orders as to costs, as it thinks fit. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 70, Subdivision G, subsection 70-90(3)]

Meetings of creditors

3.114 Division 75 applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, Subsection 75-2]

3.115 Nothing in Division 75 limits the operation of any other provision of the Bankruptcy Act or any other law, imposing an obligation to convene a meeting in relation to a regulated debtor, of the administration of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-5]

3.116 The trustee of a regulated debtor's estate may convene a meeting of the creditors at any time. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, Subsection 75-10]

3.117 The trustee of a regulated debtor's estate must convene a meeting of the creditors if:

•

the committee of inspection, if there is one, requests the trustee to do so;

•

the creditors direct the trustee to do so by resolution;

•

at least 25% in value of the creditors (based on the value of creditors' claims that are known at the time of the direction) direct the trustee to do so in writing; or

•

both of the following are satisfied:

(i)

less than 25% but more than 10% in value of the creditors (based on the value of creditors' claims that are known at the time of the direction) direct the trustee to do so in writing;

(ii)

security for the cost of holding the meeting is given to the trustee before the meeting is convened. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsections 75-15)(1) and (4)]

3.118 However, the trustee of a regulated debtor's estate need not comply with the request or direction if the request or direction is not reasonable. The Insolvency Practice Rules may prescribe circumstances in which a request or direction is, or is not, reasonable. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-15(2) and (3)]

3.119 The Inspector-General may, in writing, direct the trustee of a regulated debtor's estate to convene a meeting of the creditors. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-20(1)]

3.120 The Inspector-General may include in the direction requirements to be complied with by the trustee in notifying the creditors of the meeting and conducting the meeting. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-20(2)]

3.121 The trustee must comply with a direction given subsection 75-20(1), and any requirements included in the direction under subsection 75-20(2). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-20(3)]

3.122 A direction given under subsection 75-20(1) is not a legislative instrument. [Schedule 1, Part 3, Division 75, subsection 75-20(4)]

3.123 The trustee may appoint a person to represent them at a meeting other than meetings of a prescribed kind. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-25(1) and (2)]

3.124 If the trustee is not personally present at a meeting, then a reference in a provision of the Bankruptcy Act to a trustee, in relation to the meeting, is a reference to the appointed representative. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-25(3)]

3.125 The Inspector-General is entitled to attend creditors' meetings but may only participate subject to the provisions of the Bankruptcy Act (for example, the limitations on who may cast votes). For example, the Inspector-General could put forward a view on a proposed resolution or on the conduct of a meeting. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, section 75-30]

3.126 The Commonwealth is entitled to nominate a representative to attend any creditors' meeting in relation to administrations where a former employee has made, or is likely to make, a claim for financial assistance from the Commonwealth in relation to unpaid employee entitlements. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, section 75-35]

3.127 Section 75-40 allows a trustee to put written proposals to creditors without a creditors' meeting. The trustee of a regulated debtor's estate may at any time put a written proposal to the creditors by giving notice under section 75-40 of the Bankruptcy Act. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsection 75-40(1)]

3.128 The notice given under section 75-40 must:

•

contain a single proposal;

•

include a statement of the reasons for the proposal and the likely impact it will have on creditors (if it is passed);

•

be given to each creditor who would be entitled to receive notice of a meeting of creditors; and

•

invite the creditors to either:

(i)

vote Yes or No on the proposal; or

(ii)

object to the proposal being resolved without a meeting of creditors; and

•

specify a reasonable time by which replies must be received by the trustee (in order to be counted). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, Subsection 75-40(2)]

3.129 A certificate signed by the trustee of the regulated debtor's estate stating any matter relating to a proposal under this section is prima facie evidence of the matter. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, Subsection 75-40(3)]

3.130 The Insolvency Practice Rules may provide for and in relation to proposals under section 70-40, including:

•

the circumstances in which a proposal is taken to be passed; and

•

whether a proposal, if passed, is taken to have been passed as a resolution or a special resolution; and

•

costs and security for those costs in relation to a proposal. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsections 75-40(4) and (5)]

3.131 Currently, Division 5 of Part IV of the Bankruptcy Act sets out rules for procedures at creditors' meetings. This Division has been repealed, see explanation of item 24. The Bill allows the Insolvency Practice Rules to provide for and in relation to meetings of creditors, including:

•

the circumstances in which meetings must or may be convened; and

•

notice for convening meetings; and

•

agenda; and

•

information to be given to creditors; and

•

who is to preside at meetings; and

•

the number of creditors required to constitute a quorum; and

•

proxies and attorneys; and

•

motions; and

•

voting (including casting votes); and

•

the circumstances in which a resolution (or a special resolution) must or may be put to creditors in a meeting; and

•

the circumstances in which a resolution or a special resolution put to creditors in a meeting is passed; and

•

facilities, including electronic communication facilities, to be available at meetings; and

•

minutes; and

•

costs in relation to meetings and security for those costs. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 75, subsections 75-50(1) and (2)]

Committees of inspection

3.132 Division 80 (Committees of inspection) applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, section 80-2]

3.133 Rules under sections 80-10 and 80-25 apply if the trustee of a regulated debtor's estate convenes creditors' meeting for the purpose of:

•

determining whether there is to be a committee of inspection for the regulated debtor's estate; and/or

•

if there is, or is to be, a committee of inspection-determining who are to be appointed as committee members. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, section 80-5]

3.134 The creditors of a regulated debtor's estate may, by resolution, determine that there is to be a committee of inspection in relation to the administration of the estate. That is, in order to establish a committee of inspection, the creditors must agree by resolution to its establishment. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, section 80-10]

3.135 In summary, creditors may appoint a member of the committee of inspection in their capacity as a creditor (under section 80-15), as a large creditor or group of creditors (under section 80-20), or as an employee or group of employees (under section 80-25). That is, a creditor can exercise their right to appoint a member for more than one committee member. The creditors who successfully appoint a member may remove and replace that member. This is explained in further detail in the following paragraphs.

3.136 Under section 80-15, the creditors of a regulated debtor's estate may, by resolution, appoint members of a committee of inspection. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-15(1)] The creditors may also remove a person appointed to be a member under this section and appoint a replacement. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-15(2)]

3.137 Subsections 80-15(3), 80-20(3) and 80-25(3) operate to ensure that once a person exercises a right in one capacity to appoint a member, the person cannot exercise a right in another capacity. Further, a person can only exercise the right in a particular capacity to appoint one person (unless the person is filling a vacancy in that appointment). [Schedule 1, Part 3, Division 30, subsection 80-15(3)]

3.138 Section 80-20 allows a creditor representing at least 10% in value of the creditors, or a group of creditors who together represent at least 10% in value of the creditors, of a regulated debtor's estate to appoint a person as a member of a committee of inspection. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-20(1)]. This creditor or creditors may also remove a person appointed to be a member under this section and appoint a replacement. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-20(2)]

3.139 Subsections 80-15(3), 80-20(3) and 80-25(3) operate to ensure that once a person exercises a right in one capacity to appoint a member, the person cannot exercise a right in another capacity. Further, a person can exercise the right in a particular capacity to appoint only one person (unless the person is filling a vacancy in that appointment). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-20(3)]

3.140 Section 80-25 allows an employee or employees of the regulated debtor who hold a majority of the value owed to the employee(s) to appoint a person as a member of a committee of inspection to represent the employees. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, Subsection 80-25(1)] This creditor or creditors may also remove a person appointed to be a member under this section and appoint a replacement. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-25(2)]

3.141 Subsections 80-15(3), 80-20(3) and 80-25(3) operate to ensure that once a person exercises a right in one capacity to appoint a member, the person cannot exercise a right in another capacity. Further, a person can exercise the right in a particular capacity to appoint only one person (unless the person is filling a vacancy in that appointment). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-25(3)]

3.142 A committee of inspection may determine its own rules subject to any Insolvency Practice Rules that provide for and in relation to committees of inspection. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsections 80-30(1) and (2))]

3.143 Without limiting subsection 80-30(2) the Insolvency Practice Rules may provide for and in relation to:

•

eligibility to be appointed as a member of a committee of inspection;

•

the convening of, conduct of, and procedure and voting at, meetings;

•

resignation and removal of members; and

•

vacancies in membership. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80. subsection 80-30(2)]

3.144 A committee of inspection has the following functions:

•

to advise and assist the trustee of the regulated debtor's estate;

•

to give directions to the trustee of the regulated debtor's estate;

•

to monitor the conduct of the administration of the estate;

•

such other functions as are conferred on the committee by the Bankruptcy Act;

•

to do anything incidental or conducive to the performance of any of the above functions. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-35(1)]

3.145 The trustee of a regulated debtor's estate must have regard to any directions given to the trustee by the committee of inspection, but the trustee is not required to comply with such directions. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-35(2)]

3.146 If the trustee of a regulated debtor's estate does not comply with a direction, the trustee must make a written record of that fact, along with the trustee's reasons for not complying with the direction. This will ensure that trustees keep proper records of the reasons behind any decision not to comply with a direction and will generally ensure that directions of this kind are not disregarded without consideration by the trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-35(3)]

3.147 A committee of inspection may request the trustee of a regulated debtor's estate to give information or provide a report or produce a document to the committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-40(1)]

3.148 The trustee must comply with the request unless:

•

the information, report or document is not relevant to the administration of the regulated debtor's estate; or

•

the trustee would breach his or her duties in relation to the administration of the regulated debtor's estate if the trustee complied with the request; or

•

it is otherwise not reasonable for the trustee to comply with the request. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-40(2)]

3.149 The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for a trustee to comply with a request of a kind mentioned in subsection 80-40(3). [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-40(3)]

3.150 The Insolvency Practice Rules may provide for and in relation to the obligations of trustees of regulated debtors' estates to give information and to provide reports and to produce documents to committees of inspection. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-45(1)]

3.151 Without limiting subsection 80-45(1) the Insolvency Practice Rules may provide for and in relation to:

•

other circumstances in which the trustee must give information, provide a report or produce a document to a committee of inspection; and

•

the manner and form in which information is to be given, a report provided or a document produced; and

•

the timeframes in which information is to be given, a report provided or a document produced; and

•

who is to bear the cost of giving information, providing a report or producing a document. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-45(2)]

3.152 The Insolvency Practice Rules may:

•

Make different provisions in relation to different classes of regulated debtor, or regulated debtors' estates; and

•

Provide that specified requirements imposed under the Insolvency Practice Rules may be replaced or modified through resolution by

(i)

the creditors; or

(ii)

the committee of inspection [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-45(3)].

3.153 A committee of inspection may resolve that a member of the committee obtain, on behalf of the committee, such advice or assistance as the committee considers desirable in relation to the conduct of the administration of the regulated debtor's estate. This provision seeks to facilitate the committee to obtain specialist advice (such as legal advice) or assistance. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-50(1)]

3.154 The committee of inspection must obtain the approval of the trustee of the regulated debtor's estate or the Court before expenses are incurred in obtaining the advice or assistance. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-50(2)]

3.155 To avoid doubt, an expense incurred under subsection 80-50(2) is to be taken to be an expense of the administration of the estate. This is appropriate as the committee, acting with the approval of the trustee or the Court, should not be out of pocket for expenses that are incurred for the benefit of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-50(3)]

3.156 A member of a committee of inspection must not directly or indirectly derive any profit or advantage from the administration of the regulated debtor's estate. To avoid doubt, a member of a committee of inspection is taken to derive a profit or advantage from the administration of the regulated debtor's estate if:

•

the member directly or indirectly derives a profit or advantage from a transaction (including a sale or purchase) entered into on account of the estate;

•

the member directly or indirectly derives a profit or advantage from a creditor of the estate; or

•

a related entity of the member directly or indirectly derives a profit or advantage from the administration of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-55(1) and (2)]

3.157 Subsection 80-55(1) does not apply if the creditors resolve otherwise. A member of the committee who is seeking to profit or gain an advantage from the estate is not entitled to vote on a resolution that seeks to have the profit or advantage approved by the creditors. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-55(3) and (4)]

3.158 Subsection 80-55(1) does not apply to the extent that another provision of the Bankruptcy Act, or of another law, requires or permits the member of the committee of inspection to derive the profit or advantage; or the Court gives leave to the member of the committee to derive the profit or advantage. For example, Division 2 of Part VI permits creditors to recover debts proved in bankruptcy and this permission is not affected by a creditor's appointment as a committee member. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-55(5)].

3.159 Subsection 80-55(6) provides a further exception where the profit or advantage arises because the trustee employs or engages a related entity of a committee member to provide services in relation to the administration. In these circumstances, subsection 80-55(1) does not apply if one of the following is satisfied:

(i)

the member does not know, and could not reasonably be expected to know, that the trustee has employed or engaged a related entity of the member; or

(ii)

the creditors, by resolution, agree to the related entity being employed or engaged. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-55(6)]

3.160 A person commits an offence of strict liability with a penalty of 50 penalty units if the person is subject to a requirement not to derive any profit or advantage from the administration of the estate (under subsection 80-55(1)) and the person fails to comply with the requirement. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Division 80, subsection 80-55(7)]

3.161 A transaction, sale, purchase or any other arrangement entered into in contravention of section 80-55 may be set aside by the Court on the application of a creditor. This empowers the Court to set aside transactions that were made to benefit a member of a committee of inspect, either directly or indirectly. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-55(8)]

3.162 Creditors who appoint a member of a committee of inspection as a large creditor or as a group of creditors (under section 80-20) are subject to further obligations. A creditor who falls into this category must not directly or indirectly become the purchaser of any part of the regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsections 80-60(1)and (2)]

3.163 Subsection 80-60(2) does not apply if the creditors resolve otherwise. The creditor in question is not entitled to vote on a resolution that seeks to approve their purchase of part of the regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsections 80-60(3) and (4)]

3.164 Subsection 80-60 does not apply to the extent that another provision of the Bankruptcy Act, or of another law, requires or permits the creditor to purchase the property or the Court gives leave to the creditor to purchase the property. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-60(5)]

3.165 A person commits an offence of strict liability with a penalty of 50 penalty units if the person is subject to a requirement under subsection 80-60(2) and the person fails to comply with the requirement. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-60(6)]

3.166 A transaction or any other arrangement entered into in contravention of this section may be set aside by the Court. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80 subsection 80-60(7)]

3.167 The Inspector-General is entitled to attend any meeting of a committee of inspection. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-65]

3.168 The Court may inquire into the conduct of a committee of inspection and make such orders as it thinks fit to ensure the proper conduct of the committee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 80, subsection 80-70]

3.169 Division 85 (Directions by creditors) applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 85, section 85-2]

3.170 The creditors may, by resolution, give directions to the trustee of a regulated debtor's estate in relation to the administration of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 85, subsection 85-5(1)]

3.171 The trustee must have regard to any directions mentioned in subsection 80-10(1), but the trustee is not required to comply with such directions. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 85, subsection 85-5(2)]

3.172 If the trustee does not comply with a direction, the trustee must make a written record of that fact, along with the trustee's reasons for not complying with the direction. This will ensure that trustees keep proper records of the reasons for any decision not to comply with a direction and will generally ensure that directions of this kind are not disregarded without consideration by the trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 85, subsection 85-5(3)]

3.173 If there is a conflict between directions given by the creditors under subsection 85-5(1) and by the committee of inspection under section 80-35, directions given by the creditors override any directions given by the committee. However, the application of this subsection does not override the trustee's discretion not to comply with a direction under either section 85-5 or section 80-35. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 85, subsection 85-5(4)]

Review of the administration of a regulated debtor's estate

3.174 Subdivision B of Division 90 (Court powers to inquire and make orders) applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-2]

3.175 The Court may, on its own initiative during proceedings before the Court, inquire into the administration of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-5(1)]

3.176 The Court may, for the purposes of such an inquiry, require a person who is or has at any time been the trustee of the regulated debtor's estate to give information, provide a report, or produce a document to the Court in relation to the administration of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-5(2)]

3.177 Section 90-5 does not limit the Court's powers under any other provision of the Bankruptcy Act, or under any other law. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-5(3)]

3.178 The Court may on the application of the following persons inquire into the administration of the estate:

•

if the committee of inspection (if any) so resolves-a creditor, on behalf of the committee;

•

the Inspector-General; and

•

any person with a financial interest in the regulated debtor's estate, which is defined by section 5-30 to include:

-

a creditor; or

-

the regulated debtor; or

-

he trustee; or

-

any other person in circumstances as prescribed.

[Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-10(1) and (2)]

3.179 The Court may, for the purposes of such an inquiry, require a person who is or has at any time been the trustee of the regulated debtor's estate to give information or provide a report or produce a document to the Court in relation to the administration of the estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-10(3)]

3.180 If a committee of inspection resolves to allow a creditor to make an application to the Court, the reasonable expenses associated with the application are to be taken to be expenses of the administration of the estate unless otherwise ordered by the Court. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-10(4)]

3.181 Section 90-10 does not limit the Court's powers under any other provision of the Bankruptcy Act, or under any other law. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-10(5)]

3.182 The Court also has a general power to make such orders as it thinks fit in relation to the administration of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-15(1)]

3.183 The Court may exercise the power under subsection 90-15(1):

•

on its own initiative; or

•

on application under section 90-20. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-15(2)]

3.184 Without limiting subsection 90-15(1), those orders may include any one or more of the following:

•

an order determining any question arising in the administration of the estate;

•

an order that a person cease to be the trustee of the estate;

•

an order that another person be appointed as trustee of the estate;

•

an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate;

•

an order in relation to any loss that the estate has sustained because of a breach of duty by the trustee;

•

an order in relation to remuneration, including an order requiring a person to repay to the estate of a regulated debtor, or the creditors of a regulated debtor, remuneration paid to the person as a trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-15(3)]

3.185 Without limiting the matters which the Court may take into account when making order, the Court may take into account:

•

whether the trustee has faithfully performed, or is faithfully performing the trustee's duties;

•

whether an action or failure to act by the trustee is in compliance with the Bankruptcy Act and the Insolvency Practice Rules;

•

whether an action or failure to act by the trustee is in compliance with an order of the Court;

•

whether the regulated debtor's estate or any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the trustee; and

•

the seriousness of the consequences of any action or failure to act by the trustee, including the effect of that action or failure to act on public confidence in registered trustees as a group. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-15(4)]

3.186 Without limiting subsection 90-15(1), an order in relation to the costs of an action (including court action) taken by the trustee of the estate or another person in relation to the administration of the estate may include an order that:

•

The trustee or another person is personally liable for some or all of those costs; and

•

The trustee or another person is not entitled to be reimbursed by the regulated debtor's estate or creditors in relation to some or all of those costs. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-15(5)]

3.187 Without limiting subsection 90-15(1), an order in relation to any loss that the estate has sustained because of a breach of duty by the trustee may include an order that:

•

the trustee is personally liable to make good some or all of the loss; and

•

the trustee is not entitled to be reimbursed in relation to this amount. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-15(6)]

3.188 Section 90-15(1) does not limit the Court's under any other provision of the Bankruptcy Act, or under any other law. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-15(7)]

3.189 Each of the following persons may apply for an order under section 90-15:

•

if the committee of inspection (if any) so resolves-a creditor, on behalf of the committee;

•

the Inspector-General; and

•

any person with a financial interest in the regulated debtor's estate, which is defined by section 5-30 to include:

-

a creditor; or

-

the regulated debtor; or

-

the trustee; or

-

any other person in circumstances as prescribed.

[Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-20(1)]

3.190 If a committee of inspection resolves to allow a creditor to make an application to the Court, the reasonable expenses associated with the application are to be taken to be expenses of the administration of the estate unless otherwise ordered by the Court. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision B, subsection 90-20(2)]

Review of remuneration by the Inspector-General

3.191 The Inspector-General may carry out a review (on his or her own initiative or on application by the regulated debtor or a creditor) of the remuneration received by the trustee of a regulated debtor's estate for services performed by the trustee in relation to the administration of the estate. The trustee, the regulated debtor or a creditor may apply to the Court for a review of the Inspector-General's decision under this section. The provision also provides guidance on matters to which the Court must have regard. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 32, Subdivision C, sections 90-21]

3.192 The Insolvency Practice Rules may provide for and in relation to reviews under Subdivision C of Division 90. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision C, subsection 90-22(1)]

3.193 Without limiting subsection 90-22(1), the Insolvency Practice Rules may provide for and in relation to any or all of the following matters:

•

the giving of notice to the trustee before beginning a review, or making an application under Subdivision C of Division 90;

•

the powers and duties of the Inspector-General in carrying out a review;

•

the decisions that may be made by the Inspector-General in relation to the review;

•

the repayment of remuneration by the trustee as a consequence of a review under subdivision C of Division 90. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision C, subsection 90-22 (2)]

Removal by creditors

3.194 Subdivision D of Division 90 (Removal of a trustee by creditors) applies to the Official Trustee in the same way is it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision D, section 90-30]

The creditors may, by resolution at a meeting, remove the trustee of a regulated debtor's estate. At the same or a later meeting, the creditors may appoint a trustee to replace the former trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision D, subsection 90-35(1)] However the creditors may not remove a trustee unless at least 5 business days' notice of the meeting is given to all persons who are entitled to receive notice of creditors' meetings. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision D, subsection 90-35(2)]

3.195 A person (the former trustee) who has been removed as trustee of the regulated debtor's estate by resolution of the creditors may apply to the Court to be reappointed as trustee of the regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 90, Subdivision D, subsection 90-35(3)]

3.196 If the former trustee makes such an application, the former trustee must:

•

record all costs incurred by the former trustee and the debtor's estate in relation to the application; and

•

do so in a way that separates those costs from the costs incurred by the former trustee and the regulated debtor's estate in relation to other matters. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 32, Subdivision D, subsection 90-35(4)]

3.197 The Court may order that the former trustee be reappointed as trustee of the regulated debtor's estate if the Court is satisfied that the removal of the former trustee was an improper use of the powers of one or more creditors. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 32, Subdivision D, subsection 90-35(5)]

3.198 An example of an 'improper use' would be if one or more creditors removed the former trustee to prevent him or her from investigating the regulated debtor and/or their financial relationship with the regulated debtor.

3.199 The Court may make such other orders in relation to the application as it thinks fit: including orders in relation to the costs of the application and the remuneration of the former trustee. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 3, Division 32, Subdivision D, subsection 90-35(6)]

Other matters

3.200 Applications may be made to the Administrative Appeals Tribunal for review of any of the following decisions:

•

a decision of a committee under section 20-20 in relation to an application for registration as a trustee;

•

a decision of a committee under section 20-55 in relation to an application for the variation or removal of a condition of registration;

•

a decision of the Inspector-General to suspend the registration of a person as a trustee under section 40-25;

•

a decision of the Inspector-General to cancel the registration of a person as a trustee under section 40-30;

•

a decision of a committee under section 40-55 (disciplinary action by a committee);

•

a decision of a committee under section 40-85 in relation to an application to lift or shorten a suspension of a person's registration as a trustee [Schedule 1, Insolvency Practice Schedule (Bankruptcy) , Part 4, Division 96, section 96-1]

3.201 Division 100 (Other matters) applies to the Official Trustee in the same way as it applies to the trustee of a regulated debtor's estate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 100, section 100-1]

3.202 Subject to the following exceptions the trustee may assign any right to sue that is conferred on the trustee by the Bankruptcy Act:

•

if the trustee's action has already begun, the trustee cannot assign the right to sue unless the trustee has the approval of the Court;

•

before assigning any right the trustee must give written notice to the creditors of the proposed assignment. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 100, subsections 100-5(1), (2) and (3)]

3.203 If a right is assigned under section 100-5, a reference in the Bankruptcy Act to the trustee in relation to the action is taken to be a reference to the person to whom the right has been assigned. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 100, subsection 100-5(4)]

Insolvency Practice Rules

3.204 The Minister may, by legislative instrument, make rules providing for matters:

•

required or permitted by the Bankruptcy Act to be provided; or

•

necessary or convenient to be provided in order to carry out or give effect to the Bankruptcy Act.

3.205 The Minister requires this rule-making power to ensure the detail under and operational aspects of the Bankruptcy Act can be clearly outlined and, where necessary and appropriate, can be modified. Given the limitations on this rule-making power, as discussed below, it is appropriate to empower the Minister to make such rules. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 105, subsection 105-1(1)]

3.206 Rules made under subsection 105-1(1) may include offences but the penalties for such offences must not be more than 50 penalty units for an individual or 250 penalty units for a body corporate. It is appropriate for offences that incur lesser penalties to be created by the Minister under the Insolvency Practice Rules. This will allow greater flexibility where creating offences of a more minor and technical nature while ensuring that more serious offences undergo scrutiny by Parliament. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 105, subsections 105-1(2) and (3)]

3.207 For further clarification, subsections 105-1(4) and (5) outline limitations to the scope of the Insolvency Practice Rules. The rationale for these limitations is to ensure that rules cannot be created in relation to subject matter that should be limited to laws made by Parliament. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 105, subsections 105-1(4) and (5)]

3.208 The Minister's power to make rules under this section cannot be delegated to any other person to ensure that this rule-making power is exercised personally by the Minister, as is appropriate. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 105, subsection 105-1(6)]

3.209 References in section 105-1 to 'this Act' do not include the regulations or rules made under section 105-1. [Schedule 1, Insolvency Practice Schedule (Bankruptcy), Part 4, Division 105, subsection 105-1(7)]

Application and transitional provisions

3.210 Division 3 of Part 3 of the Schedule relates to the transitional provisions upon the commencement of the Schedule.

3.211 Section 128 provides that Part 3 of the Schedule applies in relation to new administrations (that is, administrations that start on or after the commencement of the Schedule). Part 3 of the Schedule also applies in relation to an ongoing administration (for example, administrations that have ended but have ongoing obligations or processes). [Schedule 1, Part 3, Division 3, Subdivision B, section 127]

3.212 Subdivision B of Division 60 of the Schedule (in relation to the remuneration of trustees) applies in relation to a trustee of a regulated debtor's estate under ongoing administration who is appointed, or who consents to act, on or after the commencement day. This transitional provision allows for consistent treatment of the remuneration of trustees who are appointed on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision C, section 128]

3.213 Despite the repeal of sections 161B and 162 of the old Act by the Schedule, those sections (other than subsections 162(5A), (6) and (6A)) continue to apply in relation to the remuneration of a trustee of an estate of a bankrupt who is appointed, or who consents to act, before the commencement day. This transitional provision allows for consistent treatment of the remuneration of trustees who are appointed before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision C, section 129]

3.214 Section 60-20 of the Schedule (trustee must not derive profit or advantage from the administration of the estate) applies in relation to a trustee of a regulated debtor's estate under ongoing administration, whether or not the trustee is appointed, or consents to act, before, on or after the commencement day. However, that section does not apply in relation to arrangements made before the commencement day. Despite the repeal of section 165 of the old Act by the Schedule, section 165 will continue to apply in relation to arrangements made before the commencement day. This transitional provision applies section 60-20 to conduct that takes place on or after commencement and applies section 165 of the old Act to conduct that took place before commencement. [Schedule 1, Part 3, Division 3, Subdivision C, section 130]

3.215 Section 60-26 of the Schedule (payment in respect of performance by third parties) applies in relation to a trustee of a regulated debtor's estate under ongoing administration, whether or not the trustee is appointed, or consents to act, before, on or after the commencement day. Despite the repeal of section 162 of the old Act by the Schedule, subsection 162(6) continues to apply in relation to payments received before the commencement day. This transitional provision applies section 60-26 to payments received on or after commencement and applies section 162 of the old Act to payments received before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision C, section 131]

3.216 Section 133 of Part 3 of the Schedule provides for transitional provisions where a trustee ceases to be a trustee and another person becomes the new trustee. The old Act continues to apply where both trustees are appointed before commencement (under subsection 133(1)). However, where a former trustee was appointed as a trustee before commencement and the new trustee was appointed on or after the commencement day then the Schedule applies but the creditors are taken to have made a resolution under section 162 in relation to the remuneration the former trustee is entitled to receive. [Schedule 1, Part 3, Division 3, Subdivision C, section 132]

Transitional provisions-Funds Handling

3.217 Division 65 of the Schedule (Funds handling) applies in relation to an ongoing administration of a regulated debtor's estate. [Schedule 1, Part 3, Division 3, Subdivision D, section 133]

3.218 An account (for the purposes of administration of one or more bankrupt estates) that complies with the old Act or old regulations and that exists immediately before the commencement day is taken to be an administration account of the relevant estate(s) for the purposes of section 65-10 of the Schedule and subsection 280(5) of the Bankruptcy Act. [Schedule 1, Part 3, Division 3, Subdivision D, section 134]

3.219 Sections 65-10 and 65-15 of the Schedule create obligations for a trustee to pay all administration monies and not pay other money into the administration account. These sections do not apply in relation to money received before the commencement day. Despite the repeal, subsection 169(2) of the old Act continues to apply in relation to money received before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision D, section 135]

3.220 Section 65-25 of the Schedule (paying money out of the administration account) does not apply in relation to money paid out of an administration account before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision D, section 136]

3.221 Section 65-32 of the Schedule (reconciliation of administration account) does not apply in relation to money received, or payments made, in relation to a regulated debtor's estate before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision D, section 137]

3.222 Section 65-40 of the Schedule (handling securities) does not apply in relation to negotiable instruments and other securities received before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision D, section 139]

3.223 A review of a bill of costs for services in relation to the administration of a regulated debtor's estate may be carried out in accordance with regulations made for the purposes of section 65-46 of the Schedule, whether or not the service was provided before, on or after the commencement day. Subsections 140(3) and (4) apply if a review in accordance with regulations made for the purposes of subsection 167(2) of the old Act starts before the commencement day. Nothing in this Act affects the review; or the powers or any decisions of the Inspector-General in relation to the review; or any appeal or review in relation to the review. The old Act will continue to apply on and after the commencement day in relation to the review despite the amendments and repeals made by this Act. [Schedule 1, Part 3, Division 3, Subdivision D, section 140]

Transitional provisions-Information

3.224 Division 70 of the Schedule (Information) applies in relation to an ongoing administration of a regulated debtor's estate. [Schedule 1, Part 3, Division 3, Subdivision E, section 141]

3.225 Section 70-5 (annual administration return) of the Schedule applies in relation to the financial year starting on 1 July 2017 and later financial years. Further, the repeal of section 170A by the Schedule applies in relation to the financial year starting on 1 July 2017 and later financial years. [Schedule 1, Part 3, Division 3, Subdivision E, section 142]

3.226 Sections 70-10 and 70-11 of the Schedule (administration books and trustee's books when trading) do not apply in relation to events that occur before the commencement day; and in respect of which, or because of which, entries or minutes are to be made. Despite the repeal of sections 173 and 174 of the old Act by the Schedule, section 173 continues to apply in relation to events that occur before the commencement day; and in respect of which, or because of which, accounts and records must be kept. [Schedule 1, Part 3, Division 3, Subdivision E, sections 143 and 144]

3.227 Sections 70-15 to 70-25 of the Schedule (audit of administration books and requirements for trustees to comply with auditor requirements) apply to books relating to an ongoing administration of a regulated debtor's estate whether or not the books are kept under a provision of the old Act or of the Schedule. Despite the repeal of section 175 of the old Act by the Schedule, audits may be continued under that section in relation to accounts under section 173 as if the old Act continued to apply. [Schedule 1, Part 3, Division 3, Subdivision E, subsections 145(1) and (2)]

3.228 Despite the amendment of paragraph 109(1)(a) of the old Act (in relation to priority payment for the costs of audits) made by the Schedule, that section continues to apply in relation to the payment of costs of audits under section 175 of the old Act as if that amendment had not been made. [Schedule 1, Part 3, Division 3, Subdivision E, subsection 145(3)]

3.229 Section 70-30 of the Schedule (transfer of books to new trustee) applies in relation to a person who ceases to be the trustee of a regulated debtor's estate on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision E, section 146].

3.230 For the avoidance of doubt, sections 70-35 and 70-36 of the Schedule (retention, return or destruction of books) apply to books relating to an ongoing administration of a regulated debtor's estate whether or not the books are kept under a provision of the old Act or of the Schedule. If an administration of an estate of a bankrupt or debtor ends before the commencement day; and immediately before that day, a person was required under the old Act to retain books relating to the estate for a period; and but for the repeal of section 312 by the Schedule, that period would have ended on or after the commencement day; section 312 of the old Act will continue to apply on and after the commencement day in relation to the person for the remainder of that period. However, subsection 312(4) of the old Act applies as if the reference to 15 years were instead a reference to 7 years (as is consistent with sections 70-35 and 70-36). If a person is entitled under section 312 of the old Act to destroy or return books then (despite section 70-35 of the Schedule) those books may be destroyed or returned. [Schedule 1, Part 3, Division 3, Subdivision E, section 147]

3.231 Subdivision D of Division 70 of the Schedule (Giving information etc. to creditors and others) applies whether or not the information, report or document referred to in subsections 70-40(1), 70-45(1), or 70-50(1) of the Schedule was obtained or generated, was made or prepared; or is in respect of actions or events that occurred; before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision E, Section 148].

3.232 Section 70-55 and 70-56 of the Schedule (Commonwealth and regulated debtor rights to request information etc. from trustee) applies whether or not the information, report or document referred to in subsections 70-55(2) and 70-56(1) was obtained or generated; or was made or prepared; or is in respect of actions or events that occurred; before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision E, sections 149 and 150].

3.233 Section 70-60 of the Schedule (Reporting to the Inspector-General) applies whether or not the information, report or document referred to in subsection 70-60(1) was obtained or generated; or was made or prepared; or is in respect of actions or events that occurred; before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision E, section 151].

Transitional provisions-Meetings

3.234 Division 75 of the Schedule (Meetings of creditors) applies in relation to an ongoing administration of a regulated debtor's estate. However, Division 75 of the Schedule does not apply in relation to meetings convened or held before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision F, section 152]

3.235 Section 75-15 of the Schedule (Trustee must convene meetings in certain circumstances) does not apply in relation to requests made before the commencement day; or directions given before the commencement day; or resolutions passed before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision F, section 153]

3.236 If a trustee is required to convene, or has already called, a meeting of creditors under the old Act; and as at the commencement day, the meeting has not been held; then the old Act continues to apply on and after the commencement day in relation to the meeting. [Schedule 1, Part 3, Division 3, Subdivision F, section 154]

Transitional provisions-Committees of Inspection

3.237 Division 80 of the Schedule (Committees of Inspection) applies to a committee of inspection for an ongoing administration of a regulated debtor's estate that is appointed under that Division on or after the commencement day. Division 80 of the Schedule also applies to a committee of inspection for an ongoing administration of a regulated debtor's estate that is appointed under a provision of the old Act but is taken to be a committee of inspection under subsection 156(1). However, Division 80 of the Schedule does not apply in relation to meetings of, or related to, the committee of inspection convened or held before the commencement day. [Schedule 1, Part 3, Division 3, Subdivision G, section 155]

3.238 Committees validly appointed under the old Act are taken to be a committee of inspection established under section 80-10 of the Schedule on and after the day specified in subsection 156(2). [Schedule 1, Part 3, Division 3, Subdivision G, section 156]

3.239 The members appointed to the committee under section 70 of the old Act are the members of a continued committee. If a person is a member of a continued committee, then despite their repeal, subsections 70(3) and (4) and section 71 of the old Act continue to apply in relation to the person. Sections 80-15 to 80-25 of the Schedule and the Insolvency Practice Rules made under section 80-30 of the Schedule that relate to membership of a committee of inspection do not apply in relation to members of a continued committee [Schedule 1, Part 3, Division 3, Subdivision G, section 157]

3.240 Sections 80-35 and 85-5 of the Schedule (functions of the committees of inspection and creditors' directions) apply whether or not the direction is given before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision G, section 158]

3.241 Section 80-40 of the Schedule (Committee of inspection may request information) applies whether or not the information, report or document referred to in subsection 80-40(1) was obtained or generated, or was made or prepared, or is in respect of actions or events that occurred before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision G, section 159]

3.242 Sections 80-55 and 80-60 of the Schedule (obligations of committee of inspection members and obligations of creditors appointing committee members) apply to arrangements made on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision G, section 160]

Transitional provisions-Review of the administration of a regulated debtor's estate

3.243 Division 90 of the Schedule (Review of the administration of a regulated debtor's estate) applies in relation to an ongoing administration of a regulated debtor's estate whether or not the matter to be reviewed occurred before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision H, section 161]

3.244 Reviews by the Inspector-General (under Subdivision C of Division 90 of the Schedule) may be carried out whether or not the remuneration is paid or payable; or the cost or expense is incurred or paid; or the funds were withdrawn or proposed to be withdrawn; before, on or after the commencement day. If a review in accordance with regulations for the purposes of subsection 167(1) of the old Act starts before the commencement day, subsections 162(3) and (4) will apply. Nothing in the Act affects the review; or the powers of or any decision made by the Inspector-General in relation to the review; or any requirement for a trustee to repay an amount of remuneration; or any appeal or review in relation to the review. The old Act continues to apply on and after the commencement day in relation to ongoing reviews. [Schedule 1, Part 3, Division 3, Subdivision H, section 162]

3.245 Section 163 applies where a court makes an order under the old Act (the old Act order). The old Act order does not cease to have effect because a provision under which it was made has been amended or repealed by the Schedule. If the old Act order is inconsistent with a provision of the Bankruptcy Act as amended by the Transitionals Act (including savings and transitional provisions) then, subject to Part 3, the provision does not apply to the extent that it is inconsistent with the old Act order. [Schedule 1, Part 3, Division 3, Subdivision H, section 163]

3.246 Generally, the old Act will continue to apply in relation to ongoing proceedings before a court. If proceedings are brought under the old Act in a court in relation to the administration of a regulated debtor's estate before the commencement date or on or after the commencement day in accordance with this Division, then subject to Part 3, nothing in the Transitionals Act affects the proceedings; or the power of the court to make orders; or any orders already made by the court; or any enforcement in relation to, or as a result of, the proceedings (including giving effect to any court orders). Similarly, subject to Part 3, nothing in the Act affects any appeal or review in relation to the proceedings. Subject to Part 3, the old Act continues to apply on and after the commencement day in relation to the proceedings despite the amendments and repeals made by the Act. [Schedule 1, Part 3, Division 3, Subdivision H, section 164].

3.247 For the avoidance of doubt, sections 90-5 and 90-10 of the Schedule (Court may inquire on its own initiative or on application of the creditors) apply whether or not the information, report or document mentioned in subsections 90-5(2) and 90-10(3) was prepared before, on or after the commencement day. Paragraph 90-15(3)(f) of the Schedule (a Court order in relation to remuneration) applies whether or not the remuneration is paid or payable before, on or after the commencement day. Subsection 90-15(4) of the Schedule (factors that may be considered by the Court in making an order) applies whether or not the action or failure to act occurred before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision H, section 165].

3.248 For the avoidance of doubt, section 90-35 of the Schedule (removal of a trustee by creditors) applies whether or not the trustee was appointed before, on or after the commencement day. [Schedule 1, Part 3, Division 3, Subdivision H, section 166]

Transitional provisions-Administrative Review

3.249 A 'reviewable provision' means section 155A, 155F or 155I of the old Act. If an application is made to the Administrative Appeals Tribunal under a reviewable provision for review of a decision (the reviewable decision) under that provision either before the commencement day; or on or after the commencement day (in accordance with a provision of this Part), then subject to Part 3, nothing in the Act affects any proceedings before the Administrative Appeals Tribunal in relation to the reviewable decision; or the powers of the Administrative Appeals Tribunal in relation to the reviewable decision; or any enforcement in relation to, or as a result of, a decision of the Administrative Appeals Tribunal in relation to the reviewable decision; or any appeal or review in relation to a decision of the Administrative Appeals Tribunal in relation to the reviewable decision. Subject to Part 3, the old Act continues to apply on and after the commencement day in relation to the proceedings despite the amendments and repeals made by the Act.

3.250 In relation to applications made to the Administrative Appeals Tribunal after the commencement day, despite the repeal of a reviewable provision by the Schedule, applications may be made to the Administrative Appeals Tribunal under the reviewable provision. [Schedule 1, Part 3, Division 4, section 167]

Chapter 4 - Introduction - Insolvency Practice Schedule (Corporations)

Outline of chapter

4.1 Schedule 2, Part 1 to this Bill inserts the Insolvency Practice Schedule (Corporations) (the Schedule) as Schedule 2, to the Corporations Act.

4.2 Part 1 of the Schedule contains an Introduction to the Schedule which sets out the object of the Schedule, a simplified outline of the Schedule and the Dictionary of definitions.

Context of amendments

4.3 Two of the key objectives of the Bill 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. This is achieved by introducing new Schedules into the Bankruptcy Act and the Corporations Act containing common rules in relation to these subject matters.

Summary of new law

4.4 The Schedule has three objectives:

•

to ensure that any person registered as a liquidator:

-

has an appropriate level of expertise;

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behaves ethically; and

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maintains sufficient insurance to cover his or her liabilities in practising as a registered liquidator;

•

to regulate the external administration of companies consistently, unless there is a clear reason to treat a matter that arises in relation to a particular kind of external administration differently; and

•

to regulate the external administration of companies to give greater control to creditors.

Comparison of key features of new law and current law

Detailed explanation of new law

4.5 The Insolvency Practice Schedule (Corporations) (the Schedule) is inserted into the Corporations Act. [Schedule 2, Part 1, item 1, section 600K]

4.6 The Dictionary defines terms used in the Schedule. In some cases, the definition is a signpost to another provision in the Schedule in which the meaning of the term is explained. [Schedule 2, Part 1, item 2, Insolvency Practice Schedule (Corporations), Part 1, section 5-1]

4.7 A company is taken to be under external administration if:

•

the company is under administration;

•

a deed of company arrangement has been entered into in relation to the company;

•

a liquidator has been appointed in relation to the company; or

•

a provisional liquidator has been appointed in relation to the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 1, sections 5-5 and 5-15]

4.8 A company is not under external administration for the purposes of the Schedule merely because a receiver, receiver and manager, or other controller has been appointed in relation to property of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 1, note to section 5-15]

4.9 A person is an external administrator of a company if the person is:

•

the administrator of the company;

•

the administrator under a deed of company arrangement that has been entered into in relation to the company;

•

the liquidator of the company; or

•

the provisional liquidator of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 1, sections 5-5 and 5-20]

4.10 Where there are 2 or more joint external administrators - a reference in the schedule to the external administrator is a reference to all the external administrators. Where there are 2 or more joint and several external administrators - a reference in the schedule to the external administrator is a reference to all of the external administrators or any one or more of the external administrators. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 1, note to section 5-25]

4.11 References to the property of a company include any Personal Property Securities Act 2009 retention of title property of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 1, note to section 5-26]

4.12 Companies will be taken to be in a pooled group if a pooling determination is in force in relation to a group of 2 or more companies; or a pooling order is in force in relation to a group of 2 or more companies. Each of these companies is deemed to be a member of the pooled group. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 1, note to section 5-27]

4.13 A person will be deemed to have a financial interest in the external administration of a company if they are one of the defined persons under section 5-30.

4.14 A person will be deemed to have a financial interest in the external administration of a company if they are one of the defined persons under section 5-30.

Strict liability offences

4.15 Both Schedules create new strict liability offences and retain strict liability offences existing in the Bankruptcy Act and the Corporations Act. It is worth noting from the outset that the application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for individuals who may be accused of breaching such offences.

4.16 Strict liability offences are appropriate in this area of commercial regulation, as it is necessary to strongly deter misconduct that can have serious consequences for affected parties. Strict liability offences also reduce non-compliance, which bolsters the integrity of the regulatory regime enforced by ASIC and AFSA. Strict liability is particularly beneficial to these regulatory bodies as they need to deal with offences expeditiously to maintain public confidence in their regulatory regimes.

4.17 With the exception of section 60-21 discussed in detail below, the strict liability offences in the Bill meet all the conditions listed in the Guide to Framing Commonwealth Offences (pages 23 and 24). For example, the fines for the offences do not exceed 60 penalty units for an individual.

4.18 The majority of strict liability offences relate to conduct by an insolvency practitioner. For example, Division 65 of the Schedule provides strict liability offences around payments into and out of an administration account. By providing a strict liability enforcement regime for duties of insolvency practitioners, the Bill significantly enhances the likelihood of compliance by practitioners.

4.19 Insolvency practitioners possess statutory powers they may use with a high level of discretion in the exercise of these powers. Further, given the financial responsibilities associated with their duties, the consequences of an abuse of power can have far-reaching and significant consequences.. As such, practitioners should be subject to a higher level of scrutiny in the performance of their duties as registered trustees and liquidators. Insolvency practitioners should, therefore, not only refrain from consciously doing wrong but actively take steps to fulfil their obligations and uphold the professional standards imposed upon them. Any changes to practitioner rules and standards do not take effect until 2017. Practitioners will, therefore, have sufficient time to familiarise themselves with any new requirements and guard against the possibility of any contravention.

4.20 Further, many of the strict liability offences relate to conduct where a requirement for proof of intention would be difficult to establish and would render the offence unenforceable. For example, where the prosecution has to prove the accused intended to refrain from paying money into the appropriate administration account when he or she failed to do so. Further, a requirement to establish intent will draw a level of resources for investigation and prosecution from the regulators that cannot always be justified, especially for offences with such a low maximum penalty.

4.21 Some strict liability offences relate to creditor conduct (such as sections 80-55 and 80-60). For example, section 80-60 makes it an offence for a creditor to directly or indirectly become the purchaser of any part of the administration estate, subject to certain exceptions. Strict liability is only imposed on non-practitioners for more serious misconduct that may have significant consequences for innocent third parties. Such as, people who purchase the property in good faith only to have the transaction set aside by the Court.

4.22 Item 265 of Schedule 2 increases the penalty for breaching section 595 such that a person commits an offence of strict liability with a penalty of 50 penalty units, or 3 months imprisonment, or both. The severity of the penalty recognises the importance of appointing an impartial trustee who would have significant power to determine the outcome of an estate for creditors and for the regulated debtor. The conduct described in this offence amounts to an abuse of the insolvency process that could see favourable treatment for the creditors involved in the breach at the expense of innocent creditors. Such conduct would significantly undermine the integrity of the insolvency regime and have far-reaching consequences for insolvency practitioners, debtors, creditors and financial institutions.

Consequential amendments

4.23 The definition of externally-administered body corporate is deleted and replaced by the label Chapter 5 body corporate. The current label of externally-administered body corporate is very similar to the label external administration of a company which is defined for the purposes of the Schedule. An external administration of a company is a smaller subset of the types of administration referred to in the definition of a Chapter 5 body corporate. [Schedule 2, Part 2, items 64 and 67, section 9]

Application and transitional provisions

4.24 The commencement day for the Schedule means the day on which Part 1 of Schedule 2, to this Bill commences. [Schedule 2, item 2, Part 3,section 1551]

Chapter 5 - Registration and discipline of registered liquidators

Outline of chapter

5.1 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).

5.2 The Schedule covers:

•

the application to ASIC to be registered as a liquidator;

•

the referral of an application by ASIC to a committee for assessment against specified criteria;

•

the registration of the liquidator by ASIC, which may be subject to conditions;

•

a requirement that a registered liquidator lodge an annual return with ASIC;

•

a requirement that a registered liquidator give ASIC notice if their circumstances change or if certain specified events occur;

•

ASIC's powers where a registered liquidator fails to lodge a document or give information;

•

ASIC's powers to suspend or cancel a liquidator's registration in certain circumstances;

•

ASIC's powers to give a show-cause notice and if no sufficient explanation is given, its powers to take further disciplinary action on the decision of a committee;

•

a committee's powers to take disciplinary action and ASIC's obligation to give effect to the committee's decision;

•

the Court's powers to make orders in relation to a registered liquidator; and

•

a right given to industry bodies to notify ASIC where they suspect there are grounds for disciplinary action to be taken against a registered liquidator.

Context of amendments

5.3 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 (Senate Committee) in 2010.

5.4 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 confidence in the insolvency profession has not recovered.

5.5 The insolvency profession must be skilled, honest and accountable in order for the insolvency regime to operate efficiently. Creditors and stakeholders are often unable to tell how the overall result of a liquidation or administration corresponded to the quality of the service provided by the insolvency practitioner and whether the costs incurred are reasonable. They must therefore be able to place a high degree of trust in the insolvency practitioner's integrity. Regulation that promotes a high level of professionalism and competence of insolvency practitioners is therefore essential to retaining confidence in the insolvency system as a whole.

5.6 Underpinning the Senate Committee's recommendations for changes to the registration, discipline and regulator oversight of the corporate insolvency profession, was a recognition that the regulatory framework applying to personal insolvency practitioners should be applied to regulating corporate insolvency practitioners.

Summary of new law

5.7 The Schedule introduces a new framework for regulating registered liquidators based on the current framework for regulating registered trustees provided for under the Bankruptcy Act.

5.8 Under the new law, the process for the registration of corporate insolvency practitioners will be aligned with the current personal insolvency process in order to improve the integrity of the registration process. Applications for registration will be determined by committees composed of a regulator representative, an industry representative and a third person selected from a panel appointed by the relevant Minister. Corporate insolvency practitioners will no longer be registered for life, but be required to renew their registration every three years.

5.9 The framework for standards of entry will allow for conditions to be placed upon insolvency practitioners. Registration or disciplinary committees will therefore be able to impose conditions on the registration of a particular practitioner; while ASIC will be able to impose industry-wide conditions in relation to continuing education, quality assurance or review programs, insurance, complaint handling, residency, and inactive practice.

5.10 The disciplinary mechanisms for insolvency practitioners will be aligned across both corporate and personal insolvency through the adoption of enhanced personal insolvency style disciplinary committees in both systems. As a result, the Companies Auditors and Liquidators Disciplinary Board will no longer have jurisdiction over liquidators.

5.11 ASIC will also be empowered to take direct action against practitioners who breach their duties in more circumstances, without having to refer the matter to a disciplinary committee or the court. Those powers will include the ability to directly suspend or deregister offending practitioners in limited circumstances; or to prevent practitioners from taking on new appointments where certain lodgement obligations remain unsatisfied.

5.12 The penalties for a corporate insolvency practitioner failing to hold insurance will be significantly increased to better reflect the seriousness of the breach and to represent a stronger deterrent effect. In order to ensure regulators are aware of the insurance coverage of practitioners in the market, practitioners will also be obligated to inform the regulator when their insurance has lapsed.

Comparison of key features of new law and current law

Detailed explanation of new law

Working cooperatively with the Inspector-General in Bankruptcy

5.13 ASIC must work cooperatively with the Inspector-General in Bankruptcy in relation to persons who are, have been or may become both registered liquidators under the Corporations Act and registered trustees under the Bankruptcy Act. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 10-5]

Register of liquidators

5.14 ASIC must establish and maintain a Register of Liquidators and keep it in an appropriate form. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, sections 15-1(1) and 15(2)]

5.15 The Insolvency Practice Rules may provide for rules relating to what details may be kept on the Register and the parts of the Register that are to be made available to the public. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 15-5(3)]

5.16 The Register may also include details of any disciplinary action recommended by a committee against a registered liquidator and the details of persons who have had their registration suspended or cancelled. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 15-5(4) and (5))]

Registration

5.17 Individuals may apply to ASIC to be registered as a liquidator. An application is properly made if it is lodged with ASIC in the approved form. [Schedule 2, item 150, Insolvency Practice Schedule (Corporations), Part 2, section 20-5]

5.18 If an application is properly made, ASIC must refer it to a committee for consideration. ASIC must convene a committee for this purpose within two months of receiving the application. The committee must consist of an ASIC official, a registered liquidator chosen by a prescribed body (ARITA) and a person appointed from a pool selected by the Minister. The committee must interview the applicant and may also require the applicant to sit for an exam [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, sections 20-1, 20-20 and 20-15]

5.19 The committee should make its decision on whether to register the applicant within 45 business days after interviewing the applicant. The committee must decide that the applicant should be registered if it is satisfied that the applicant:

•

has the qualifications, experience, knowledge and abilities prescribed in the Insolvency Practice Rules;

•

will take out adequate and appropriate professional indemnity and fidelity insurance;

•

has not been convicted, within 10 years before making the application, of an offence involving fraud or dishonesty;

•

is not, and has not been within 10 years before making the application, an insolvent under administration;

•

has not had his or her registration as a liquidator under the Corporations Act cancelled within 10 years before making the application, other than in response to a written request by the applicant to have the registration cancelled;

•

has not had his or her registration as a trustee under the Bankruptcy Act cancelled within 10 years before making the application, other than in response to a written request by the applicant to have the registration cancelled;

•

is not disqualified from managing corporations under the Corporations Act, or under a law of an external Territory or a law of a foreign country;

•

is otherwise a fit and proper person; and

•

is resident in Australia or a prescribed country. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 20-20(3) and (4)]

5.20 The committee may register an applicant, even if it is not satisfied that the applicant has the qualifications, experience, knowledge and abilities prescribed in the Insolvency Practice Rules or is not resident in Australia, provided that the committee is satisfied that the applicant would be suitable to be registered if the applicant complied with certain conditions. [Schedule 2, item 2,Insolvency Practice Schedule (Corporations), Part 2, subsection 20-20(5) and (6)]

5.21 The committee may decide that the applicant's registration is to be subject to other conditions. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 20-20(6)]

5.22 The registration requirements do not affect the operation of Part VIIC of the Crimes Act 1914 which in certain circumstances relieves a person from disclosing spent convictions. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 20-20(7)]

5.23 Following the committee's decision, it must give the applicant and ASIC a report setting out the committee's decision, the reasons for the decision and if the committee decides that the registration should be subject to conditions:

•

the condition; and

•

the committee's reasons for imposing the condition. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 20-25]

5.24 ASIC must register the person if the committee decides that the applicant should be registered and the applicant produces evidence that he or she has taken out adequate and appropriate professional indemnity and fidelity insurance against the liabilities that may be incurred working as a registered liquidator. The registration is subject to any conditions imposed on the registered liquidator. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 20-30(1) and (2)]

5.25 ASIC registers an applicant by entering on the Register of Liquidators the details relating to the applicant prescribed in the Insolvency Practice Rules. After registering a person, ASIC must give the person a certificate of registration. The registration has effect for three years. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 20-30(2), (4), (5) and (6)]

5.26 The Insolvency Practice Rules may prescribe conditions applying to the registration of all registered liquidators or registered liquidators of a specified class. Conditions may be imposed to limit the kinds of activity in which a liquidator may engage, either for the duration of the registration or for a shorter period. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 20-35]

5.27 A registered liquidator whose registration has conditions imposed on it may apply to ASIC to have those conditions varied or removed, in the approved form. However, an application cannot be made if the person's registration is suspended; the condition is of a prescribed kind or is imposed in a prescribed circumstance. An application may include more than one condition. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 20-40]

5.28 Within two months of receiving an application to vary a condition, ASIC must refer the application to a committee. The committee must consist of ASIC, a registered liquidator chosen by a prescribed body (ARITA) and a person appointed from a pool selected by the Minister. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, sections 20-45 and 20-50]

5.29 The committee must interview the applicant (unless the applicant agrees otherwise) and within 20 business days after the interview, decide whether the condition should be varied or removed and if the condition is to be varied and specify the way in which it is to be varied. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 20-55]

5.30 Following the committee's decision, the committee must give the applicant and ASIC a report setting out the committee's decision and the reasons for the decision. If the committee decides that a condition should be varied, the committee must set out the variation that is to be made. The condition is then varied or removed according to that decision. [Schedule 2, item 2, Schedule 2, the Act, Part 2, sections 20-60 and 20-65]

5.31 If a registered liquidator wishes to continue practising after the current registration period, the individual must apply to have their registration renewed. The application must be lodged with ASIC in the approved form and must be made before the applicant's registration as a liquidator expires unless it is made before the time specified in a Court order. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 20-70]

5.32 ASIC must renew the registration where the application is properly made, evidence is provided to ASIC that the applicant maintains adequate and appropriate professional indemnity and fidelity insurance and that the applicant has complied with any continuing professional education obligations. The renewed registration is subject to the current conditions imposed on the registered liquidator. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 20-75(1) and(3)]

5.33 ASIC renews the registration by entering or maintaining the applicant's details in the Register of Liquidators. After renewing the registration, ASIC must give the person a certificate of registration. The renewed registration has effect for three years. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 20-75(2), (4), (5) and (6)]

5.34 A person commits an offence if the person falsely represents that he or she is a registered liquidator . The penalty for the offence is 30 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 20-80]

Insurance

5.35 A registered liquidator must maintain adequate and appropriate professional indemnity and fidelity insurance. The insurance should cover the liabilities that the liquidator may incur working as a registered liquidator. If a registered liquidator fails to comply with this requirement, he or she commits an offence. Where the registered liquidator intentionally or recklessly fails to comply, the maximum penalty is 1,000 penalty units, otherwise there is a strict liability offence with a maximum penalty of 60 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 25-1(1), (3) and (4)]

5.36 The new maximum penalty for intentionally or recklessly failing to comply with a registered liquidator's insurance obligations is a significant increase over the current five penalty unit penalty provided for under the Corporations Act. The new penalty provides an appropriate deterrent to non-compliance with these important obligations and more appropriately reflects the possible magnitude of the loss third parties may suffer due to a breach.

5.37 ASIC may determine what constitutes adequate and appropriate professional indemnity and fidelity insurance. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 25-1(2)]

Annual liquidator returns

5.38 A registered liquidator must lodge an annual liquidator return with ASIC within one month of the end of the liquidator return year. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 30-1(1)]

5.39 A liquidator return year for a registered liquidator is the period of 12 months beginning on the day on which that registration first began and each subsequent period of 12 months. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 30-1(2)]

5.40 Each year, a practitioner must include evidence that adequate and appropriate professional indemnity and fidelity insurance against the liabilities that the person may incur working as a registered liquidator was maintained throughout the year as part of the process for lodging the individual's annual return. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 30-1(3)]

5.41 ASIC may extend the period for lodging the annual liquidator return following an application from the registered liquidator. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, 30-1(4)]

5.42 A registered liquidator commits a strict liability offence, with a penalty of 5 penalty units, if he or she fails to lodge a return. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 30-1(5)]

Notice requirements

5.43 A registered liquidator must notify ASIC, in the approved form, where any of the following events occur that would affect the ability of the registered liquidator to continue to practice:

•

the liquidator becomes an insolvent under administration;

•

a bankruptcy notice is issued under the Bankruptcy Act 1966 in relation to the liquidator as a debtor, or a corresponding notice is issued in relation to the liquidator as debtor under a law of an external Territory or a law of a foreign country;

•

the liquidator is convicted of an offence involving fraud or dishonesty;

•

the liquidator is disqualified from managing corporations under the Act, or under a law of an external Territory or a law of a foreign country;

•

the liquidator ceases to have adequate and appropriate professional indemnity insurance or fidelity insurance against the liabilities that the liquidator may incur working as a registered liquidator;

•

the liquidator is issued with a show-cause notice under the Bankruptcy Act in relation to the liquidator's registration as a trustee under that Act; or

•

the liquidator's registration as a trustee under the Bankruptcy Act is suspended or cancelled;

•

any other prescribed event. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 35-1(1)]

5.44 The notice must be lodged by the registered liquidator within five business days after the liquidator could reasonably be aware that the event has occurred. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 35-1(1)]

5.45 Where a liquidator intentionally or recklessly fails to notify ASIC that a specified event has occurred, the liquidator commits an offence punishable by a maximum penalty of 100 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 35-1(2)]

5.46 A registered liquidator must notify ASIC, in the approved form, if information, prepared by or on behalf of the liquidator, and included in an annual liquidator return or in an annual administration return, is or becomes inaccurate in a material particular. A registered liquidator must also notify ASIC if any prescribed event occurs. Failure to notify ASIC within 10 business days after the registered liquidator could reasonably be expected to be aware that the event has occurred commits an offence punishable by a maximum penalty of five penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 35-5]

Disciplinary and other action

Direction to comply

5.47 ASIC may give a registered liquidator a direction in writing to comply with a requirement under the Corporations Act to lodge documents or provide information required under the Corporations Act within 10 business days after the direction is given. On the application of the registered liquidator, ASIC may extend that period. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 40-5(1), (2) and (3)]

5.48 Where the document or information is not provided within 10 business days after the direction has been given (or that period as extended), ASIC may give a direction that the registered liquidator not accept any further appointments or apply to the Court for an order that the registered liquidator comply with ASIC's direction. The ASIC direction is not a legislative instrument. Section 40-5 does not affect the operation of any other law. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-5(4), (5) and (6)]

5.49 Where ASIC reasonably suspects that any information that a registered liquidator is required to give it under the Corporations Act is incomplete or incorrect in any particular, ASIC may direct the liquidator to do one or more of the following within 10 business days after the direction is given :

•

confirm to ASIC that the information is complete and correct;

•

complete or correct the information;

•

notify any person specified by ASIC in the direction of the addition or correction. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 40-10(1), (2) and (3)]

5.50 Where the registered liquidator is suspected of providing incomplete or incorrect information in any particular, ASIC may give a direction to the liquidator to confirm to ASIC that the information is complete and correct, complete or correct the information and notify any persons. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 40-10(1), (2), and (3)]

5.51 Should the liquidator fail to comply with the ASIC direction, ASIC may either further direct the practitioner, or apply for a Court order. The ASIC direction is not a legislative instrument. Section 40-5 does not affect the operation of any other law. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 40-10(4), (5), and (6)]

5.52 ASIC may, in writing, direct a registered liquidator not to accept any further appointments under Chapter 5 of the Act or not to accept any further appointments under Chapter 5 for a period specified in the direction if:

•

the liquidator has failed to comply with a direction to remedy a failure to lodge documents, or give information or documents; or

•

the liquidator has failed to comply with a direction to correct inaccuracies; or

•

a committee has decided that ASIC should direct a liquidator not to accept any further appointments as a liquidator, or not to accept any further appointments as a liquidator during the period specified in the direction; or LI>

•

the liquidator has failed to comply with a direction to give relevant information to ASIC. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-15(1)]

5.53 A liquidator must comply with ASIC's direction. ASIC may withdraw a direction not to accept further appointments and the condition is removed from the liquidator's registration. ASIC's power to direct a registered liquidator not to accept further appointments, does not limit the operation of any other provision of the Corporations Act, or any other law, relating to the lodgement of a document or a person giving incomplete or incorrect information or any matter relating to a decision by a committee in relation to ASIC giving a direction that a liquidator not to accept further appointments. ASIC's power to apply to a Court for an order that a registered liquidator comply with a direction to give relevant material is also not affected. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 40-15(2), (3),(4), (5), (6) and (7)]

Automatic cancellation

5.54 The registration of a registered liquidator is automatically cancelled if:

•

the person becomes an insolvent under administration; or

•

the person dies.

5.55 The cancellation takes effect on the day that the person becomes an insolvent under administration or the day that the person dies. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-20]

ASIC may suspend or cancel registration

5.56 ASIC may suspend or cancel the registration of a registered liquidator if:

•

the person is disqualified from managing corporations under a law of the Commonwealth, an external Territory or foreign country;

•

the person ceases to have adequate and appropriate professional indemnity and fidelity insurance against the liabilities that the person may incur working as a registered liquidator;

•

the person's registration as a trustee under the Bankruptcy Act has been cancelled or suspended, unless it was requested by the person;

•

the person fails to repay remuneration in accordance with an order of the Court;

•

the person has been convicted of an offence involving fraud or dishonesty;

•

the person lodges a request with ASIC in the approved form to have the registration suspended or cancelled. [Schedule 2,item 2, Schedule to the Act, Part 2, subsections 40-25(1) and 40-30(1)]

5.57 ASIC's powers to suspend or cancel a person's registration as a liquidator does not affect the operation of Part VIIC of the Crimes Act 1914 which in certain circumstances relieves a person from disclosing spent convictions. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 40-25(2) and 40-30(2)]

5.58 Where ASIC decides to suspend or cancel a person's registration as a liquidator, ASIC must, within 10 business days of making the decision, give the person a written notice setting out the decision and the reasons. The decision takes effect the day after the notice is given to the person. However, a failure by ASIC to give the notice within 10 business days, does not affect the validity of the decision. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 40-35]

Disciplinary action by committee

5.59 ASIC may issue a show-cause notice to a registered liquidator where, in ASIC's opinion:

•

the liquidator no longer has the qualifications, experience, knowledge and abilities required under initial registration;

•

the liquidator has committed an act of bankruptcy, within the meaning of the Bankruptcy Act or a corresponding law of an external Territory or a foreign country;

•

the liquidator is disqualified from managing corporations under Part 2D.6 of the Corporations Act, or under a law of an external Territory or a law of a foreign country;

•

the liquidator has ceased to have adequate and appropriate professional indemnity or fidelity insurance against the liabilities that the person may incur working as a registered liquidator;

•

the liquidator has breached a condition imposed on the liquidator;

•

the liquidator has contravened a provision of the Corporations Act;

•

the liquidator has failed to properly perform the duties of a reviewing liquidator;

•

the liquidator's registration as a trustee under the Bankruptcy Act has been cancelled or suspended, other than in compliance with a written request by the liquidator to cancel or suspend the registration;

•

the liquidator fails to repay remuneration in accordance with an order of the Court;

•

the liquidator has been convicted of an offence involving fraud or dishonesty;

•

the liquidator is permanently or temporarily unable to perform the functions and duties of a liquidator because of physical or mental incapacity;

•

the liquidator has failed to carry out adequately and properly the duties of a liquidator or any other duties or functions a registered liquidator is required to carry out under a law of the Commonwealth or of a State or Territory, or the general law;

•

the liquidator is not a fit and proper person; or

•

the liquidator is not resident in Australia or a prescribed country. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-40(1)]

5.60 A show-cause notice issued by ASIC is not a legislative instrument. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-40(2)]

5.61 ASIC's powers to issue a show-cause notice do not affect the operation of Part VIIC of the Crimes Act 1914 which in certain circumstances relieves a person from disclosing spent convictions. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-40(3)]

5.62 ASIC may refer a registered liquidator to a committee which it has convened if ASIC has given a show-cause notice to the liquidator and either:

•

ASIC does not receive an explanation within 20 business days after the notice is given; or

•

ASIC is not satisfied with the explanation from the liquidator. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, Subsection 40-45(1) and section 40-50]

5.63 The committee convened by ASIC must consist of an ASIC official, a registered liquidator chosen by a prescribed body (ARITA) and a person appointed by the Minister. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-45]

5.64 Where a registered liquidator is referred to a committee, the committee must decide one or more of the following:

•

that the liquidator should continue to be registered;

•

that the liquidator's registration should be cancelled;

•

that the liquidator's registration should be suspended for a period, or until the occurrence of an event, specified in the decision;

•

that ASIC should direct the liquidator not to accept any further appointments as liquidator, or not to accept any further appointments as liquidator during the period specified in the decision;

•

that the liquidator should be publicly admonished or reprimanded;

•

that a condition specified in the decision should be imposed on the liquidator;

•

that a condition should be imposed on all other registered liquidators that they must not allow the liquidator to carry out any of the functions or duties, or exercise any of the powers, of a registered liquidator on their behalf for a period specified in the decision of no more than 10 years;

•

that ASIC should publish specified information in relation to the committee's decision and the reasons for that decision .[Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-55]

5.65 The conditions imposed by a committee on a liquidator may include one or more of the following:

•

a condition that the liquidator engage in, or refrain from engaging in, specified conduct;

•

a condition that the liquidator engage in, or refrain from engaging in, specified conduct except in specified circumstances;

•

a condition that the liquidator publish specified information;

•

a condition that the liquidator notify a specified person or class of persons of specified information;

•

a condition that the liquidator publish a specified statement;

•

a condition that the liquidator make a specified statement to a specified person or class of persons. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-55(2)]

5.66 In making its decision, the committee may have regard to:

•

any information provided to the committee by ASIC;

•

any explanation given by the liquidator;

•

any other information given by the liquidator to the committee;

•

if the liquidator is or was also a registered trustee under the Bankruptcy Act - any information in relation to the liquidator given to the committee by the Inspector-General in Bankruptcy or a committee convened under the Insolvency Practice Schedule (Bankruptcy); and

•

any other matter that the committee considers relevant. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-5(3)]

5.67 The committee is required to give the registered liquidator and ASIC a report setting out:

•

the committee's decision;

•

the committee's reasons for the decision;

•

if the committee decides that the liquidator should be registered subject to a condition:

-

the condition; and

-

the committee's reasons for imposing the condition; and

•

if the committee decides that a condition should be imposed on all other registered liquidators in relation to the liquidator:

-

the condition; and

-

the committee's reasons for the decision. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-60]

5.68 ASIC is required to give effect to the committee's decision. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-60]

Lifting or shortening suspension

5.69 A person whose registration as a liquidator has been suspended may apply to ASIC for the suspension to be lifted or for the period of the suspension to be shortened. ASIC must refer an application to a committee which it has convened within two months after receiving the application. The committee must consist of ASIC, a registered liquidator chosen by a prescribed body (ARITA) and a person appointed from a pool selected by the Minister. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, sections 40-70, 40-75 and 40-80]

5.70 The committee must consider the application referred to it and, unless the applicant otherwise agrees, the committee must interview the applicant for the purposes of considering the application. Within 10 business days after the interview the committee must decide whether the suspension should be lifted, or the period of the suspension shortened, and if it is to be shortened, specify when the suspension is to end. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-85]

5.71 The committee must give the applicant and ASIC a report setting out the committee's decision, the committee's reasons for the decision and if the committee has decided that the period of suspension should be shortened, when the suspension is to end. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 40-90]

5.72 If the committee decides that a suspension should be lifted or the period of suspension shortened, the lifting or shortening of the suspension comes into effect in accordance with the decision. [Schedule 2, item 150, Insolvency Practice Schedule (Corporations), Part 2, section 40-95]

Action initiated by industry body

5.73 An industry body (prescribed in the Insolvency Practice Rules) may lodge a notice (an industry notice) stating that the body reasonably suspects that there are grounds for ASIC to take disciplinary action against a registered liquidator. The industry body must identify the registered liquidator and include the information and copies of any documents upon which the suspicion is grounded. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-100(1)]

5.74 ASIC must consider the information and documents included in the industry notice and take action as follows:

•

if ASIC decides to take no action, it must give the industry body a notice of that decision within 45 business days after the industry notice is lodged;

•

however, such a notice does not preclude ASIC from taking action based wholly or partly on the basis of information in the industry notice of the following kind:

-

suspending or cancelling the registration of the registered liquidator;

-

giving the registered liquidator a show cause notice; or

-

imposing a condition on the registered liquidator;

•

if ASIC does take action based wholly or partly on the information included in an industry notice, ASIC must give the industry body notice of that fact. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 40-100(2), (3), (4),(5) and (6)]

5.75 An industry notice is not a legislative instrument. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 40-100(7)]

5.76 An industry body is not liable civilly, criminally or under any administrative process for giving an industry notice if the body acted in good faith and the suspicion that the body holds in relation to the subject of the notice is a reasonable suspicion. A person who makes a decision in good faith as a result of which an industry body gives an industry notice is not civilly, criminally or under any administrative process for making the decision. A person who gives information or a document in good faith which is included, or a copy of which is included, in an industry notice is not liable civilly, criminally or under any administrative process for giving the information or document. [Schedule 2,item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-105]

Consequences of certain disciplinary and other action

5.77 ASIC may appoint another registered liquidator to conduct an external administration of a company if the registration of a registered liquidator who is conducting the external administration is suspended or cancelled. ASIC may also appoint another registered liquidator if a liquidator fails to renew their registration and no orders have been made to extend the period under subsection 20-70(3). This ASIC power does not apply to a liquidator appointed by the Court, a winding up ordered by ASIC under section 489EA or to a members' voluntary winding up. The registered liquidator appointed by ASIC must consent to his or her appointment. Should no registered liquidator be willing to act, ASIC may use its powers under section 601AB to initiate deregistration of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 40-111]

Court oversight of registered liquidators

5.78 Without limiting the Court's powers under provisions of the Act or under any other law, the Court may make such orders as it thinks fit in relation to a registered liquidator. The Court may exercise this power on its own initiative or on the application of the registered liquidator or ASIC. Without limiting the matters the Court may take into account, the Court may take into account:

•

whether an action or failure to act by the registered liquidator may affect public confidence in registered liquidators as a group; and

•

whether an order that the Court proposes to make would promote public confidence in registered liquidators as a group. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 45-1]

5.79 The Court may also make orders in relation to a registered liquidator that deal with the costs of a matter considered by the Court. The orders may include/specify that the registered liquidator is liable for some or all of the costs and that the registered liquidator is not entitled to be reimbursed by a company or its creditors in relation to some or all of those costs. [Schedule 2, item 2, Schedule2 to the Act, Part 2, section 45-5]

Committees under this Part

5.80 If a prescribed body appoints a person to a committee, that person must have the knowledge or experience prescribed in the Insolvency Practice Rules or, if no knowledge is prescribed, the knowledge and experience necessary to carry out the functions to be performed. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 50-5]

5.81 If the Minister appoints a person to a committee, that person must have knowledge or experience in one or more fields of business, law (including corporate insolvency laws), economics, accounting and public policy relating to corporate insolvency and administration of companies, including insolvent companies. To avoid any actual or perceived bias, the Minister must not appoint a staff member of ASIC to be a member of the committee. The Minister may delegate the Minister's powers to appoint a person to a committee to:

•

ASIC;

•

a member of ASIC; or

•

a staff member of ASIC who:

-

is an SES employee or acting SES employee;

-

is an APS employee who holds, or is acting in, an Executive Level 2 position; or

-

holds, or is acting in, an office or position that is equivalent to an SES employee, or an Executive Level 2. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsections 50-10(1)(2) and (3)}

5.82 The delegate, in exercising powers under a delegation, must comply with any directions of the Minister. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 50-10(4)]

5.83 A single committee may consider more than one matter relating to the application for registration of one or more applicants for registration as a liquidator and a matter or matters relating to one or more registered liquidators. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 50-15]

5.84 The consideration of a matter is not affected by a change in the membership of the committee. A matter may be adjourned or transferred to another committee. The Insolvency Practice Rules may prescribe procedures and make rules for committees. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, sections 50-15 and 50-20]

5.85 A member of a committee is entitled to receive the remuneration that is determined by the Remuneration Tribunal but if no determination by the Tribunal is in operation, the member is entitled to receive such remuneration as the Minister determines in writing. A member is entitled to receive such allowances as the Minister determines in writing. The operation of the requirements in relation to the remuneration of a member of a committee has effect subject to the Remuneration Tribunal Act 1973 [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, section 50-30]

5.86 A member of a committee commits an offence if information or a document is given to the member for the purposes of exercising powers or functions as a member of the committee and the member uses or discloses the information or document for any other purpose. The maximum penalty is 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 50-35(1)]

5.87 The restriction on the use of information or a document disclosed to a member of a committee does not apply if the information is disclosed:

•

to enable the committee convened under this part, to seek legal advice;

•

to the Inspector-General in Bankruptcy to assist the Inspector-General to exercise his or her powers or perform his or her functions under the Bankruptcy Act;

•

to a committee convened under Part 2 of the Insolvency Practice Schedule (Bankruptcy) to assist the committee to exercise its powers or perform its functions under that Part;

•

to another committee convened under this Part to assist the committee to exercise its powers or perform its functions under this Part;

•

to enable or assist a prescribed body to perform its disciplinary function in relation to its members;

•

in order to enable or assist an authority or person in a State or Territory or a foreign country to perform or exercise a function or power that corresponds, or is analogous, to any of the committee's or ASIC's functions and powers; or

•

to a court or tribunal in relation to proceedings before the court or tribunal. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 2, subsection 50-35(2)]

Consequential amendments

Australian Securities and Investments Commission Act 2001

5.88 Amendments are required consequential on the removal of CALDB's responsibility for the discipline of liquidators. [Schedule 2, Part 2, item 5, paragraph1(1)(d), item 7, subsection 5(1)(definition of Disciplinary Board), item 24, Part 11(heading), item 25, subparagraph 203(2A)(b)(ii), item 26, paragraphs 210A(1)(b) and (c), item 27, paragraph 223(1)(b), item 28, paragraph 223(2)(b)]

5.89 The confidentiality restrictions imposed on ASIC are amended to permit ASIC to provide certain information to a committee convened under Part 2 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 17, paragraph 127(4)(a)]

5.90 The confidentiality restrictions imposed on ASIC are amended:

•

to permit ASIC to disclose information to a prescribed body (that is not a disciplinary body) that would enable or assist that body to perform a function in relation to registered liquidators; and

•

to permit ASIC to provide information that will enable a committee convened under Part 2 of Insolvency Practice Schedule (Corporations) to perform its functions under the corporations legislation. [Schedule 2, Part 2, item 19, paragraph 127(4)(d)]

5.91 The confidentiality restrictions imposed on the FRC, the AASB, the Office of the AASB, the AUASB and the Office of the AUASB are amended to permit these bodies to disclose information to a committee convened under Part 2 of the Insolvency Practice Schedule (Corporations) for the purposes of the committee's functions under the corporations legislation. [Schedule 2, Part 2, item 29, paragraph 237(2)(d)]

5.92 A consequential amendment is necessary in order to provide protection to an officer or employee of an Agency or of an authority of the Commonwealth whose services are made available to a committee convened under Part 2 of Schedule 2, to the Corporations Act from liability for an action or other proceedings for damages for or in relation to an act done or omitted in good faith in performance or purported performance of any function or the exercise of any power conferred on the committee under the corporations legislation or a prescribed law of the Commonwealth, a State or Territory .[Schedule 2, Part 2, item 30, paragraph 246(1)(k)] Banking Act

5.93 An amendment is required consequential on the removal of liquidator functions from CALDB. [Schedule 2, Part 2, item 33, paragraph 18(1)(c)] Corporations Act

5.94 Amendments are required consequential on the removal of the liquidator functions from CALDB. [Schedule 2, Part 2, item 63, section 9 (definition of Board), item 230, subsections 1292(2) to (6), item 231, subsection 1292(7), item232, subsection 1292(7), item 233, subsection 1292(8), item 234, subsection 1292(9), item 235, subsection 1292(9), item 236, subsection 1292(9), item 224, 237 1292(9), item 238, subsection 1292(10),item 239, paragraph 1294(1)(a), item 240, subsection 1297(1), item 247, paragraph 1317B, item 249, subsection 1317B(2), item 252, subsection 1317D(1)]

5.95 The definition of registered liquidator is amended to refer to the definition in Schedule 2 to the Act consequential on the registration requirements for registered liquidators now being dealt with in Schedule 2. [Schedule 2, Part 2, item 78, section9 (definition of registered liquidator)]

5.96 Paragraph 532(1)(b) is repealed because a person can no longer be registered as a liquidator in relation to a specific company. [Schedule 2, Part 2, item 173, subsection 532(1)]

5.97 Subsection 532(7) is repealed because the registration of a person who is insolvent under administration is automatically cancelled under the Insolvency Practice Schedule (Corporations) and a person who is not a registered liquidator cannot be appointed to act as a liquidator of a company under subsection 532(1). [Schedule 2, Part 2, item 174, subsection 532(7)]

5.98 An amendment is necessary to ensure that an application for registration as a liquidator under section 20-5 of Schedule 2, is not available for public inspection. [Schedule 2, Part 2, item 214, subparagraph 1274(2)(a)(i)]

5.99 An amendment is necessary to ensure that annual liquidator returns lodged under section 12-5 of Schedule 2, or notices of significant events lodged under section 14-5 of Schedule 2, are not available for public inspection. [Schedule 2, Part 2, item 215, subparagraph 1274(2)(a)(ii)]

5.100 The heading to Part 9.2 and section 1279 refers only to the registration of auditors because the registration of liquidators is dealt with under Part 2 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 217, Part 9.2 (heading), item165, section 1279 (heading)]

5.101 An amendment is necessary to limit section 1279 to the registration of auditors because the registration of liquidators is dealt with under Part 2 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 219, subsection 1279(1)]

5.102 Section 1282 is repealed and replaced by the provisions in Schedule 2, relating to the registration of liquidators. Section 1283 is repealed because there is no category of official liquidator. Section 1284 is repealed and replaced by requirements in Schedule 2, requiring a liquidator to maintain adequate insurance. [Schedule 2, Part 2, item 220, sections 1282 to 1284]

5.103 Section 1286 is repealed and replaced by provisions in Schedule 2, relating to the Register of Liquidators. [Schedule 2, Part 2, item 221, section 1286]

5.104 Subsection 1287(2) is repealed and replaced by the notice requirements imposed on registered liquidators in Schedule 2. Subsection 1287(3) is repealed because there is no longer a category of a registered liquidator of a specified body corporate. [Schedule 2, Part 2, item 222, subsections 1287(2) and (3)]

5.105 The references to liquidators in section 1287(4) are removed because requirements relating to the registration of liquidators are dealt with in Schedule 2. [Schedule 2, Part2, item 223, subsection 1287(4)]

5.106 Section 1288 is repealed and replaced by the requirement in Schedule 2, for a registered liquidator to lodge an annual return. [Schedule 2, Part 2, item 224, section 1288]

5.107 The references to requests for cancellation of a person's registration as a liquidator, a liquidator of a specified body corporate and as an official liquidator are removed. A request for the cancellation of a person's registration as a liquidator is dealt with in the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, items 225, 226 and 227, subsections 1290(1) and 1290(2)]

5.108 Section 1290A is repealed and replaced by the rules in Schedule 2, relating to the cancellation of a liquidator's registration. Section 1291 is repealed because there is no separate category of official liquidator. [Schedule 2, Part 2, item 228, sections 1290A and 1291]

5.109 The reference to liquidators is removed from the heading to section 1292 because CALDB no longer has functions in relation to liquidators. [Schedule 2, Part 2, item 229, section 1292 (heading)]

5.110 Section 1298 is repealed and replaced by a provision which only deals with the suspension of a person's registration as an auditor. The suspension of a person's registration as a liquidator is dealt with in the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 242, section 1298]

5.111 Section 1298A is repealed consequential on the requirement for the transfer of books of a liquidator whose registration is cancelled or suspended being dealt with in the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 243, section 1298A]

5.112 Subsection 1300(3) is amended consequential on the right of a former external administrator to inspect the books that have been transferred to the new external administrator now being dealt with in section 70-30 of Schedule 2. [Schedule 2, Part 2, item 245, subsection 1300(3)]

5.113 A note is inserted at the end of subsection 1300(3) to sign post that section 70-30 of Schedule 2, is about books relating to an external administrator. [Schedule 2, Part 2, item 246, at the end of subsection 1300(3)]

5.114 A decision made by a committee convened under Part 2 of Schedule 2, is reviewable by the AAT. [Schedule 2, Part 2, item 248, at the end of subsection 1317B(1)]

5.115 Subsection 1317D(1) is amended consequential on the removal of liquidator functions from CALDB and the decisions of a committee convened under Part 2 of Schedule 2, being made reviewable by the AAT. [Schedule 2, Part 2, item 252, subsection 1317D(1)]

5.116 Section 1349 was inserted by the Corporations Amendment (Insolvency) Act 2007 and was designed to address the consequences of the High Court's decision in Rich v Australian Securities and Investments Commission [2004] HCA 42. Prior to the High Court's decision, the use of banning or disqualification as a remedy for corporate misconduct was viewed as protective rather than penal in nature. However, in that case, the High Court found that a banning or disqualification order was a penalty and, as a direct consequence, allowed people to invoke the common law privileges protecting the disclosure of information that may expose a person to a penalty in a banning or disqualification proceeding.

5.117 Banning and disqualification orders and orders to cancel or suspend a licence under the Corporations Act are important tools for deterring corporate misconduct. They allow the removal of unwanted participants from the corporations and financial services market and thereby maintain the integrity of the market. One of their main benefits is that they allow for an expeditious response to corporate misconduct.

5.118 Subsection 1349(1) removed penalty privilege for proceedings where a disqualification, banning, suspension or cancellation order, or a declaration to that effect, is being sought. A person in such an administrative, civil or criminal proceeding will not be entitled to refuse or fail to comply with a requirement on the grounds that to do so might tend to make the person liable for a penalty by way of a disqualification, banning, suspension or cancellation order, or a declaration to that effect. The effect of subsection 1349(1) was to restore the longstanding position that penalty privilege does not apply to these types of proceedings.

5.119 Three of the penalties covered by subsection 1349(1) are cancellation or suspension under Division 3 of Part 9.2 (paragraph 1349(1)(j) refers) and a requirement to give an undertaking under paragraph 1292(9)(b) or (c) of the Corporations Act (paragraph 1349(1)(m) refers). Division 3 of Part 9.2 and paragraphs 1292(9)(b) and (c) deal with registered auditors and registered liquidators. All the rules about cancellation and suspension of liquidators and penalties that can be imposed on liquidators relating to the refraining from engaging in specified conduct (conduct penalties), are now dealt with in Schedule 2. It is therefore necessary for subsection 1349(1) to refer to the relevant provisions relating to liquidators in Schedule 2. The effect of these consequential amendments is simply to continue existing policy. [Schedule 2, Part 2, item 254, after paragraph 1349(1)(n)]

5.120 Subsection 1349(3) removes penalty privilege in relation to a person complying with a statutory requirement under the Corporations Act or the ASIC Act on the grounds that to do so might tend to make the person liable for a penalty by way of a disqualification, banning, suspension or cancellation order, or a declaration to that effect. The policy rationale underlying section 1349 is explained above.

5.121 Three of the penalties covered by subsection 1349(3) are cancellation or suspension under Division 3 of Part 9.2 (paragraph 1349(3)(j) refers) and a requirement to give an undertaking under paragraph 1292(9)(b) or (c) of the Corporations Act (paragraph 1349(3)(k) refers). Division 3 of Part 9.2 and paragraphs 1292(9)(b) and (c) deal with registered auditors and registered liquidators. All the rules about cancellation and suspension of liquidators and penalties that can be imposed on liquidators relating to the refraining from engaging in specified conduct (conduct penalties), are now dealt with in Schedule 2. It is therefore necessary for subsection 1349(3) to refer to the relevant provisions relating to liquidators in Schedule 2. The effect of these consequential amendments is simply to continue existing policy. [Schedule 2, Part 2, item 255, after paragraph 1349(3)(l)]

5.122 Subsection 1349(4) ensures that when ASIC receives information during an investigation pursuant to its powers in Part 3 of the ASIC Act or from a Court examination in relation to an external administration over which penalty privilege is claimed, ASIC may make use of this information in the proceedings for a disqualification, banning, suspension or cancellation order, or a declaration to that effect.

5.123 Three of the penalties covered by subsection 1349(4) are cancellation or suspension under Division 3 of Part 9.2 (paragraph 1349(4)(g) refers) and a requirement to give an undertaking under paragraph 1292(9)(b) or (c) of the Corporations Act (paragraph 1349(4)(h) refers). Division 3 of Part 9.2 and paragraphs 1292(9)(b) and (c) deal with registered auditors and registered liquidators. All the rules about cancellation and suspension of liquidators and penalties that can be imposed on liquidators relating to the refraining from engaging in specified conduct (conduct penalties), are now dealt with in Schedule 2. It is therefore necessary for subsection 1349(4) to refer to the relevant provisions relating to liquidators in Schedule 2. The effect of these consequential amendments is simply to continue existing policy. [Schedule 2, Part 2, item 256, after paragraph 1349(4)(i)]

Insurance Act 1973

5.124 The amendment is consequential on the removal of liquidator functions from CALDB. [Schedule 2, Part 2, item 278, paragraph 48(1)(c)]

5.125 The amendments are consequential on there no longer being a category of official liquidator. [Schedule 2, Part 2, items 282 and 283, subsections 92(4) and (5)]

Life Insurance Act 1995

5.126 The amendment is consequential on the removal of liquidator functions from CALDB. [Schedule 2, Part 2, item 284, paragraph 125(1)(c)]

Private Health Insurance (Prudential Supervision) Act 2015

5.127 The amendments are consequential on there no longer being a category of official liquidator. [Schedule 2, Part 2, item 308 , paragraph 50(1)(b), item 309, paragraph 50(4)(b), item 310, paragraph 51(2)(a), item 311, at the end of section 51, item 312, subsection 65(7)]

Application and transitional provisions

Australian Securities and Investments Commission Act 2001

5.128 The amendment of section 203 of the Act, which removes the knowledge and experience field of the 'administration of companies', applies to appointments made to CALDB on or after the commencement day. [Schedule 2, Part 3, item 321, section 307] Corporations Act

5.129 The general rule for a registered liquidator before the commencement of this Bill is that they will continue to be registered and must comply with the requirements and duties under Part 2 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, section 1550 Simplified outline of this Part]

5.130 The general rule applying to a proceeding already begun in the Court or the AAT before the commencement of the amendments made by this Bill will continue under the old Act. Orders of the Court under the old Act continue to have effect. [Schedule 2, Part 3, item 322, section 1550 Simplified outline of this Part]

5.131 Key definitions for the purposes of Part 3 include:

•

new external administration means an external administration of a company that starts on or after the commencement day;

•

old Act means the Corporations Act as in force immediately before the commencement day and includes the old regulations;

•

ongoing external administration of a company means an external administration of a company that started before the commencement day and ends after that day. [Schedule 2, Part 3, item 322, section 1551 Definitions]

5.132 If, before the commencement day, a person has applied to be registered as a liquidator and the application has not been refused but the person's application has not been completed, the application is taken never to have been made and ASIC must refund any fee paid in relation to the application. [Schedule 2, Part 3, item 322, section 1553]

5.133 A person registered as a liquidator, or as a liquidator of a specified corporation under the old Act, immediately before the commencement day, continues to be registered as a liquidator under Subdivision B of Division 8 of the Insolvency Practice Schedule (Corporations). Such a person is referred to as an old Act registrant. [Schedule 2, Part 3, item 322, subsections 1552(2), and 1553(1) and (4)]

5.134 A person who is registered under the old Act but whose registration is suspended and the period of the suspension does not expire before the commencement day is taken to be registered under the Insolvency Practice Schedule (Corporations) on the commencement day but the person is taken to be suspended for a period that ends when the suspension under the old Act would have ended. The person could, however, apply under Subdivision F of Division 40 of the Insolvency Practice Schedule (Corporations) to have the suspension lifted or shortened. [Schedule 2, Part 3, item 322, subsection 1553(2)]

5.135 A person who is registered as a liquidator, or as a liquidator of a specified body corporate, immediately before the commencement day but the person is an insolvent under administration or is dead, the person is not taken to be registered as a liquidator under the Insolvency Practice Rules (Corporations). [Schedule 2, Part 3, item 22, subsection 1553(3)]

5.136 ASIC must enter on the Register of Liquidators, in relation to each old Act registrant, the details prescribed under subsection 15-1(3) of the Insolvency Practice Schedule (Corporations) that relate to that old registrant. ASIC may use and disclose information it holds in relation to an old Act registrant before the commencement day for the purpose of establishing and maintaining the Register of Liquidators. [Schedule 2, Part 3, item 22, section 1554]

5.137 The registration of an old Act registrant under the Insolvency Practice Schedule (Corporations) is for a period ending on the first anniversary of the old registration day for that person that occurs on or after the commencement day. The old registration day is the day on which the registration under the old Act in relation to the person began. To avoid any doubt, the registration of an old Act registrant may be renewed in accordance with the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, section 1555]

5.138 To avoid doubt, a condition may be imposed on an old Act registrant under the Insolvency Practice Schedule (Corporations) in accordance with that Schedule. [Schedule 2, Part 3, item 322, section 1556]

5.139 Where an old Act registrant has given an undertaking under paragraph 1292(9)(b) or (c) of the old Act and the undertaking is still in force immediately before the commencement day, it is a current condition of the old Act registrant's registration under the Insolvency Practice Schedule (Corporations) that the old Act registrant gives and complies with the undertaking. The requirements in the Insolvency Practice Schedule (Corporations) applying to the variation or removal of a condition, imposed by a committee under the Insolvency Practice Schedule (Corporations), apply to a condition imposed on an old Act registrant. [Schedule 2, Part 3, item 322, section 1557]

5.140 Where an old Act registrant has given ASIC an undertaking under section 93AA of the ASIC Act to engage in, or refrain from engaging in, conduct as a liquidator, or as a liquidator of a specified body corporate, and the undertaking is in force immediately before the commencement day, then it is a current condition of the old Act registrant's registration under the Insolvency Practice Schedule (Corporations) that the old registrant should comply with the undertaking. The enforcement of an undertaking given under section 93AA of the ASIC Act is not affected by these new requirements .[Schedule 2, Part 3, item 322, section 1558]

5.141 There is no longer a category of a liquidator of a specified body corporate. The following rules apply to an old Act registrant who was registered as a liquidator of a specified body corporate immediately before the commencement day:

•

it is a current condition of the old Act registrant's registration under the Insolvency Practice Schedule (Corporations) that the old registrant must not accept any further appointments as external administrator of a company;

•

on the day immediately after the external administration of the body corporate ends, the old Act registrant is taken to have lodged a request to have his or her registration as a liquidator cancelled and ASIC is taken to have cancelled the registration. [Schedule 2, Part 3, item 322, subsections 1559(1), (2) and (3)]

5.142 The special rules applying to an old Act registrant who was a liquidator of a specified body corporate do not apply where the old Act registrant applies to be registered as a liquidator under section 20-5 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, subsection 1559(4)]

5.143 Where an old Act registrant does not apply for renewal of his or her registration under the Insolvency Practice Schedule (Corporations) before his or her period of registration ends (the expiry day), then the following special rules apply:

•

the old Act registrant is taken to be registered under the Insolvency Practice Schedule (Corporations) on the current condition that he or she must not accept any further appointments as external administrator of a company;

•

on the day after all the external administrations that the old Act registrant is entitled to carry out ends, the old Act registrant is taken to have lodged a request to have his or her registration as a liquidator cancelled and ASIC is taken to have cancelled the registration. [Schedule 2, Part 3, item 322, section 1560]

5.144 The obligation to lodge an annual liquidator return in accordance with section 30-1 of the Insolvency Practice Schedule (Corporations) applies to an old Act registrant. For the purpose of working out the return year for an old Act registrant under subsection 30-1(2), 'the day on which that registration first began' means the 'old Act registration day' as defined under section 1551. [Schedule 2, Part 3, item 322, subsections 1561(1) and (2)]

5.145 The repeal of section 1288 (annual statements by registered liquidators) applies in relation to return years beginning on or after the commencement day. Schedule 2, Part 3, item 322, subsection 1561(3)]

5.146 Specific notification rules apply to an old Act registrant in relation to significant events mentioned in subsection 35-1(1) of the Insolvency Practice Schedule (Corporations) where the old Act registrant has not already notified ASIC in writing of the event before the commencement day:

•

the significant event must have occurred within two years before the commencement day;

•

if the old Act registrant is or could reasonably be expected to be aware of the event before the commencement day, the old Act registrant must lodge with ASIC a notice, in the approved form, within one month after the commencement day;

•

if the old Act registrant is or could reasonably be expected to be aware of the event after the commencement day, the old Act registrant must lodge with ASIC a notice, in the approved form, within one month after the first day on which the old Act registrant is or could reasonably be expected to be aware of the event;

•

a person who intentionally or recklessly fails to comply with the notice requirements is guilty of an offence punishable by a maximum penalty of 100 penalty units. [Schedule 2, Part 3, item 322, section 1562]

5.147 ASIC may not cancel the registration of a liquidator or a liquidator of a specified body corporate under section 1290 where the person has requested, before the commencement day, to have his her registration cancelled and no decision by ASIC to cancel the registration has come into effect before the commencement day. However, for purposes of paragraph 40-30(1)(f), the person is taken to have made a request to have his or her registration cancelled under the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, subsections 1563(1),(2) and (3)]

5.148 The amendment of section 1290, which removes the references to a liquidator, liquidator of a specified body corporate and an official liquidator, apply in relation to requests made to ASIC under section 1290 on or after the commencement day. [Schedule 2, Part 3, item 322, subsection 1563(4)]

5.149 Where ASIC has made a decision before the commencement day to cancel the registration of a person as a liquidator or as a liquidator of a specified body corporate but the decision has not come into effect before the commencement day, then the following rules apply:

•

on the commencement day, ASIC is taken to have cancelled the registration of the person as a liquidator under section 40-30 of the Insolvency Practice Schedule (Corporations);

•

the notice obligations imposed on ASIC under section 40-35 of the Insolvency Practice Schedule (Corporations) apply in relation to the decision as if the decision were made on the commencement day. [Schedule 2, Part 3, item 322, section 1564]

5.150 Where an application has been made to CALDB under section 1292 before the commencement day and CALDB has not, before the commencement day, made an order in relation to the person's registration as a liquidator under subsections 1292(2), (3), (4), (6) or (7) of the old Act or dealt with the person under subsection 1292(9) or held a conference in relation to the application under section 1294A, then the Board must cease its consideration of the matter on the commencement day without making such an order, dealing with the person under subsection 1292(9) of the old Act or convening such a conference under section 1294A. If a matter has been ceased and a conference has been convened but not yet held, the Chairperson of the Board need not give notice of the conference and it need not be held. The matter may be dealt with under Division 40. [Schedule 2, Part 3, item 322, section 1565]

5.151 Where an application has been made to CALDB under section 1292 before the commencement day and CALDB has, before the commencement day, made an order in relation to the person's registration as a liquidator under subsections 1292(2), (3), (4), (6) or (7) of the old Act, dealt with the person under subsection 1292(9) or held a conference in relation to the application under section 1294A, then the old Act continues to apply in relation to the decision to make the order under subsection 1292(2), (3), (4), (5), (6) or (7) deal with the matter under subsection 1292(9) in response to the application or convene the conference under section 1294A.

5.152 Where an application has been made to CALDB under section 1292 before the commencement day and CALDB has, before the commencement day, refused to make an order in relation to the person's registration as a liquidator under subsections 1292(2), (3), (4), (6) or (7) of the old Act, dealt with the person under subsection 1292(9) or convene a conference in relation to the application under section 1294A, then the old Act continues to apply in relation to the decision to refuse to make the order under subsection 1292(2), (3), (4), (5), (6) or (7) deal with the matter under subsection 1292(9) in response to the application or convene the conference under section 1294A.

5.153 Where an application has been made under section 1295 of the old Act to terminate the suspension of the registration of a person as a liquidator and CALDB has neither refused the application nor, by order, terminated the suspension before the commencement day, then CALDB must cease its consideration of the matter on the commencement day without making such an order. [Schedule 2, Part 3, item 322, section 1568]

5.154 Where CALDB under section 1295 of the old Act is considering on its own motion whether to terminate the suspension of the registration of a person registered as a liquidator and CALDB has not, by order, terminated the suspension before the commencement day, then CALDB must cease its consideration of the matter on the commencement day without making such an order. [Schedule 2, Part 3, item 322, subsection 1568(2)]

5.155 The fact that CALDB has ceased to consider the matter under section 1295 of the old Act does not preclude the matter from being dealt with under Division 40 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, subsection 1568(3)]

5.156 The Chairperson of a committee under Part 2 of the Insolvency Practice Schedule (Corporations) may request the Chairperson of the Board to give the committee any information or document in the Board's possession or control in relation to a registered liquidator under the Schedule or under the old Act. [Schedule 2, Part 3, item 322, subsection 1569]

5.157 ASIC's power to require a registered liquidator to lodge a document or give information under Subdivision B of Division 40 of the Insolvency Practice Schedule applies whether or not a requirement mentioned in that Subdivision to lodge a document or give information arises before, on or after the commencement day. [Schedule 2, Part 3, item 322, section 1570]

5.158 ASIC may suspend a person's registration as a liquidator under subsection 40-25 of the Insolvency Practice Schedule (Corporations) on the basis of a number of specified grounds. The general rule is that ASIC's power to suspend a person's registration as a liquidator applies whether or not an event mentioned in subsection 40-25(1) occurs before, on or after the commencement day. However, the general rule does not apply in relation to the cancellation of the registration of a person as a trustee under the Bankruptcy Act, as in force at any time before the commencement day. The reason for this exception to the general rule is that ASIC has no power under the legislation, prior to the commencement day, to suspend a person's registration as a liquidator on the grounds that the person's registration as a trustee under the Bankruptcy Act has been cancelled. [Schedule 2, Part 3, item 322, section 1571]

5.159 ASIC may cancel a person's registration as a liquidator under subsection 40-30 of the Insolvency Practice Schedule (Corporations) on the basis of a number of specified grounds. The general rule is that ASIC's power to suspend a person's registration as a liquidator applies whether or not an event mentioned in subsection 40-30(1) occurs before, on or after the commencement day. However, the general rule does not apply in relation to the cancellation of the registration of a person as a trustee under the Bankruptcy Act, as in force at any time before the commencement day. The reason for this exception to the general rule is that ASIC has no power under the legislation, prior to the commencement day, to cancel a person's registration as a liquidator on the grounds that the person's registration as a trustee under the Bankruptcy Act has been cancelled. [Schedule 2, Part 2, item 322, section 1572]

5.160 ASIC may give a registered liquidator a written notice under subsection 40-40(1) on the Insolvency Practice Schedule (Corporations) asking the liquidator to explain to ASIC in writing why the liquidator should continue to be registered where ASIC believes that certain specified circumstances exist. Subdivision E of Division 40 of the Insolvency Practice Schedule (Corporations) applies whether or not an event mentioned in subsection 40-40(1) occurs before, on or after the commencement day. [Schedule 2, Part 2, item 322, section 1573]

5.161 Subdivision F of Division 40 of the Insolvency Practice Schedule (Corporations) deals with the lifting or shortening of a person's suspension as a liquidator. The Subdivision applies whether or not a person's registration as a liquidator is suspended under a provision of the old Act or of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 322, section 1574]

5.162 An industry body can give ASIC notice of possible grounds for disciplinary action under section 40-100 of the Insolvency Practice Schedule (Corporations). The industry body may give ASIC such a notice whether or not the grounds to which a notice relates arise because of an action, a failure to act or circumstance that occurs before, on or after the commencement day. [Schedule 2, Part 2, item 322, section 1575]

5.163 The Court is given powers under section 45-1 of the Insolvency Practice Schedule (Corporations) to make orders in relation to registered liquidators. The Court may exercise these powers whether or not an event in relation to which, or because of which, the order is made occurs before, on or after the commencement day. [Schedule 2, Part 2, item 322, section 1576]

5.164 Where as a result of the continued application of the old Act, a relevant body (including ASIC, the AAT and the Court) would have the power to register a person, suspend or cancel the registration of a person as a liquidator or as a liquidator of a specified body corporate under the old Act, the relevant body is expressly given the power:

•

to register the person, or suspend or cancel the registration of the person, as a liquidator under the Insolvency Practice Schedule (Corporations); and

•

for this purpose, by order, modify the application of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 322, section 1577]

Chapter 6 - General rules relating to external administrations

Outline of chapter

6.1 The Insolvency Practice Schedule (Corporations) introduces new general rules that set out the requirements for conducting external administrations. These rules are common with the corresponding rules in relation to registered trustees which are introduced by the Insolvency Practice Schedule (Bankruptcy).

6.2 The main provisions deal with:

•

the remuneration of the external administrator;

•

the duties of the external administrator in handling the property of the company;

•

conflicts of interest;

•

the duties of the external administrator to keep appropriate records, to report to ASIC and to give information, documents and reports to creditors, members of the company and others, including the facilitation of electronic communication;

•

rules governing creditor and company meetings;

•

the creation and conduct of a committee to monitor the external administration (called a committee of inspection);

•

the rights of creditors to review the external administration;

•

the rights of creditors to remove the external administrator and appoint another; and

•

the review of the external administration by the Court.

6.3 There are additional rules that apply to companies under external administration in Chapter 5 of the Act (for example, about the appointment of external administrators).

6.4 These rules do not apply to companies in receivership (see generally Part 5.2 of the Act).

Context of amendments

6.5 Representations made to the 2010 Senate Inquiry regarding the high cost of external administrations and the feeling of general creditor powerlessness during them, reflected deeper concerns about the efficiency and effectiveness of corporate insolvency administration governance, including in the areas of:

•

the approval of the remuneration of external administrators;

•

practitioners' and stakeholders rights and responsibilities to communicate with each other; and

•

the removal and replacement of practitioners from specific administrations.

6.6 The Productivity Commission in its 2010 report Annual review of Regulatory Burdens on Business: Business and Consumer Services found that different regulatory treatment of the administration of corporate and personal insolvency imposed an unnecessary regulatory burden on insolvency practitioners and impeded the efficient conduct of the insolvency regime.

6.7 Concerns about the current corporate regulation in these areas have also been raised in submissions to various Australian Government consultation processes in 2011 and 2012 as well as in subsequent consultation with industry participants and other stakeholders.

6.8 A persistent concern during the Senate Inquiry was that there appeared to be little indication of active price based competition between corporate insolvency practitioners. This reflects issues around the law and practice involving the approval of remuneration for practitioners, as well as the difficulty and costliness of removing poorly performing practitioners.

6.9 The current divergence in rules and requirements for personal and corporate insolvency create unnecessary complexity and costs for creditors and insolvency practitioners, making it difficult for creditors of individuals and companies to understand how the different regimes apply without an in-depth knowledge of both frameworks. This lack of knowledge and expertise is not something that creditors can easily address and it imposes both financial and time costs on creditors to obtain the information they need to protect their interests in a corporate or personal insolvency.

6.10 The divergence also limits the ability for practitioners to easily move between corporate and personal insolvencies as the different approaches to account and record keeping increases costs and the administrative burden on practitioners.

6.11 Personal and corporate insolvency laws contain a number of mechanisms designed to ensure that creditors and other stakeholders are appropriately informed of debtors' affairs and the process of insolvency administrations. These mechanisms impose obligations on practitioners to provide specified types of information and provides rights for stakeholders to make ad hoc requests for information.

6.12 Information asymmetry interferes with the efficiency of the insolvency market and contributes to the risk of misconduct by market participants. The current regulatory barriers to creditors obtaining information entrenches the inherent problems creditors face in assessing the quality of the insolvency services provided.

6.13 Creditors and members in a corporate insolvency currently have limited ability to remove a liquidator or administrator once they are appointed, regardless of poor performance or misconduct. Other than in limited predetermined circumstances, only the Court may remove a liquidator or administrator. Court processes represent a significant cost barrier to the possible removal of liquidators or administrators from an administration.

Summary of new law

6.14 Under the new law, the current rights of practitioners to claim remuneration in relation to a given administration will be consolidated, substantially aligned and simplified across all forms of insolvency. The capacity for the Court to review remuneration determinations will also be consolidated into a single aligned section.

6.15 A corporate insolvency practitioner will now be prohibited, without the prior approval of creditors, from: directly or indirectly deriving a profit or advantage from a transaction, sale or purchase for or on account of the estate; or conferring upon a related entity a profit or advantage from a transaction, sale or purchase for or on account of the estate.

6.16 The rules for handling administration or estate funds across all forms of insolvency administration; and keeping, auditing and destroying administration or estate records will be aligned with those in personal insolvency.

6.17 A corporate insolvency practitioner will be required to report to ASIC annually on the anniversary of the administration.

6.18 Creditors will be able to request information from a corporate insolvency practitioner and request that a creditors' meeting be held during an external administration. Creditors and members with a financial interest will be able to make reasonable requests for information that practitioners would be obliged to meet provided there is funds available to meet the request. Reporting obligations during an administration will be prescribed by the Insolvency Practice Rules.

6.19 Creditors will also be empowered to require an insolvency practitioner to convene a meeting of creditors when resolved or requested by the creditors or a committee of inspection in certain specified circumstances. In order to maintain a common approach to the drafting of the Corporations Act and Bankruptcy Act provisions, the rules regarding meetings of creditors in both corporate and personal insolvency will now be prescribed by the Insolvency Practice Rules. A practitioner will be able to be pass circular resolutions for all kinds of resolution.

6.20 The rules governing committees of inspection in liquidations, voluntary administrations, deeds of company arrangement, bankruptcies, controlling trusteeships and personal insolvency agreements will be aligned. This includes the rules regarding the functions afforded to committees of inspection and their potential membership. Many of the detailed rules relating to committees of inspection will be set out in the Insolvency Practice Rules. Each of the following have rights to appoint members to a committee of inspection:

•

the creditors as a whole;

•

a single creditor who is owed, or a group of creditors who together are owed, a large amount; and

•

a single employee who is owed, or a group of employees who together are owed, a large amount.

6.21 These new powers for creditors will be subject to the continued operation of section 545 of the Corporations Act whereby a practitioner is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property to meet that liability.

6.22 ASIC and the Court will now be able to appoint a registered liquidator to undertake a review and report on all or part of an external administration. The terms of such a review would be determined on a case-by-case basis. Creditors, ASIC and the Court will also have the power to appoint a cost assessor to assess and report on the reasonableness of the remuneration and costs incurred during a portion or all of an administration. This reform is specific to the Corporations Act, given the extensive powers available to the Inspector-General to undertake these functions under the Bankruptcy Act.

6.23 Creditors will also be able to resolve to remove an insolvency practitioner and appoint a replacement without recourse to the Court. The powers of the Court to inquire and make orders, including for the removal of a practitioner, will also be aligned across all forms of insolvency administration.

Comparison of key features of new law and current law

Detailed explanation of new law

Remuneration and other benefits received by external administrators

6.24 The general rules relating to the remuneration of external administrators are set out in Subdivision B of Division 60 of the Insolvency Practice Schedule (Corporations). The rules relating to the remuneration for provisional liquidators are set out in Subdivision C and the remuneration of liquidators appointed by ASIC under section 489EC are set out in Subdivision D. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 60-2]

6.25 A liquidator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration in accordance with the remuneration determination (if any) for the external administrator. If no remuneration determination is made, the liquidator is entitled to receive reasonable remuneration for the work but that remuneration must not exceed the maximum default amount (see below). [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 60-5]

6.26 The maximum default amount does not seek to establish an industry average for remuneration in an administration. Rather this provision seeks to facilitate a liquidator being able to draw a base amount of remuneration without incurring the expense of convening a meeting to obtain creditor approval. This provision is expected to be particularly valuable during a no- or low-asset administration.

6.27 A remuneration determination (other than for a members' voluntary winding up) may be made by:

•

resolution of the creditors; or

•

if the creditors do not make a determination, by the committee of inspection; or

•

if neither the creditors nor the committee of inspection makes a determination, by the Court. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-10(1)]

6.28 A remuneration determination that an external administrator of a company in a members' voluntary winding up is entitled to may be made by resolution of the company at a general meeting. The Court may make the determination if the general meeting of the company does not make a determination. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-10(2)]

6.29 A remuneration determination may specify that the remuneration that an external administrator is entitled to receive may be either or both by way of specifying an amount of remuneration or by specifying a method for working out an amount of remuneration. If the determination specifies that the remuneration is to be worked out wholly or partly on a time-cost basis, the determination must include a cap on the amount of the remuneration that the external administrator is entitle to receive. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 60-10(3(b)) and (4)]

6.30 More than one determination may be made in relation to a particular administrator of a company and a particular external administration of a company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-10(5)]

6.31 The Court may review a remuneration determination for an external administrator on the application of:

•

ASIC;

•

a person with a financial interest in the external administration;

•

if the company is under administration or in a members' voluntary winding up - an officer of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 60-11(1) and (2)]

6.32 The definition of a person with a financial interest in the external administration is provided for under section 5-30.

6.33 The Court may review the remuneration determination if it considers appropriate to do so. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-11(3)]

6.34 After reviewing the remuneration determination, the Court must affirm, vary or set aside and substitute the determination [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-11(4)]

6.35 Where the Court has made a remuneration determination, only the Court may review the determination. [Schedule, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-11(5)]

6.36 Where the Court makes or reviews a determination, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:

•

the extent to which the work by the external administrator was necessary or properly performed;

•

the extent of the work likely to be performed by the external administrator is likely to be necessary and properly performed;

•

the period during which the work was, or is likely to be performed by the external administrator;

•

the quality of the work performed, or likely to be performed, by the external administrator;

•

the complexity (or otherwise) of the work performed or likely to be performed;

•

the extent to which the external administrator was, or is likely to be required to deal with extraordinary issues;

•

the extent to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;

•

the value and nature of any property dealt with, or likely to be dealt with by the external administrator;

•

the number, attributes and conduct, or the likely number, attributes and conduct of the creditors;

•

if the remuneration is worked out wholly or partly on a time-cost basis - the time properly taken, or is likely to be properly taken, by the external administrator in performing the work;

•

whether the external administrator was, or is likely to be required to deal with one or more controllers or one or more managing controllers;

•

if a review has been undertaken by another registered liquidator into a matter relating to an external administration and that matter is, or includes, remuneration of the external administrator, the contents of the report on the review; and

•

any other relevant matters .[Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 60-12]

6.37 The maximum default amount that an external administrator may receive is $5,000 (exclusive of GST) and indexed with reference to the Consumer Price Index. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 60-15]

6.38 A provisional liquidator is entitled to receive remuneration, as:

•

determined by the Court; or

•

if there is no determination by the Court and there is a committee of inspection, as agreed between the liquidator and the committee of inspection; or

•

if there is no determination by the Court and no agreement between the liquidator and the committee of inspection, then by resolution of the creditors. Creditors may also make remuneration determinations after a particular type of administration has ended. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 60-16]

6.39 If ASIC orders that an abandoned company be wound up under section 489EA, ASIC may determine the remuneration that the liquidator is entitled to receive. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 60-17]

6.40 A registered liquidator will be explicitly prohibited from: :

•

directly or indirectly derives a profit or advantage from a transaction (including a sale or purchase) entered into for or on account of the company; or

•

directly or indirectly derives a profit or advantage from a creditor or member of the company; or

•

a related entity of the registered liquidator directly or indirectly derives a profit or advantage from the external administration of a company;

-

A related entity in relation to an individual is defined in the Dictionary for purposes of the Insolvency Practice Schedule (Corporations) as having the same meaning as in the Bankruptcy Act where the term is defined in section 5 of that Act. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 1, section 5-5 and Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-20(2)]

6.41 The general rule does not apply if:

-

the law requires or permits the external administrator to derive the profit or advantage. For example, the general rule would not prevent an external administrator from recovering remuneration for the necessary and proper work performed by the external administrator in relation to the external administration of the company, as the external administrator is permitted to do so under other provisions of the Act; or

-

the Court gives leave to the external administrator [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 60-20(1)and(3)]

6.42 A further exception to the general rule is provided for where:

-

the profit or advantage arises because the external administrator employs or engages a person who was a related entity to provide services and;

-

the registered liquidator did not and could not know that the person was a related entity of the external administrator;

-

the creditors agree to the employment of the related entity;

-

where it is not reasonably practicable to obtain the agreement of creditors and the cost of the related entity to perform the services are reasonable.

6.43 A registered liquidator will therefore not breach the new duty where he or she engages their staff through a service company owned by the liquidator's firm upon commencement of the administration provided the costs are reasonable, and the liquidator subsequently obtains creditor approval for the engagement.

6.44 The general rule does not apply to the extent that the profit or advantage is a payment that:

•

is made to the external administrator by or on behalf of the Commonwealth or an agency or authority of the Commonwealth (for example a payment by ASIC to a liquidator under the Assetless Administration Fund); or

•

is of a kind that is prescribed under the Insolvency Practice Rules. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-20(5)]

6.45 A person who contravenes the general rule relating to deriving profit or advantage from the company commits a strict liability offence with a penalty of 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-20(6)]

6.46 The Court is able to set aside transactions that contravene the general rule. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 60-20(7)]

Funds handling

6.47 The external administrator must pay all money received by the external administrator on behalf of, or in relation to, the company into an administration account within five business days after receipt. If the Court gives a direction that is inconsistent with this requirement, the requirement does not apply to the extent of the inconsistency. An external administrator who fails to comply with this requirement commits an offence of strict liability with a penalty of 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 65-5]

6.48 An administration account for a company is an account maintained for the external administration which complies with prescribed requirements. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 65-10(1)]

6.49 An administration account for a member of the pooled group of companies is a bank account maintained for the external administration of a pooled group of companies that complies with the prescribed requirements. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 65-10(2)]The external administrator must not pay any money into an administration account for the company if it is not received on behalf of, or in relation to the company, or if the company is a member of a pooled group, another member of the company. If the Court gives a direction that is inconsistent with this requirement, the requirement does not apply to the extent of the inconsistency. An external administrator who fails to comply with this requirement commits an offence of strict liability with a penalty of 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 65-15]

6.50 An external administrator is liable to pay penalty interest to the Commonwealth at the rate of 20 per cent per year, or another rate that is prescribed in the Insolvency Practice Rules, in the following circumstances:

•

the external administrator has failed to pay money into the administration account in accordance with the requirements and the amount exceeds $50 or another amount prescribed in the Insolvency Practice Rules;

•

the penalty interest is calculated on the amount of the excess above $50 or the amount that is prescribed and for the period during which the external administrator fails to comply with this requirement;

•

the external administrator is not covered by the exception where the Court, on the application of the external administrator, is satisfied that the external administrator had sufficient reason for failing to comply with the requirement in relation to the amount; and

•

the external administrator is personally liable for the payment of the interest and is not entitled to be reimbursed out of the property of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 65-20]

6.51 The external administrator must not pay any money out of the administration account for the company otherwise than:

•

for purposes related to the external administration of the company; or

•

in accordance with the Corporations Act; or

•

in accordance with a direction of the Court. [Schedule 2, item2, Insolvency Practice Schedule (Corporations), Part 3, subsection 65-25(1)]

6.52 Failure to comply with the requirements in relation to paying money out of the administration account is a strict liability offence with a penalty of 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 65-25 (2)]

6.53 An external administrator must deposit in the bank with which the administration account for the company is held the negotiable instruments and any other securities that are payable to the company or the external administrator as soon as practicable after they are received by the external administrator. This requirement does not apply if the Court gives a direction that is inconsistent with the requirement, to the extent of the inconsistency. A registered liquidator who fails to comply with this requirement commits a strict liability offence with a penalty of 5 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 65-40(1), (2) and (3)]

6.54 The negotiable instruments or other security must be delivered out by the bank on the signed request of the external administrator. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 65-40(3)]

6.55 On the application of an officer of the company or any person with a financial interest in the external administration of the company, the Court may give directions:

•

regarding the payment, deposit or custody of money and negotiable instruments and other securities that are payable to, or held by, an external administrator of a company;

•

authorising the external administrator of a company to make payments into and out of a special bank account. Without limiting the Court's power, the Court may:

-

authorise the payments for the time and on the terms it thinks fit; and

-

order the special account to be closed if at any time the Court thinks the account is no longer required. A copy of the order that the account be closed must be served on the bank with which the special bank account was opened. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 65-45]

•

An application under this section may be made by a person with a financial interest in the external administration or an officer of the company.

6.56 The Insolvency Practice Rules may contain further guidance on consequences for failing to comply with the funds handling requirements under Division 65. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 65-50]

Information

Administration returns

6.57 An external administrator of a company during all or part of an administration return year must lodge in the approved form an annual administration return with ASIC in relation to the external administration of the company by the external administrator during the year or part of the year (as the case requires) within three months after the end of the year. For the purposes of this requirement it should be noted that:

•

the requirement does not apply if the external administration of the company ends during the financial year and the person is the external administrator of the company when the external administration of the company ends. In such a case, the external administrator must instead lodge an end of administration return. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-5(1), (2), (3), (4) and (6)]

6.58 An administration return year is the period of 12 months beginning on the day on which the person first began to be an external administrator of the company and then each subsequent period of 12 months. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-5(5)]

6.59 The external administrator must give notice that the annual administration return has been lodged:

•

in a members' voluntary winding up - to the members of the company;

•

in a creditors' voluntary winding up - to the creditors and contributories;

•

in a court-ordered winding up - to the creditors and contributories;

•

if the external administrator is appointed as a provisional liquidator - to the Court; and

•

if the company is under administration or has executed a deed of company arrangement - to the company.

when next forwarding any report, notice of meeting, notice of call or dividend. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-5(6)]

6.60 The last external administrator must give notice that the return has been lodged to a person mentioned below who has requested in writing that the last external administrator give the person such a notice:

•

in a members' voluntary winding up - to the members of the company;

•

in a creditors' voluntary winding up - to the creditors

•

in a court-ordered winding up - to the creditors;

•

if the external administrator is appointed as a provisional liquidator - to the Court; and

•

if the company is under administration or has executed a deed of company arrangement - to the company .[Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-6(5) and (6)]

6.61 If two or more companies are members of a pooled group, then the annual administration returns for those companies may be set out in the same document. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-5(7)]

6.62 An external administrator of a company at the end of an external administration must lodge a return within 1 month after its conclusion. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-5(1), (2), (3)]

6.63 The external administrator will also be required to give notice that the return has been lodged, if any of the following persons requests in writing:

•

in a members' voluntary winding up - to the members of the company;

•

in a creditors' voluntary winding up - to the creditors;

•

in a court-ordered winding up - to the creditors;

•

if the external administrator is appointed as a provisional liquidator - to the Court; and

•

if the company is under administration or has executed a deed of company arrangement - to the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-6(4) and (5)]

6.64 If two or more companies are members of a pooled group, then the end of administration returns for those companies may be set out in the same document. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-6(6)]

Record-keeping

6.65 Accurate record-keeping by the external administrator is a key aspect of the external administration regime.

6.66 An external administrator of a company is expected to maintain proper books including minutes and entries of meetings relating to the external administration process, including other necessary entries to give a complete and correct record of the company's administration. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-10(1)]

6.67 The books must also be made available by the external administrator for inspection by a creditor, contributory or their representative. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-10(2)]

6.68 Failure by the external administrator to comply with these requirements is a strict liability offence with a penalty of 5 penalty units. It is a defence if the external administrator can show that he or she had a reasonable excuse for not complying with the requirements. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-10(3) and (4)]

6.69 The annual administration return, end of administration return and administration books may be referred to a registered company auditor for an audit. The audit may be conducted on ASIC's own initiative, at the request of the company or at the request of a creditor or contributory. The costs for the audit are to be determined by ASIC and form part of the expenses of the external administration of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-15(1), (2) and (5)]

6.70 The auditor will be required to produce an audit report at its conclusion. The auditor has qualified privilege in relation to the report. ASIC must give a copy of the report prepared by the auditor to:

•

the external administrator of the company; and

•

the person who requested the report (if any). [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-15(3) and (4)]

6.71 The Court may also cause the annual administration return, end of administration return and administration books to be audited by a registered company auditor. The order may be made on application of any person with a financial interest in the external administration of the company or an officer of the company. The Court may make such orders in relation to the audit as it thinks fit, including:

•

the preparation and provision of a report on the audit; and

•

orders as to the costs of the audit. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 70-20]

6.72 The external administrator is expected to assist with the audit by complying with the auditor's request for books, information and general assistance, unless they have a reasonable excuse. Failure to comply with auditor requests is a strict liability offence with a penalty of 5 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 70-25]

6.73 Unless ASIC has issued a notice under section 70-31, a person ceasing to be the external administrator of a company (the former administrator) must transfer to the external administrator who is newly appointed (the new administrator), any books relating to the external administration of the company within 10 business days. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-30(1) and (2)]

6.74 The former administrator may take a copy of any part of the books before transferring them to the new administrator. The new administrator will be required to take possession or have control of the books. After the books are transferred, the new administrator must allow the former administrator to inspect them at any reasonable time and take a copy of any part of the books. A person who fails to comply with these requirements relating to the transfer of books commits a strict liability offence with a penalty of 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-30(3) and (4)]

6.75 The former administrator must transfer the books within a period of 10 business days of the new administrator being appointed or if another period is agreed between the two administrators. The former administrator may take a copy of any part of the books before the transfer. [Schedule 2,item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-30(3) and (4)]

6.76 The new administrator must take possession or control of the books and allow the former administrator to inspect them at any reasonable time and take a copy of any part of the books. Administrators who intentionally or recklessly fail to comply with these requirements may be subject to penalty of 50 penalty units. [Schedule 2,item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-30(5) and (6)]

6.77 ASIC is given powers to request the transfer of books from a former external administrator of a company. This ensures that ASIC can secure control or possession of the books of the company when a new administrator has not been appointed. Failure by the external administrator to comply with these requirements is a strict liability offence with a penalty of 50 penalty units. [Schedule 2,item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-31(1), (2) and (7)]

6.78 Where the books relating to an external administration of a company have been transferred to the control or possession of ASIC then:

•

ASIC must transfer as soon as practicable those books when a new external administrator has been appointed; or

•

if the company ceases to be a company under external administration, ASIC must as soon as practicable transfer the books to the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-31(3) and (4)]

6.79 A person is not entitled to claim a lien on the books as against ASIC or the new administrator but the lien is not otherwise prejudiced. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-31(5) and (6)]

6.80 ASIC will be required to retain all books of the company that are relevant to the company which are under its possession and control for a two year period (the retention period). ASIC may destroy the books after the retention period. However, ASIC must retain the books if it is required under another provision of this Act or under any other law. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-31(8), (9) and (10)]

•

the last external administrator of the company must retain the books in his or control or possession for a period of five years from the end of the external administration (the retention period). This requirement does not apply if the external administrator has a reasonable excuse for not complying;

•

provided ASIC consents, the last administrator may destroy the books within the retention period:

-

in the case of a members' voluntary winding up - if there is a resolution by the company;

-

in the case of a creditors' voluntary winding up or a court-ordered winding up - if the committee of inspection or the creditors request; and

-

if the external administrator is appointed as a provisional liquidator - if requested by the court;

•

if the external administrator intentionally or recklessly fails to comply with any of these requirements he or she commits an offence with a penalty of 50 penalty units; and

•

the external administrator may destroy the books at the end of five year (the retention period); the circumstances under which an external administrator may destroy the books does not apply to the extent that the external administrator is under an obligation to retain the book, or part of the books, under another provision of the Corporations Act or under any other law. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 70-35]

6.81 As between the contributories of a company in external administration, all books of the company and of the external administration of the company are prima facie evidence of the truth of all matters purporting to be recorded in those books. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 70-36]

Giving information etc. to creditors and others

6.82 At various times during the external administration, creditors may require certain information from the external administrator.

6.83 Under Subdivision D, the creditors may by resolution request the external administrator to:

•

give information to the creditors;

•

provide a report to creditors; or

•

produce a document to the creditors. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-40(1)]

6.84 The external administrator must comply with the request from the creditors unless the following exceptions apply:

•

the requested information, report or document is determined by the external administrator as being not relevant to the external administration of the company; or

•

complying with the request would cause the external administrator to breach his or her duties in relation to the external administration of the company; or it is otherwise not reasonable for the external administrator to comply with the request. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-40(1) and (2)]

6.85 The Insolvency Practice Rules may prescribe additional circumstances in which it is, or is not, reasonable for an external administrator of a company to comply with the creditors' request. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-40(2) and (3)]

6.86 An individual creditor may also request the external administrator to:

•

give information to the creditor;

•

provide a report to the creditor; or

•

produce a document to the creditor. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-45(1)]

6.87 The external administrator must comply with the request from the creditor unless one of the following exceptions apply:

•

the requested information, report or document is determined by the external administrator as being not relevant to the external administration of the company; or

•

complying with the request would cause the external administrator to breach his or her duties in relation to the external administration of the company; or

•

it is otherwise not reasonable for the external administrator to comply with the request. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-45(1) and (2)]

6.88 The Insolvency Practice Rules may prescribe additional circumstances in which it is, or is not, reasonable for an external administrator of a company to comply with the creditor's request. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-45(2) and (3)]

6.89 The members of a company may by resolution request the external administrator of a company in a members' voluntary winding up to:

•

give information to the members;

•

provide a report to the members; or

•

produce a document to the members. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-46(1) and (2)]

6.90 The external administrator must comply with the request from the members unless the following exceptions apply:

•

the requested information, report or document is determined by the external administrator as being not relevant to the external administration of the company; or

•

complying with the request would cause the external administrator to breach his or her duties in relation to the external administration of the company; or

•

it is otherwise not reasonable for the external administrator to comply with the request. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-46(1) and (2)]

6.91 The Insolvency Practice Rules may prescribe additional circumstances in which it is, or is not, reasonable for an external administrator of a company to comply with the members' request. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-46(2) and (3)]

6.92 A member of a company may request the external administrator of a company in a members' voluntary winding up to:

•

give information to the member;

•

provide a report to the member; or

•

produce a document to the member. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-47(1) and (2)]

6.93 The external administrator must comply with the request from the member unless:

•

the information, report or document is not relevant to the external administration of the company; or

•

the external administrator would breach his or her duties in relation to the external administration of the company if the external administrator complied with the request; or

•

it is otherwise not reasonable for the external administrator to comply with the request. The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for an external administrator of a company to comply with a member's (?) request to give information, provide a report or produce a document. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-47(1) and (2)]

6.94 The Insolvency Practice Rules may provide for and in relation to the obligations of external administrators of companies:

•

to give information to creditors or members;

•

to provide reports to creditors or members;

•

to produce reports to creditors or members. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-50(1)]

6.95 The Insolvency Practice Rules may provide for additional rules for reporting to creditors and members. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-50]

Other requests for information etc.

6.96 In addition to those directly involved with the external administration, there may be other interested stakeholders who wish to seek information from the external administrator.

6.97 The Commonwealth may request the external administrator of a company under external administration to provide information, reports or documents in relation to the external administration where:

•

a former employee of the company has made a claim for financial assistance from the Commonwealth in relation to unpaid employment entitlements; or

•

the Commonwealth considers that such a claim is likely to be made. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-55(1) and (2)]

6.98 The external administrator must comply with the request. The Insolvency Practice Rules may provide for and in relation to who is to bear the cost of providing the information, reports or documents. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 70-55(3) and (4)]

Reporting to ASIC

6.99 The reforms provide the regulator with powers to make ad hoc requests for information regarding the administration. The Insolvency Practice Rules may contain rules regarding an external administrator's obligations to provide certain documents to ASIC. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-60]

External administrator may be compelled to comply with requests for information etc.

6.100 If an external administrator refuses a request made under the Insolvency Practice Schedule (Corporations) or a rule made under the Insolvency Practice Rules to give information, provide a report or produce a document (the relevant material), ASIC may, in writing, direct the external administrator to give all or part of the relevant material to the person or persons who made the request for the relevant material within five business days after the direction is given.

•

a direction by ASIC is not a legislative instrument;

•

ASIC must notify the external administrator before giving such a direction;

•

if the external administrator objects to giving the relevant material, ASIC must take into account the reasons for the external administrator's objections;

•

ASIC must not give a direction if the external administrator is entitled not to comply with the request;

•

ASIC may impose conditions on the use of relevant material by notice in writing to the person to whom the relevant material is given. Failure to comply with such a condition is a strict liability offence with a penalty of 10 penalty units or imprisonment for three months or both. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, sections 70-65, 70-70, 26-75, 70-80 and 70-85]

6.101 The person or persons who made the request for the relevant material may apply to the Court for an order that the external administrator give the person or persons all or part of the relevant material. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-90(1)]

6.102 If an external administrator does not comply with a direction by ASIC under section 70-70 in relation to all or part of the relevant material, ASIC may apply to the Court for an order that the external administrator comply with the direction. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-90(2)]

6.103 The Court may on the application of ASIC or the person or persons who made the request:

•

order the external administrator to give the person, or any or all of the persons who made the request for the relevant material all or part of that material; and

•

make such other orders, including orders as to costs. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 70-90(3)]

Meetings

6.104 Nothing in Division 75 of this Schedule limits the operation of any other provision of the Act, or any law, imposing an obligation to convene a meeting in relation to a company, or the external administration of a company. Chapter 5 of the Act contains other instances where an external administrator is required to hold a meeting. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-1 and 75-5]

6.105 The external administrator of a company may convene at any time a meeting of the creditors, or in the case of a members' voluntary winding up, a general meeting of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-10]

6.106 Unless the external administrator is a provisional liquidator or the external administrator is the administrator of the company and the company is under administration, the external administrator must convene a meeting of the creditors in the following circumstances:

•

where there is a request by the committee of inspection; or

•

a creditors' resolution; or

•

creditors with at least 25 per cent of the value of the company request in writing; or

•

where the request is made by creditors with less than 25 per cent, but more than 10 per cent in value, and security for the cost of holding the meeting is given to the external administrator before the meeting; or

•

where in a creditors' voluntary winding up, creditors with less than 25 per cent but more than 5 per cent of the value request a meeting in writing. The request does not have to be complied with if none of the creditors are related entity of the company and the direction is given no more than 20 business days after the resolution for the voluntary winding up of the company is passed. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 75-15(1) and (5)]

6.107 When determining the value of the creditors for the above purposes, it should be worked out by reference to the value of the creditors' claims against the company that are known at the time the direction is given to the external administrator. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 75-15(4)]

6.108 The external administrator is not required to comply with a request or direction to convene a meeting if the request or direction is not reasonable. The Insolvency Practice Rules may prescribe circumstances in which a request or direction is, or is not reasonable. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, sections 75-15(2) and (3)]

6.109 The reason why the circumstances under which the external administrator of a company must convene a meeting under section 26-15 do not apply where a company is under administration is because the existing requirements relating to the convening of the first and second meeting in a voluntary administration will in substance continue to apply, however the legislative architecture governing these requirements will change:

•

section 436E relating to purposes and timing of the first meeting of creditors is repealed, however:

-

subsections 436E(3) and (3A) will be replicated in the Insolvency Practice Rules, in line with the general approach that requirements for convening and holding meetings are set out in the Insolvency Practice Rules;

-

subsection 436E(4) which gives the creditors the right to remove the administrator and appoint someone else, will also be replicated in the Insolvency Practice Rules using the rule-making powers under section 75-50 of the Insolvency Practice Schedule (Corporations);

•

section 439A which requires the administrator to convene a second meeting of creditors will continue except that subsections 439A(3) and (4) are repealed (because they relate to requirements for convening meetings) and the provisions will be replicated in the Insolvency Practice Rules. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 75-15(5)]

6.110 The Schedule contains powers for ASIC to make ad hoc requests for a creditors' meeting to be called. The external administrator must convene a meeting of creditors following a written direction by ASIC. In the direction, ASIC may include requirements to be complied with by the external administrator in notifying the creditors of the meeting and conducting the meeting. A direction given by ASIC is not a legislative instrument. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-20]

6.111 The external administrator of a company may appoint a person to be their representative at a meeting. References in the Act to an external administrator will also include a reference to a person appointed under this provision. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-25]

6.112 ASIC may attend any creditor meeting held under the Corporations Act. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-30]

6.113 The Commonwealth may appoint a representative to attend a meeting of creditors or contributories where either a former employee of the company has made a claim under the Fair Entitlements Guarantee Scheme or where the Commonwealth considers that such a claim is likely to be made. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-35]

6.114 The external administrator may at any time put a proposal to the creditors or contributories for the proposal to be resolved without a meeting of the creditors or contributories as the case may be. The notice must meet a number of requirements including the drafting of a statement of reasons for the proposal. The Insolvency Practice Rules may provide for additional rules in relation to proposals to be resolved without a meeting. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-40]

6.115 Sections 600A to 600E are repealed and the provisions have been moved to the meeting provisions in Division 75 of the Insolvency Practice Schedule (Corporations). To the extent that sections 600A, 600D and 600E relate to Chapter 5.1 bodies (arrangements and reconstructions) these matters are now covered in sections 415A to 415C of the Act. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, sections 75-41, 75-42, 75-43, 75-44, and 75-45]

6.116 The Insolvency Practice Rules may provide for and in relation to meetings concerning companies under external administration. Requirements for convening and holding meetings (including notice, agenda, quorum, voting on proposals and costs). [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 75-50]

Committees of inspection

6.117 Creditors have the discretion of establishing a committee of inspection to assist the external administrator, on behalf of all creditors.

6.118 The external administrator of a company is required to convene a meeting of creditors to either constitute a committee of inspection and/or who are to be appointed members of the committee. The requirement does not apply if the company is a member of a pooled group. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 80-5]

6.119 A committee of inspection may also be established by a resolution of the creditors. However, this rule does not apply if the company is a member of a pooled group. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 80-10]

6.120 The following have rights to appoint members of a committee of inspection:

•

the creditors may, by resolution appoint members of a committee of inspection and may remove a person they have appointed as a member and they may appoint another person to fill a vacancy in the office of a member who they appointed;

•

a creditor representing at least 10 per cent in value of the creditors, or a group of creditors who together represent at least 10 per cent in value of the creditors may appoint a person as a member of a committee of inspection and they may remove the person they have appointed and they may appoint another person to fill the vacancy;

•

an employee or employees representing at least 50 per cent in value owed to or in respect of employees by the company may appoint a person as a member of a committee of inspection to represent the employees. The employee or group of employees can remove a person they have appointed and appoint another person to fill a vacancy in the office of that member of the committee;

•

once a person has exercised a right in one capacity to appoint a member, the person cannot exercise a separate right. This means that a major creditor cannot vote on the original composition of a COI and then subsequently use their power under section 80-20 to appoint a representative onto the COI. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, sections 80-15, 80-20 and 80-25]

6.121 If a company is in a related group of companies (called a pooled group), creditors of all the companies may decide together that there is to be a committee of inspection for the group and appoint members of the committee of inspection. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 80-26]

6.122 A committee of inspection is to determine its own procedures and the Insolvency Practice Rules may provide for additional rules in relation to committees of inspection. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 80-30]

6.123 The main functions of a committee of inspection should be to advise and assist the external administrator. Other functions include giving directions and monitoring the conduct of the external administrator. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-35(1)]

6.124 Directions by a committee of inspection are not binding on the external administrator, but regard should be given to them. Should the external administrator decide to not comply with a direction a written record of that fact should be made, along with the reasons for not complying with that direction. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 80-35(2) and (3)]

6.125 A committee of inspection may request the external administrator of a company to:

•

give information to the committee;

•

provide a report to the committee; or

•

produce a document to the committee. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-40(1)]

6.126 The external administrator must comply with the request unless:

•

information, report or document is not relevant to the external administration of the company; or

•

the external administrator would breach his or her duties in relation to the external administration of the company if the external administrator complied with the request; or

•

it is otherwise not reasonable for the external administrator to comply with the request. The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for an external administrator of a company to comply with a request to give information, provide a report or produce a document. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-40(2)]

6.127 The Insolvency Practice Rules may prescribe the circumstances in which it is or is not reasonable for an external administrator to comply with a request for information from a committee of inspection. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-40(3)]

6.128 The Insolvency Practice Rules may provide for additional rules regarding circumstances where it will or will not be reasonable for an external administrator to comply with a request by a committee of inspection. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-45(1)]

6.129 The Insolvency Practice Rules, for purposes of reporting to committees of inspection, may include:

•

other circumstances in which the external administrator must give information, provide a report or produce a document to a committee of inspection; and

•

the manner and form in which information is to be given, a report provided or a document produced; and

•

the timeframe in which information is to be given, a report provided or a document produced; and

•

who is to bear the cost of giving information, providing a report or producing a document. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-45(2)]

6.130 The Insolvency Practice Rules may contain reporting rules for different classes of companies. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-45(3)]

6.131 A committee of inspection may obtain specialist advice or assistance in relation to the conduct of the external administration. However, the committee of inspection will be required to obtain the approval of the external administrator or the Court before expenses are incurred in obtaining the advice. The expense is then taken to be incurred by a person as a member of the committee. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, section 80-50]

6.132 As a general rule, a member of a committee of inspection must not directly or indirectly derive any profit or advantage from the external administration of the company.

•

The general rule does not apply to the extent that:

-

the creditors resolve to approve the derivation and the member of the committee is not entitled to vote on the resolution;

-

another provision of the Act, or another law, requires or permits the member to derive the profit or advantage; or

-

the Court gives leave to the member to derive the profit or advantage. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsections 80-55(1), (3), (4) and(5)]

6.133 A member of the committee will be taken to have derived a profit or advantage if:

•

the member directly or indirectly derives a profit or advantage from a transaction (including a sale or purchase) entered into for or on account of the company; or

•

the member directly or indirectly derives a profit or advantage from a creditor or member of the company; or

•

a related entity of the member directly or indirectly derives a profit or advantage from the external administration of a company;

-

a related entity in relation to an individual is defined in the Dictionary for purposes of the Insolvency Practice Schedule (Corporations) as having the same meaning as in the Bankruptcy Act where the term is defined in section 5 of that Act. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 5-5 and Schedule 2, item 2, Insolvency Practice Schedule (Corporations), Part 3, subsection 80-55(2)]

6.134 The rule in relation to a related entity of the member does not apply to the extent that the profit or advantage arises because the external administrator employs or engages a person to provide services in connection with the external administration of the company who is a related entity of the member: and

•

the member does not know, and could not reasonably be expected to know, that the external administrator has employed or engaged a related entity of the member; or

•

the creditors consent to the related entity being employed or engaged. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), subsection 80-55(6)]

6.135 A person who contravenes the general rule relating to deriving profit or advantage from the company commits a strict liability offence with a penalty of 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), subsection 80-55(7)]

6.136 The Court has the power to set aside any transactions or arrangements which contravene section 80-55. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), subsection 80-55(8)]

6.137 The following obligations apply to a creditor representing at least 10 per cent in value of the creditors of a company who has appointed a person as a member of a committee of inspection under section 80-20 of the Insolvency Practice Schedule (Corporations):

•

the creditor must not directly or indirectly become the purchaser of any part of the property of the company, but this does not apply if:

-

the creditors resolve otherwise however the creditor cannot vote on the resolution;

-

another provision of the Act, or of another law, require or permits the creditor or to purchase the property;

-

the Court gives leave to the creditor to purchase the property;

•

a transaction entered into in contravention of this obligation may be set aside by the Court;

•

a person who fails to comply with this obligation commits a strict liability offence with a penalty of 50 penalty units. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 80-60]

6.138 ASIC may attend meetings of a committee of inspection. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 80-65]

6.139 The Court is also given powers to examine the conduct of a committee of inspection and make any necessary orders to ensure the proper conduct of the committee. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 80-70]

Directions by creditors

6.140 The external administrator of a company must have regard to directions given to the external administrator by the creditors of the company but is not obliged to comply with those directions. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), sections 85-1 and 85-5]

Review of the external administration of a company

Court powers to inquire and make orders

6.141 The Court may inquire into the external administration of a company either on its own initiative or on the application of the company, the external administrator, ASIC, a creditor or another person with a financial interest in the company:

•

the Court may for the purposes of such an inquiry require the external administrator to give information, provide a report or produce a document to the Court in relation to the external administration of the company;

•

the reasonable expenses associated with an application made to the Court by a creditor on behalf of a committee of inspection, are to be taken to be expenses incurred by a person as a member of the committee. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), sections 90-5, 90-10 and 90-20]

6.142 The Court has wide powers to make orders, including orders replacing the external administrator or dealing with losses resulting from a breach of duty by the external administrator. The Court may also make an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 90-15]

6.143 The Court may have regard to the wishes of the creditors or contributories and for this purpose may direct meetings of the creditors or contributories to be convened. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 90-21]

Review by another registered liquidator

6.144 ASIC, the Court, creditors or members of a company may appoint a registered liquidator to review the external administration of the company. Such a review may look at a range of matters, including whether the remuneration of the external administrator is reasonable and whether costs and expenses have been properly incurred. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), sections 90-22, 90-23, 90-24, 90-25, 90-24, and 90-28]

6.145 The Insolvency Practice Rules may set the powers and duties of a registered liquidator conducting such a review and may deal with issues relating to the review process. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 90-29]

Removal by creditors

6.146 The reforms provide creditors with the ability to remove and replace insolvency practitioners by resolutions. However, the external administrator may apply to the Court to be reappointed.

•

The rule-making powers in relation to meetings under section 75-50 of the Insolvency Practice Rules would provide for rules relating to the conduct of the creditors' meeting at which creditors would vote on the removal of an external administrator. The resolution would need to be passed by majority in value and number of the creditors. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), sections 90-30 and 90-35]

Other matters

6.147 An external administrator may assign any right to sue under the Act. Where the action the external administrator seeks to assign has already commenced, the approval of the Court is necessary. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 100-10]

6.148 Forms are approved by ASIC. Provision is made for what may be required in the form or to accompany the form. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 100-6]

6.149 The Minister has the power to make rules to be called the Insolvency Practice Rules. [Schedule 2, item 2, Insolvency Practice Schedule (Corporations), section 105-1]

6.150 The new section 198G rationalises the requirements in the old Act dealing with the powers of the officers of a company under external administration. [Schedule 2, Part 2, item 84, section 198G]

Consequential amendments

Remuneration and other benefits received by external administrators Corporations Act

6.151 Consequential on the repeal of section 449E, subparagraph 9(a)(iii) of the definition of declaration of indemnities refers to section 60 -5 of the Insolvency Practice Schedule which deals with the remuneration to which an external administrator is entitled. [Schedule 2, Part 2, item 66, section 9 (subparagraph (a)(iii) of the definition of declaration of indemnities]

6.152 Paragraph 443D(b) is repealed consequential on the repeal of section 449E which deals with the remuneration of an administrator. Paragraph 443D(b) now refers to Division 60 of the Insolvency Practice Schedule (Corporations) which sets out the requirements relating to the remuneration of external administrators. [Schedule2, Part 2, item 116, paragraph 443D(b)]

6.153 The heading for Division 15 of Part 5.3A is repealed and replaced by a new heading which does not refer to 'remuneration' because the remuneration of external administrators is dealt with in Division 60 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 129, Division 15 of Part 5.3A of Chapter 5 (heading)]

6.154 Subsections 449E(1), (1A), (1C), (1D), (2), (3) and (4) which deal with remuneration of an administrator appointed under Part 5.3A of the Act are replaced by provisions in Division 60 of the Insolvency Practice Schedule (Corporations). Subsection 449E(1B) which provides that a creditors' resolution in relation to remuneration of an administrator must deal exclusively with remuneration will be replicated in the Insolvency Practice Rules which will be made under the rule-making power in section 75-50 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 135, section 449E]

6.155 Subsections 473(2) and (3) are repealed and covered by the requirements relating to the remuneration of external administrators which are set out in Division 60 of the Insolvency Practice Schedule (Corporations). The remuneration of provisional liquidators is set out in section 60-16 of the Insolvency Practice Schedule (Corporations). Subsection 473(4) relating to a meeting of creditors to determine remuneration will be dealt with in the Insolvency Practice Rules made under section 75-50 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 144, section 473]

6.156 Subsections 473(5), (6) and (10) which deal with the Court's powers to review remuneration are repealed and replaced by the provisions in Division 60 of the Insolvency Practice Schedule (Corporations) which set out the Court's powers to review a remuneration determination made in relation to an external administrator of a company. Schedule 2, Part 2, item 135, sections 449D and 449E]

6.157 Subsection 489EC(1) is repealed because the remuneration of a liquidator appointed by ASIC under this section is dealt with in Subdivision D of Division 60 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 157, subsection 489EC(1)]

6.158 Subsection 495(1) has been amended to remove the references to remuneration because rules about a liquidator's remuneration are dealt with in Division 60 of the Insolvency Practice Schedule (Corporations). Subsection 495(3) has also been amended insofar as it relates to remuneration because the remuneration of a liquidator is dealt with under Division 60 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 158, section 495]

6.159 Subsections 499(3), (3A), (6) and (7) are repealed because the rules relating to remuneration for external administrators are dealt with in Division 60 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 164, subsections 499(3) to (7)]

6.160 Section 504 is repealed and replaced by the Court's powers in Schedule 2, to review the remuneration of an external administrator. Section 60-11 of Schedule 2, deals with the Court's power to review a remuneration determination and section 22-25 sets out the matters the Court must have regard to when reviewing a remuneration determination. [Schedule 2, Part 2, item 165, sections 502 to 505]

Funds handling Corporations Act

6.161 Section 538 which provides for regulations to be made relating to money, negotiable instruments and other securities received by a liquidator is repealed because Division 65 of the Insolvency Practice Schedule (Corporations) covers funds handling requirements applying to an external administrator in relation to a company under external administration. Division 65 includes powers to prescribe rules in relation to funds handling in the Insolvency Practice Rules. [Schedule 2, item 2, Part 2, item 177, section 538]

6.162 Regulations 5.6.06, 5.6.07, 5.6.08 and 5.609 of the Corporations Regulations set out requirements relating to funds handling by a liquidator in a winding up. These requirements will be removed from the Corporations Regulation consequential on the introduction of Division 65 of the Insolvency Practice Schedule (Corporations).

Information

Australian Securities and Investments Commission Act 2001

6.163 Section 15 which deals with ASIC's power to investigate a matter referred to in a report lodged by a receiver or a liquidator is amended to cover an annual return by a receiver consequential on the insertion of section 422A of the Corporations Act requiring a receiver to lodge an annual return with ASIC. [Schedule 2, Part 2, item 10, section 15] Corporations Act

6.164 The definition of financial year is amended so that it does not apply to the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 2, item 68, section 9 (definition of financial year]

6.165 A person who is a receiver of property of a corporation during all or part of a financial year must lodge an annual return with ASIC in the approved form within three months after the end of the financial year. [Schedule 2, item 2, Part 2, item 91, section 422A and item 92, paragraph 426(a)]

6.166 Subsections 438E(1) and (2) are repealed because there is no longer an obligation imposed on an administrator of a company under administration to lodge six monthly accounts with ASIC. Subsections 438(3) to (7) have been replaced by requirements in the Insolvency Practice Schedule (Corporations) relating to the administration of administration books [Schedule 2, item 2, Part 2, item 108, section 438E]

6.167 Division 11A of Part 5.3A of Chapter 5 is repealed (section 445J is the only provision in Division 11A) because there is no longer an obligation imposed on the deed administrator to lodge six monthly reports. [Schedule 2, item 2, Part 2, item 124, section 445J]

6.168 Section 476 is repealed because the preliminary report by a liquidator in court liquidation would no longer be required given the external administrator in a court liquidation will be required under the Insolvency Practice Rules to provide an initial report to creditors and to lodge the report with ASIC. [Schedule 2, item 2, Part 2, item 147]

6.169 Section 497 is repealed consequential on a liquidator in a creditors' voluntary winding up no longer being required to hold an initial meeting of creditors in a creditors' voluntary winding up. A revised section 497 has been substituted with the following requirements:

•

the liquidator of the company must, within 10 business days after the day of the meeting of the company at which the resolution for winding up is passed send to each creditor:

-

a summary of the affairs of the company in the prescribed form; and

-

a list setting out the names of all creditors and the estimated amounts of their claims, as shown in the records of the company. The list must identify any creditors that are related entities of the company. Unless the Court orders otherwise, the liquidator is not required to send the list to a creditor whose debt does not exceed $1,000;

•

the liquidator is required to lodge a copy of the documents with ASIC;

•

within five business days after the day of the meeting of the company at which the resolution for voluntary winding up is passed or such longer period as the liquidator allows, the directors of the company must give the liquidator a report, in the prescribed form, about the company's business, property, affairs and financial circumstances. Failure to comply with this requirement is an offence of strict liability; and

•

the liquidator must, within 10 business days after receiving a report from the directors, lodge a copy of the report with ASIC. Unless the liquidator has a reasonable excuse, failure to comply with this requirement is a strict liability offence;

•

the penalties for failure to comply with the obligations imposed under section 497 are set out in item 264 of Schedule 3 to the Act [Schedule 2, item 2, Part 2, item 162, section 497]

6.170 Subsection 496(8) and section 498 are repealed consequential on the removal of the obligation imposed under section 497 for a liquidator to convene a meeting of creditors. [Schedule 2, item 2, Part 2, items 160, 162 and 163]

6.171 Section 508 is repealed and replaced by the obligation imposed on an external administrator to lodge an annual administration return or an end of administration return under the Insolvency Practice Schedule (Corporations). Schedule 2, item 2, Part 2, item 168]

6.172 Section 531 dealing with books to be kept by a liquidator is repealed because it has been replaced by section 70-10 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 172, section 511]

6.173 Subsection 539 is repealed because the obligation on a liquidator to lodge six monthly accounts has been replaced by the requirements in Division 70 of the Insolvency Practice Schedule (Corporations) for an external administrator to lodge annual and end of administration returns. [Schedule 2, item 2, Part 2, item 177, subsection 539]

6.174 Section 542 is repealed because the section has been replaced by sections 70-35 and 70-36 in the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 177, section 542]

6.175 Paragraph 600G(1)(y) has been inserted in order to facilitate the use of electronic communication under a provision of the Insolvency Practice Schedule (Corporations) or the Insolvency Practice Rules where a person is authorised or required to give or send a notice or document to a person. [Schedule 2, item 2, Part 2, item 201]

6.176 Subsection 600G(4) is repealed and new provisions inserted to permit a person to send a notice or other document to another person (using the nominated electronic means or otherwise in writing) that the notice or other document is available on a website and providing the address of the website. This process does not apply if the recipient notifies the sender, before the time for giving or sending the notice or document expires, that the recipient does not have access to the internet. [Schedule 2, item 2, Part 2, item 202]

Meetings Corporations Act

6.177 The definitions of resolution and special resolution in section 9 of the Act are amended to allow the meaning of resolution and special resolution to be defined for purposes of relevant provisions of the Insolvency Practice Schedule (Corporations). The rule-making power in relation to meetings in section 75-50 of the Insolvency Practice Schedule (Corporations) provides, among other matters, for rules to be made in the Insolvency Practice Rules in relation to:

•

motions;

•

voting (including casting votes); and

•

the circumstances in which a resolution or a special resolution put to creditors or contributories in a meeting is passed. [Schedule 2, item 2, Part 2, items 79 and 80]

6.178 Sections 415A, 415B and 415C are inserted consequential on the repeal of section 600A which applies to a Part 5.1 body and to a company under external administration. These sections replace section 600A in relation to that section's application to a Part 5.1 body. The provisions of section 600A in relation to their application to a company under external administration are dealt with in section 75-41 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 90]

6.179 Subsections 439A(3) and (4) are repealed and will be replicated in the Insolvency Practice Rules made under the rule-making powers in relation to meetings in section 75-50 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 109]

6.180 Section 439B is repealed and the provisions in the section relating to the conduct of a meeting will be dealt with by rules in the Insolvency Practice Rules made under the rule-making power in relation to meetings in section 75-50 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 110]

6.181 Section 445F which deals with a meeting of creditors to consider a proposed variation or termination of deed of company arrangement is repealed and the requirements in section 445F will be replicated in the Insolvency Practice Rules. [Schedule 2, item 2, Part 2, item 123]

6.182 Section 449C sets out the requirements when there is a vacancy in the office of the administrator of a company. Subsection 449C(5) is repealed and the requirements relating to the convening of a creditors' meeting will be replicated in the Insolvency Practice Rules. [Schedule 2, item 2, Part 2, item 132]

6.183 Subsection 449E(1B) providing that a resolution of the creditors relating to the remuneration of an administrator must not be bundled is repealed and will be replicated in the Insolvency Practice Rules. [Schedule 2, item 2, Part 2, item 135]

6.184 Subsections 473(4A) and (4B) which deal with when a resolution in relation to the remuneration of liquidators is taken to be passed are repealed and will be dealt with in the Insolvency Practice Rules in rules made under the rule-making power in section 75-50 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 144]

6.185 Subsection 477(4) is repealed consequential on the removal of the requirement in section 497 for an initial meeting of creditors to be convened in a creditors' voluntary winding up. [Schedule 2, item 2, Part 2, item 149]

6.186 Subsection 479(2) is repealed because the right of a liquidator to call a meeting and the circumstances in which creditors may do so are dealt with in Division 75 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 151]

6.187 Section 495 which deals with the appointment of a liquidator in a members' voluntary winding up at a general meeting of the company is repealed and a new section 495 has been substituted. The substituted section 495 reflects the following changes:

•

the references to remuneration in subsections 495(1), (3) and (5) have been removed because remuneration of an external administrator is now dealt with in Division 60 of the Insolvency Practice Schedule (Corporations);

•

subsection 495(2) of the repealed section which deals with the exercise of directors' powers is now dealt with in section 198G which consolidates the provisions in Chapter 5 relating to the powers of officers while a company is under external administration. [Schedule 2, item 2, Part 2, item 158]

6.188 Section 496 sets out the duties of a liquidator in a creditors' voluntary winding up when the company turns out to be insolvent. Subsection 496(8) is amended consequential on there no longer being a requirement that the liquidator call an annual meeting of creditors in a creditors' voluntary winding up. [Schedule 2, item 2, Part 2, item 159]

6.189 Section 498 which deals with the power to adjourn a meeting is repealed consequential on the removal of the requirement in section 497 for a liquidator in a creditors' voluntary winding up to convene an initial meeting of creditors. [Schedule 2, item 2, Part 2, item 163]

6.190 Paragraph 506(1)(f) is repealed and replaced by the power given to an external administrator in Division 75 of the Insolvency Practice Schedule (Corporations) to convene meetings of creditors and to convene a general meeting of the company in the case of a members' voluntary winding up. [Schedule 2, item 2, Part 2, item 166]

6.191 Section 506A which deals with declarations by liquidators of relevant relationships is amended consequential on the removal of the requirement for an initial creditors' meeting under section 497 in a creditors' voluntary winding up. [Schedule 2, item 2, Part 2, item 167]

6.192 The amendments to section 509 are consequential on the removal of the obligation imposed on a liquidator in a creditors' voluntary winding up to convene a meeting of creditors when the affairs of a company are fully wound up. [Schedule 2, item 2, Part 2, item 169]

6.193 Section 546 which deals with resolutions passed at adjourned meetings of creditors and contributories is repealed and will be covered by rules in the Insolvency Practice Rules made under the rule-making power in section 75-50 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 177]

Committees of inspection

6.194 The definition of a committee of creditors is repealed because in the context of a voluntary administration these committees are treated as a committee of inspection under Division 80 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 65]

6.195 Division 5 of Part 5.6 of Chapter 5 is repealed because committees of inspection are dealt with in Division 80 of the Insolvency Practice Schedule (Corporations) and the Insolvency Practice Rules under rule-making powers in Division 80. [Schedule 2, item 2, Part 2, item 178]

Directions to creditors

6.196 Subsections 436F(2) and (3) relating to directions by a committee of creditors to an administrator are repealed. [Schedule 2, item 2, Part 2, item 104]

6.197 Subsection 479(1) which deals with directions given by creditors to a liquidator is repealed and these matters are now dealt with in section 85-5 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 151]

Review of the external administration of a company

6.198 The amendment of paragraph 411(9)(b) is consequential on the Court's powers in relation to the supervision of liquidators being dealt with in Division 90 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 89]

6.199 Section 447D which provides for an administrator to seek directions from the Court is repealed. Section 447E which provides for the supervision of the administrator of a company or a deed of company arrangement is also repealed. The matters in these sections are dealt with in Division 90 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 128]

6.200 Section 449B which gives the Court power to remove an administrator is repealed because this matter is dealt with in Division 90 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 128]

6.201 Section 449D which gives the Court power to appoint a replacement administrator is repealed because the Court is given this power in Division 90 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 135]

6.202 The heading to section 472 is amended by removing the reference to an official liquidator because there is no longer such a category of liquidator. Subsections 472(1) and (2) are also amended consequential on the removal of the category of official liquidator. [Schedule 2, item 2, Part 2, item 135]

6.203 Subsection 472(6) relating to the Court's powers in relation to a provisional liquidator is repealed because the Court is given these supervisory powers in Division 90 of the Insolvency Practice Schedule (Corporations). It is noted that the substituted subsection 472(6) covers the matters in repealed subsection 473(8). [Schedule 2, item 2, Part 2, item 143]

6.204 Section 473 is repealed and the substituted section 473 only deals with the resignation of a liquidator. The Court's general supervisory powers in relation to an external administrator, including the power to remove an external administrator, are dealt with in Division 90 of the Insolvency Practice Schedule (Corporations) and the Court is also given powers to review a remuneration determination under Division 60 of that Schedule. [Schedule 2, item 2, Part 2, item 144]

6.205 Sections 502 to 504 are repealed because the Court's supervisory powers in relation to external administrators are dealt with in Division 90 of the Insolvency Practice Schedule (Corporations). The Court also is given power to review a remuneration determination under that Schedule. [Schedule 2, item 2, Part 2, item 165]

6.206 Subsections 511(1) and (2) are repealed and replaced by the Court's powers in relation to external administrators in Division 90 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 170]

6.207 Section 536 is repealed and replaced by the Court's supervisory powers in Division 90 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 177]

6.208 Section 547 is repealed because the Court is given the power to direct that meetings of creditors or contributories be convened in Division 90 of the Insolvency Practice Schedule (Corporations). [Schedule 2, item 2, Part 2, item 177]

Application and transitional provisions

Corporations Act 2001

General rules for application of Part 3 of the Insolvency Practice Schedule (Corporations)

6.209 Part 3 of the Insolvency Practice Schedule (Corporations) applies in relation to a new external administration of a company.

•

A new administration of a company is defined to mean an external administration of a company that starts on or after the commencement day. [Schedule 2, Part 3, item 322, Division 1, sections 1550 and 1551 and Division 3, section 1580 and subsection 1579(1)]

6.210 Part 3 of the Insolvency Practice Schedule (Corporations) applies in relation to an ongoing external administration of a company as set out in the transitional and application provisions but generally only in relation to new events that occur after the commencement day. Generally, the old Act continues to apply to old events and processes that are incomplete.

•

An ongoing external administration is defined to mean an external administration of a company that started before the commencement day and ends after that day. [Schedule 2, Part 3, item 322, Division 1, sections 1550 and 1551 and Division 3, section 1578 and subsection 1579(2)]

6.211 In most case, the old Act continues to apply to old administrations that have ended but that may have ongoing obligations or processes.

•

The old Act is defined to mean the Corporations Act, as in force immediately before the commencement day and includes the old regulations. [Schedule 2, Part 3, item 322, Division 1, sections 1550 and 1551 and Division 3, section 1578]

Remuneration and other benefits received by external administrators

6.212 The general rule is that the requirements relating to the remuneration of an external administrator set out in Subdivision B to D of Division 60 of the Insolvency Practice Schedule (Corporations) apply in relation to an external administrator of a company under ongoing administration who is appointed on or after the commencement day. [Schedule 2, Part 3 item 322, Division 3, section 1580]

6.213 The old Act continues to apply in relation to the remuneration of an external administrator of a company who is appointed before the commencement day.

•

An exception to this rule is that the meeting provisions in Division 75 of the Insolvency Practice Schedule (Corporations) will apply to a meeting that deals with the remuneration of an external administrator who is appointed before the commencement day unless the meeting is either convened or held before the commencement day. [Schedule 2, Part 3,item 322, Division 3, section 1581]

6.214 Section 60-20 of the Insolvency Practice Schedule (Corporations) sets out duties of external administrators in relation to deriving profit or advantage from the administration of the company. These sections will apply to an external administrator of an ongoing external administration of a company whether or not the administrator was appointed before, on or after the commencement day. However, those sections do not apply in relation to any arrangement made before the commencement day. [Schedule 2, Part 3,item 322, Division 3, section 1582]

6.215 Where the remuneration of an external administrator is fixed under section 449E of the old Act, then the old Act continues to apply to any right of indemnity that the external administrator has as if the repeal of section 449E and the amendment of paragraph 443D(b) of the old Act had not happened. This rule applies whether the remuneration of the administrator of a company is fixed under section 449E of the old Act:

•

before the commencement day; or

•

on or after the commencement day (in accordance with a provision of this Division). In this context note that the general rule is that the old Act continues to apply in relation to the remuneration of an external administrator of a company who is appointed before the commencement day. [Schedule 2, Part 3, item 322, Division 3, sections 1581 and 1583]

6.216 Subsection 473(7) of the old Act provides that the Court may fill a vacancy in the office of an official liquidator appointed by the Court. Section 473 is repealed and section 473A now deals with the filling of a vacancy in the office of a liquidator appointed by the Court. Subsection 473A(1) applies whether or not the vacancy in the office of liquidator occurred before, on or after the commencement day. [Schedule 2, Part 3,item 322, Division 3, section 1584]

6.217 The new section 198G rationalises the requirements in the old Act dealing with the powers of the officers of a company under external administration and the provision applies in relation to an exercise of power or a performance of a function that occurs on or after the commencement day. Where a committee of inspection or the company's creditors, have given approval under subsection 499(4) of the old Act for a director to continue to perform or exercise the director's powers or functions, then subsections 198G(1) and (2) do not apply in relation to the director. [Schedule 2, Part 3, item 322, Division 3, section 1585]

Funds handling

6.218 The general rule is that Division 65 of the Insolvency Practice Schedule (Corporations) applies in relation to an ongoing administration of a company. [Schedule 2, Part 3, item 322, Division 3, section 1586]

6.219 If, immediately before the commencement day, a person has a liquidator's general account in relation to the external administration of a company or a company in a pooled group, then the account is taken, on and after the commencement day to be the administration account for the company for the purposes of section 65-10 of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, Division 3, section 1587]

6.220 Sections 65-5 and 65-15 which deal with the obligations of an external administrator relating to paying money into the administration account do not apply in relation to money received before the commencement day. Paragraph 5.6.06 of the old regulations continues to apply in relation to money received before the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1588 and Schedule 2, Part 3, item 322,Division 1, section 1551, definition of old regulations]

6.221 Section 65-25 of the Insolvency Practice Schedule (Corporations) which sets out an external administrator's obligations in relation to paying money out of an administration account does not apply in relation to money received before the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1589]

6.222 Section 65-25 of the Insolvency Practice Schedule (Corporations) which sets out an external administrator's obligations in relation to the handling of securities does not apply in relation to negotiable instruments and other securities received before the commencement day. Regulation 5.6.07 of the old regulations continues to apply in relation to negotiable instruments and other securities received before the commencement day. Regulation 5.6.07 of the old regulations continues to apply in relation to bills, notes and other securities received before the commencement day. [Schedule 2, Part 3, Division 3, item 322, section 1590 and Schedule 2, Part 3, item 303, Division 1, section 1551, definition of old regulations]

Information

6.223 The general rule is that Division 70 of the Insolvency Practice Schedule (Corporations) applies in relation to an ongoing external administration of a company. [Schedule 2, Part 3, item 322, Division 3, section 1591]

6.224 Sections 70-5 (annual administration return) and 70-6 (end of administration return) apply in relation to the financial year starting on 1 July 2016 and later financial years. [Schedule 2, Part 3, item 322, Division 3, subsection 1592(1)]

6.225 Sections 438, 445J and 539 which relate to the lodgement of accounts under the old Act are repealed. The following application rules apply to these provisions:

•

the repeal of these sections applies to periods starting on or after 1 July 2016;

•

the provisions continue to apply to periods starting before 1 July 2016 and ending after that day as if as if the period ends on 30 June 2016; and

•

for the avoidance of doubt, despite the repeal of those provisions, an audit of accounts lodged under the provisions may be continued as if the old Act continued to apply. [Schedule 2, Part 3, item 322, Division 3, section 1594]

6.226 Section 70-10 setting out the requirements in relation to administration books does not apply to events that occur before the commencement day and in respect of which or because of which, entries or minutes are to be made. In respect of such events, section 531 of the old Act continues to apply. [Schedule 2, Part 3, item 322, Division 3, section 1593]

6.227 Sections 70-15 to 70-25 of the Insolvency Practice Schedule (Corporations) relating to the audit of administration books apply to books relating to an ongoing external administration whether or not the books are kept under a provision of the old Act or the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, Division 3, section 1594]

6.228 Sections 70-30 and 70-31 which set out the requirements relating to the transfer of books imposed on a person who ceases to be the external administrator of a company apply in relation to a person who ceases to be the external administrator of a company on or after the commencement day. [Schedule 2, Part 3 item 322, Division 3, subsection 1595(1)]

6.229 Section 1298A deals with the transfer of books relating to the books of an externally administered body corporate when the registration of a liquidator, liquidator of a specified body corporate or an official liquidator is cancelled or suspended. Section 1298A does not apply in relation to a person whose registration as a liquidator is cancelled or suspended on or after the commencement day. [Schedule 2, Part 3, item 322, Division 3, subsection 1595(2)]

6.230 Section 70-35 of the Insolvency Practice Schedule (Corporations) which relates to the retention and destruction of books in relation to the external administration of a company applies to an ongoing external administration whether or not the books were kept under a provision of the old Act or of the Insolvency Practice Schedule (Corporations). [Schedule 2, Part 3, item 322, Division 3, subsection 1596(1)]

6.231 If an external administration ends before the commencement day, then section 542 of the old Act continues to apply to the books of the company even if the retention period continues after the commencement day. Any consent that has been given by ASIC before the commencement day under subsections 542(3) and (4) to destroy books, then despite section 70-30 of the Insolvency Practice Schedule (Corporations), those books may be destroyed. [Schedule 2, Part 3, item 322, Division 3, subsections 1596(2) and (3)]

6.232 Subdivision D of Division 70 of the Insolvency Practice Schedule (Corporations), which relates to requests by creditors and other persons that an external administrator give information, provide a report or produce a document referred to in subsection 70-40(1), 70-45(1), 70-46(2), 70-47(2) or 70-50(1), applies whether or not the information, report or document, was obtained or generated, was made or prepared or is in respect of actions or events that occurred before, on or after the commencement day .[Schedule 2, Part 3, item 322, Division 3, section 1597]

6.233 Section 70-55 of the Insolvency Practice Schedule (Corporations) which relates to requests by the Commonwealth for information from an external administrator applies whether the information, report or document referred to in subsection 70-55(2) was obtained or generated, was made or prepared or is in respect of actions or events that occurred before, on or after the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1598]

6.234 Section 70-60 of the Insolvency Practice Schedule (Corporations) provides rule-making powers for rules to be made in the Insolvency Practice Rules in relation to reporting to ASIC by an external administrator. Section 70-60 applies whether or not the information, report or document was obtained or generated, was made or prepared or is in respect of actions or events that occurred before, on or after the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1599]

6.235 Section 540 of the old Act which gives the Court the power to make an order directing a liquidator to make good a default in lodging or making an application, return, account or other document continues to apply in relation to a notice referred to in subsection 540(1) that is served on a person before the commencement day. [Schedule 2, Part 3, item 322 Division 3, section 1600]

Meetings

6.236 The general transitional rule is:

•

Division 75 of the Insolvency Practice Schedule (Corporations) applies in relation to an ongoing administration of a company; however,

•

Division 75 does not apply in relation to a meeting convened or held before the commencement day. Schedule 2, Part 3,item 322, Division 3, section 1601]

6.237 Section 75-15 which sets out the circumstances when an external administrator must convene a meeting of creditors does not apply in relation to:

•

requests made before the commencement day; or

•

directions given before the commencement day; or

•

resolutions passed before the commencement day. [Schedule 2, Part 3, item 322, Division 3, subsection 1602(1)]

6.238 Despite their repeal:

•

Sections 497 and 498 of the old Act continue to apply on and after the commencement day in relation to a resolution for voluntary winding up that is passed before the commencement day;

•

Subsection 477(4) of the old Act continues to apply on and after the commencement day if a meeting of creditors has not been held under section 497 of the old Act in relation to a voluntary winding up a resolution for which is passed before the commencement day. [Schedule 2, Part 3, item 322, Division 3, subsection 1602(2)]

6.239 Section 508 of the old Act sets out obligations imposed on a liquidator in a members' voluntary winding up and a creditors' voluntary winding up to convene a general meeting of the members in a members' voluntary winding up and to either convene a creditors' meeting or send out a report to creditors in the case of a creditors' voluntary winding up. The transitional provision in relation to the obligations under section 508 is:

•

where a year mentioned in subsection 508(1) of the old Act starts before the commencement day but ends after that day; the,

•

section 508 of the old Act continues to apply on and after the commencement day in relation to the company for that year. [Schedule 2, Part 3, item 322, Division 3, section 1603]

6.240 Section 509, which imposes obligations on a liquidator of members' voluntary winding up and a creditors' voluntary winding up, continues to apply in relation to companies that are fully wound up before the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1604]

6.241 There are transitional provisions which apply the old Act for certain meetings that are convened before the commencement day:

•

where the administrator is required to convene a meeting of the company's creditors under section 439A of the old Act and the convening period ends on or after the commencement day and as at the commencement day, the meeting has not been convened:

-

then the old Act continues to apply on and after the commencement day in relation to the meeting;

•

sections 445A and 445F of the old Act, which relate to a meeting of creditors to consider a variation of a deed of company arrangement, continue to apply on and after the commencement day in relation to meetings for which a notice under subsection 445F(2) is given before the commencement day;

•

section 479 of the old Act continues to apply on or after the commencement day in relation to meetings which have been convened under subsection 479(2) or for which a direction or request is given under that subsection before the commencement day;

•

subsection 496(8) of the old Act continues to apply on or after the commencement day in relation to meetings convened before the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1605]

6.242 Sections 75-41 to 75-45 of the Insolvency Practice Schedule (Corporations) apply whether a proposal has been voted on or a resolution passed before, on or after the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1606]

Committees of inspection

6.243 The general rule is that Division 80 of the Insolvency Practice Schedule (Corporations) applies in relation to a committee of inspection for an ongoing external administration of a company:

•

that is appointed under that Division on or after the commencement day; or

•

that is appointed under a provision of the old Act but is taken to be a committee of inspection under subsection 1610(2);

•

Division 80 does not apply however in relation to meetings of, or related to, a committee of inspection convened or held before the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1607]

6.244 The transitional rules applying when a committee is taken to be a committee of inspection under subsection 1608(2) are:

•

in the case of a committee validly appointed under section 436E or 548 of the old Act on or before the commencement day, the committee of inspection is taken to be established under section 80-10 of the Insolvency Practice Schedule (Corporations) on the commencement day;

•

in the case of a committee validly appointed under section 436E or 548 of the old Act but the committee is appointed on a day after the commencement day, the committee of inspection is taken to be appointed on that last day under section 80-10 of the Insolvency Practice Schedule (Corporations). This is to cover the position where before the commencement day the administrator or liquidator is required to convene a meeting of creditors but as at the commencement day the meeting has not been convened.

•

the same rules apply in the case of a committee validly appointed under section 548A of the old Act. [Schedule 2, Part 3, item 322, Division 3, section 1610]

6.245 If, before the commencement day, the administrator of a company under administration is directed by a committee of creditors under subsection 436F(3) of the old Act to give a report then that section continues to apply on or after the commencement day in relation to the report. [Schedule 2, Part 3, item 322, Division 3, section 1609]

6.246 Members of a 'continued committee' are the members appointed to the committee under section 436E (in accordance with section 436G), 548, or 548A of the old Act. If a person is a member of a continued committee then sections 436G, 548 or 548A and section 550 continue to apply in relation to the person. A number of specific provisions of Division 80 of the Insolvency Practice Schedule (Corporations) are expressly excluded from applying to a member of a continued committee. [Schedule 2, Part 3 item 322, Division 3, section 1610]

6.247 Directions given under the old Act to an external administrator by creditors or a committee of inspection continue to apply and sections 80-35 and 85-5 of the Insolvency Practice Schedule (Corporations) apply to the directions whether or not the directions were given before, on or after the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1612]

6.248 Sections 80-55 and 80-60 of the Insolvency Practice Schedule (Corporations) relating to a member of a committee of inspection deriving a profit or advantage from the external administration of a company apply to arrangements made on or after the commencement day. [Schedule 2, Part 3, items 322, Division 3, section 1614]

Review of the external administration of a company

6.249 The general rule is that Division 90 of the Insolvency Practice Schedule (Corporations) applies in relation to an ongoing external administration whether or not the matter to be reviewed occurred before, on or after the commencement day. [Schedule 2, Part 3, item 322, Division 3, section 1615]

6.250 There is a general rule that applies if a court makes an order in relation to a person or the external administration of a company under the old Act that is inconsistent with a an Insolvency Practice Schedule (Corporations) provision. The general rule is that:

•

the old Act order does not cease to have effect because a provision of the old Act under which it was made has been amended or repealed by Schedule 2, to the Bill;

•

if the old Act order is inconsistent with a provision of the Corporations Act that is amended or inserted by Schedule 2, to the Bill then, subject to this Part, the provision does not apply to the extent that it inconsistent with the old Act order. [Schedule 2, Part 3, item 322, section 1616]

6.251 The general rule is that if proceedings are brought under the old Act in relation to the external administration of a company, the old Act will continue to apply to those proceedings .[Schedule 2, Part 3, item 322, section 1617]

6.252 The following rules apply in relation to the Court's powers to inquire into and give orders:

•

sections 90-5 and 90-10 of the Insolvency Practice Schedule (Corporations) apply whether or not the information, report or document was prepared before, on or after the commencement day;

•

the Court's power to make an order in relation to the remuneration of an external administrator under paragraph 90-15(3)(f) of the Insolvency Practice Schedule (Corporations) applies whether or not the remuneration is paid or payable before, on or after the commencement day;

•

the matters that the Court may take into account under subsection 90-15(4) of the Insolvency Practice Schedule (Corporations) applies whether or not the action or failure to act occurred before, on or after the commencement day;

•

section 536 of the old Act continues to apply in relation to inquiries commenced by ASIC before the commencement day;

•

new section 599 which relates to appeals from decisions of a receiver applies whether or not the act, omission or decision occurred before, on or after the commencement day. [Schedule 2, Part 3, item 322, section 1618]

6.253 Sections 90-24 and 90-26 which relate to the appointment of a reviewing liquidator apply whether or not the remuneration is paid or payable or the cost or expense is incurred or paid, before, on or after the commencement day. [Schedule 2, Part 3, item 322, subsection 1619(2)]

6.254 The periods referred to in paragraphs 90-26(4)(c) and (d), may include a period that:

•

starts before the commencement day but ends after that day; or

•

starts and ends before the commencement day. [Schedule 2, Part 3, item 322, subsection 1619(3)]

6.255 Section 90-28 of the Insolvency Practice Schedule (Corporations) applies whether or not the books or information mentioned in paragraph 90-28(2)(a) were prepared before, on or after the commencement day. [Schedule 2, Part 3, item 322, subsection 1619(4)]

6.256 Rules made for the purposes of section 90-29 of the Insolvency Practice Rules (Corporations) may make provision for or in relation to costs and expenses incurred before, on or after the commencement day. [Schedule 2, Part 3, item 322, subsection 1619(5)]

6.257 Section 90-35 which related to the removal of an external administrator by creditors applies whether or not the external administrator was appointed before, on or after the commencement day. [Schedule 2, Part 3, item 322, section 1620]

6.258 The general rule relating to proceedings already begun in the Administrative Appeals Tribunal before the commencement day or on or after the commence day (in accordance with a provision in Part 3) will continue under the old Act. [Schedule 2, Part 3, item 322, section 1621]

6.259 Application provisions for other consequential amendments are provided for in Division 5 of Part 3. [Schedule 2, Part 3, item 322, sections 1622 to 1633]

6.260 Regulations may be made to deal with other transitional matters. [Schedule 2, Part 3, item 322, section 1634]

Chapter 7 - Regulator powers and miscellaneous amendments

Outline of chapter

7.1 The Bill amends the Australian Securities and Investments Commission Act 2001 to provide ASIC with further powers to assist it in its oversight of the regulation of registered liquidators. In particular, the Bill amends the ASIC Act to:

•

enable ASIC to require the provision of information and books as part of an ASIC proactive surveillance program;

•

enable ASIC to provide administration information to a person with a material interest in the information; and

•

improve the transparency of ASIC oversight of the corporate insolvency industry.

7.2 The Bill makes a range of miscellaneous amendments including an amendment of the Corporations Act to enable the assignment of an external administrator's statutory rights of action.

Context of amendments

7.3 The divergent regulatory approaches undertaken by ASIC and AFSA in relation to surveillance also affect the approaches that the respective regulators take to communicating with creditors. As part of AFSA's complaints handling processes, it may perform an examination of the file about which an allegation has been made and report the findings to the person who made the allegation. ASIC is constrained in the extent of any information that it might otherwise similarly provide.

7.4 Significant concerns were raised during the 2010 Senate Inquiry regarding the absence of a proactive surveillance program for liquidators at that point in time. The Senate Committee stated that a merely reactive approach to monitoring registered liquidators is inadequate and expressed concern that a complaints system alone cannot deter all misconduct.

7.5 Given the significant information, technical knowledge and technical skill asymmetries present in most insolvencies, creditors may not know when misconduct is occurring within an administration or may think it is occurring when it is not.

7.6 The current wording of some of the statutory powers to conduct investigations and to communicate the outcomes of those investigations under the ASIC Act is more restrictive than the commensurate powers for AFSA under the Bankruptcy Act.

7.7 However, currently there is limited scope for ASIC to communicate information or provide copies of records to relevant stakeholders that have been obtained through their regulatory activities or under their information gathering powers. In personal insolvency the Inspector-General can provide copies of reports that result from inquiries and investigations.

7.8 The personal insolvency regulator currently has extensive powers to obtain and disseminate information regarding personal insolvency matters.

7.9 In personal insolvency, the regulator may require a practitioner to answer an inquiry made to him or her in relation to any administration in which the trustee is, or has been, engaged. This power may be exercised whether or not a breach is suspected provided it is for the purpose of discharging AFSA's functions. ASIC does not have an equivalent power.

7.10 The ability to take civil action to recover company property inappropriately dissipated prior to business failure and hold directors liable for insolvent trading are key mechanisms to address phoenix activity. The inability to obtain funding is a major obstacle to the commencement of these actions. The taking of these actions may also delay the finalisation of administrations as a whole, ultimately to the detriment of creditors. The sale of rights of action may enable the value in such rights to be realised in the absence of funding being available and may result in the pursuit of matters which would not otherwise have been able to be pursued. There is some uncertainty as to whether statutory rights of action arising under the Corporations Act may be sold, which is limiting the sale of such rights.

Summary of new law

7.11 Under the new law, ASIC will be able to give a registered liquidator a written notice to give specified information or produce specified books to assist ASIC in the performance of its functions and the exercise of its powers in relation to the requirements imposed on registered liquidators and for other limited purposes.

7.12 ASIC will also be able to obtain information from any person who is believed to have information that is relevant to an inquiry or investigation regarding a liquidator's compliance with their obligations.

7.13 The reforms will empower ASIC to share information obtained or generated by it in the exercise of its powers or performance of its functions in relation to registered liquidators, the external administration of companies and the receivership of the property of a corporation. This information may be shared with a variety of people including the corporation, the external administrator or receiver, related entities of the corporation, creditors and those reviewing an external administration. Alternatively, ASIC will be able to direct registered liquidators to provide such information directly.

7.14 In order to supplement the improved rights for creditors to require the calling of meetings, ASIC will be given a power to direct that a meeting of creditors be called. This new ability replicates a power currently available to the Inspector-General under the Bankruptcy Act.

7.15 The statutory powers of insolvency practitioners will be amended to clarify that a practitioner is empowered to assign statutory rights of action arising out of the Corporations Act that vest with the practitioner (or company) during an administration, to a third party

Comparison of key features of new law and current law

Detailed explanation of new law

Notice to registered liquidators concerning information and books

7.16 New powers are given to ASIC in relation to a registered liquidator to seek specified information and to produce specified books in order to facilitate ASIC's surveillance activities (see below under consequential amendments). [Schedule 2, Part 2, item 12, section 30B]

7.17 ASIC may give a registered liquidator a written notice requiring the liquidator to give specified information and to produce specified books to a specified member of staff member at a specified place and time. ASIC may extend the period within which the registered liquidator must give the information or produce the books to which a notice relates. [Schedule 2, Part 2, item 12, subsections 30B(1) and(6)]

7.18 ASIC may only exercise these powers:

•

for the purposes of the performance or exercise of any of ASIC's functions and powers in relation to liquidator requirements (see below); or

•

for the purposes of ascertaining compliance with the liquidator requirements; or

•

in relation to:

-

an alleged or suspected contravention of the liquidator requirements; or

-

an alleged or suspected contravention of a law of the Commonwealth, or of a State or Territory in this jurisdiction, being a contravention that relates to the performance or exercise of a registered liquidator's functions, duties or powers and that either concerns the management of the affairs of a body corporate or involves fraud or dishonesty and relates to a body corporate; or

-

for the purposes of an investigation under Division 1 of the ASIC Act relating to a contravention referred to in the preceding subparagraph. [Schedule 2, Part 2, item 12, subsection 30B(2)]

7.19 Liquidator requirements are defined to mean the requirements in relation to registered liquidators, the external administration of companies and the receivership of the property of corporations under:

•

Chapter 5 of the Corporations Act;

•

Schedule 2, to that Act (the Insolvency Practice Schedule (Corporations); and

•

other provisions of that Act that relate to that Chapter or Schedule. [Schedule 2, Part 2, item 12, subsection 30B(3)]

7.20 A notice given by ASIC to a registered liquidator may specify information or books that relate to any or all of the following:

•

the policies relating to the external administration of companies and the receivership of the property of corporations that the registered liquidator has adopted or proposes to adopt;

•

the procedures relating to the external administration of companies and the receivership of the property of corporations that the registered liquidator has put in place or proposes to put in place;

•

the external administration of a company, that the registered liquidator has conducted, is conducting or is proposing to conduct;

•

any other matter relating to the external administration of companies or the receivership of the property of corporations that is prescribed. [Schedule 2, Part 2, item 12, subsection 30B(4)]

7.21 A registered liquidator to whom ASIC has given a notice must comply with the request even if giving the information or producing the books would involve a breach of an obligation of confidentiality that the registered liquidator owes to:

•

a company that is, has been or is likely to be under external administration; or

•

a corporation the property of which is, has been or is likely to be under receivership. [Schedule 2, Part 2, item 12, subsection 30B(6)]

7.22 ASIC may give to a person a written notice requiring the production of specified books that:

•

are in the person's possession or control; and

•

relate to the question whether a registered liquidator has complied with liquidator requirements, within the meaning of subsection 30B(3). [Schedule 2, Part 2, item 13, subsection 33(3)]

ASIC may give information and books in relation to Chapter 5 bodies corporate

7.23 ASIC's power to give information applies where ASIC obtains or generates information or books in the exercise of its powers or the performance of its functions in relation to:

•

a person in that capacity as a registered liquidator; or

•

the external administration of a company; or

•

the receivership of property of a corporation. [Schedule 2, Part 2, item 16, subsection 39C(1)]

7.24 ASIC may give the information or books (administrative information) to one or more specified persons. ASIC must not give the information to a person unless ASIC is satisfied that:

•

the administration information is relevant to the person;

•

the administration information is relevant to the exercise of a power or the performance of a function under the Corporations Act by the person in relation to:

-

a registered liquidator;

-

the external administration of a company;

-

the receivership of property of a corporation; or

-

it is otherwise reasonable to give the administration information to the person. [Schedule 2, Part 2, item 16, subsection 39C(3)]

7.25 ASIC must comply with a detailed process before it can release the administration information to the person. If ASIC imposes a condition on the use of the information, a person who fails to comply with the condition commits an offence with a penalty of 10 penalty units or imprisonment for three months or both. [Schedule 2, Part 2, item 16, subsections 39C(4), (5), (6), (7), (8),(9) and (10)]

Miscellaneous amendments Corporations Act

7.26 An administrator is required to consider whether the company to which they have been appointed would retain any equipment or other property in the company's possession that is owned by a third party. An administrator who decides not to retain such property must notify the owner of that decision within five business days after the commencement of the administration. The law is amended to require the administrator to advise the third parties of the location of their property when they are advising those parties that they do not intend to use the property in an administration. [Schedule 3, Part 1, item 1, subsection 443B(3)]

7.27 Creditors have the right to resolve to terminate deeds of company arrangement that have been breached or to apply to the Court for remedial action. However, there is no statutory requirement for a deed of company arrangement administrator or for the directors of the company to inform creditors that a breach of the deed of company arrangement has occurred. The law is amended to require the deed administrator or the directors to notify creditors. [Schedule 3, Part 2, item 2, section 445HA]

7.28 A number of incorrect cross-references in section 161A which relates to the use of a company's former name are corrected. [Schedule 3, Part 2, items 5, 6 and 7, section 161A]

7.29 Where the Court makes an order terminating a deed of company arrangement and winding up a company, or where a provision in a deed of company arrangement provides for the termination and the winding up of a company is triggered no provision has been made for a liquidator to be appointed to the subsequent liquidation. This error has been rectified. [Schedule 3, Part 4, items 8 to 16]

7.30 A number of difficulties with the definition of relation back day are addressed. [Schedule 3, Part 5, items 17 and 18, section 91]

7.31 Part 6 of Schedule 3 contains further miscellaneous amendments. Most of these amendments relate to the lodgement of documents with ASIC which require a notice to be in the prescribed form. [Schedule 3, Part 6, items 19 to 34]

Application and transitional provisions

7.32 Part 7 of Schedule 3 contains application provisions for the amendments in Schedule 3. [Schedule 3, Part 7 item 35]

Chapter 8 - Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Insolvency Law Reform Bill 2015

8.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

8.2 This Bill is aimed at ensuring the framework for insolvency practitioners promotes a high level of professionalism and competence by practitioners, promotes market competition on price and quality, and encouraging greater transparency and communication between stakeholders.

8.3 Harmonisation of the personal and corporate insolvency systems is also a key aim of this package. The Government is committed to reducing unnecessary regulatory burdens stemming from the differing regulatory treatment of corporate and personal insolvency practitioners.

8.4 The Bill will also enhance regulators' powers to conduct surveillance and inquire into the conduct of practitioners. There will also be an overhaul of disciplinary mechanisms for insolvency practitioners with the adoption of the personal insolvency style disciplinary committee for both personal and corporate insolvency. These changes may have impacts on certain human rights, which are detailed below.

Human rights implications

8.5 This impact of this Bill on the following human rights has been considered:

•

the right to freedom of movement;

•

the right to a fair trial and the presumption of innocence;

•

the right to work and rights in work; and

•

the right to privacy and reputation.

The right to freedom of movement

8.6 Article 12 of the International Covenant on Civil and Political Rights (ICCPR) includes the freedom to leave any country, including his own. This right may be restricted in certain circumstances (such as to protect national security, public order, public health or morals or the rights and freedoms of others) so long as that restriction is consistent with other rights under the ICCPR.

8.7 The Bill preserves the requirement for a bankrupt to give to the trustee in bankruptcy any passport or document issued for the purposes of travel held by the bankrupt (under section 77 of the Bankruptcy Act 1966). This is to ensure a bankrupt does not abscond to avoid their debts to creditors and their obligation to assist in the administration of their bankruptcy.

8.8 If a bankrupt wishes to use their passport to travel overseas they must seek permission from their trustee, who has discretion to allow the bankrupt to travel. This discretion allow for overseas travel where, for example, a bankrupt is employed overseas (as this may assist creditors by increasing assets for distribution).

8.9 Provision for restrictions on the right to freedom of movement is permitted under Article 12(3), which contemplates public order and the rights and freedoms of others as reasons for restricting this right. To the extent that the existing provision restricts the right to freedom of movement under Article 12, the limitations are justified as they balance the need to protect the rights of innocent creditors against the need for a bankrupt's freedom to leave the country.

The right to a fair trial and the presumption of innocence

8.10 Article 14 of the ICCPR includes the right to a fair trial and the presumption of innocence. Specifically Article 14(2) provides that 'everyone charged with a criminal offence shall have the right to be presumed innocent until proved guilty according to law' and Article 14(3) provides for minimum guarantees in a fair trial. Reverse burden or strict liability provisions do not violate the presumption of innocence where they are reasonable and preserve the rights of defence.

8.11 The Bill engages with this right in relation to a number of strict liability offences. However, notwithstanding the reversed burden in strict liability offences, these offences are reasonable in that they:

•

are necessary given their regulatory function,

•

deal with matters where intention would be difficult to establish,

•

impose appropriate and proportionate penalties, and

•

preserve the defence of honest and reasonable mistake of fact.

8.12 Strict liability is particularly beneficial to the Australian Securities and Investments Commission and the Australian Financial Security Authority. As the regulatory bodies for corporate and personal insolvency industries (respectively) they need to deal with offences expeditiously to maintain public confidence in their regulatory regimes.

8.13 Many of the strict liability offences relate to conduct where a requirement for proof of intention would be difficult to establish and, as such, would render the offences unenforceable. For example, where the prosecution has to prove the accused intended to refrain from paying money into the appropriate administration account when he or she failed to do so. Further, a requirement to establish intent will draw a level of resources for investigation and prosecution from the regulators that cannot always be justified, especially for offences with such a low maximum penalty.

8.14 The penalties in relation to strict liability offences under the Bill are appropriate and proportionate. To safeguard the proportionality of strict liability offences, the fines for the offences do not exceed 60 penalty units for an individual. Further, more minor infringements relating to book keeping incur a penalty of 5 penalty units while more serious offences, such as inappropriate payment of monies out of an administration account, incur a penalty of 50 penalty units.

8.15 There are no absolute liability offences under the Bill. Strict liability offences under the Bill preserve the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This ensures that an accused will have the right to a fair hearing and to defend any charges laid against them.

8.16 Section 60-21 creates an offence (in personal insolvency) for a person to offer an inducement to securing the appointment or nomination of their preferred trustee. It provides that a person commits an offence of strict liability with a penalty of 50 penalty units, or 3 months imprisonment, or both. This provision, and its corresponding penalty, is modelled on section 595 of the Corporations Act. The severity of the penalty recognises the importance of appointing an impartial trustee who would have significant power to determine the outcome of an estate for creditors and for the regulated debtor. The conduct described in this offence amounts to an abuse of the insolvency process that could see favourable treatment for the creditors involved in the breach at the expense of innocent creditors. As such, this penalty is appropriate and proportionate given the conduct would significantly undermine the integrity of the insolvency regime and have far-reaching consequences for insolvency practitioners, debtors, creditors and financial institutions.

8.17 To the extent that these offences under the Bill restrict the right to a fair trial and the presumption of innocence under Article 14, the limitations are justified as they balance the need for regulation of the personal and corporate insolvency industries with the rights of those accused of an offence by preserving the rights of defence and ensuring penalties imposed are appropriate and proportionate.

The right to work and rights in work

8.18 The right to work and rights in work is contained in articles 6(1), 7 and 8(1)(a) of the International Covenant on Economic, Social and Cultural Rights. The right to work and rights in work may be engaged if the Bill deals with aspects of employment or workplace relations.

8.19 This Bill provides provisions in relation to the registration, discipline and remuneration of insolvency practitioners. The right to work is only affected, to the extent that a practitioner is suspected of wrongdoing or of not meeting a requirement under the Bill, such as having adequate insurance. However, on balance, the right to work and rights in work are not engaged.

The right to privacy and reputation

8.20 Article 17 ICCPR provides that no one shall be subjected to arbitrary or unlawful interference with their privacy. The right to privacy may be engaged if the Bill involves the collection, security, use, disclosure or publication of personal information.

8.21 The Bill contains provisions to require applicants to provide information to the relevant regulator and such information will be available publicly.

8.22 Practitioners will also be required to lodge a notice with the regulator when certain events occur such as when the liquidator becomes insolvent or if they are convicted of an offence involving fraud. These notices will not be made public, but rather inform the regulator

Conclusion

8.23 This Bill is compatible with human rights. To the extent that the Bill limits any human rights, those limitations are reasonable, necessary and proportionate.

Chapter 9 - Regulation impact statement

Introduction

9.1 The insolvency system has a significant effect on both the level and nature of business activity taking place within an economy. An efficient insolvency system is a strong determinant of the accessibility and cost of credit in an economy; and minimises the affect of business failure of stakeholders, such as creditors and employees. It plays a key role in the efficient reallocation of resources and the minimisation of market distortions arising from business failure.

9.2 The insolvency system also plays an important role in detecting criminal activity that may lead to a business winding up and in so doing provides 'a credible threat of detection of wrongdoing that is important to the overall confidence of creditors'^[1].

9.3 The Corporations Act 2001 (Corporations Act), the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Bankruptcy Act 1966 (Bankruptcy Act) as well as associated regulations govern the regulation of the insolvency system.

9.4 This Regulation Impact Statement (RIS) seeks to quantify the costs and benefits of regulatory amendments to the personal insolvency and corporate insolvency laws. Those amendments seek to address a wide range of issues that negatively impact on the efficiency and effectiveness of the insolvency system in providing for the fair allocation of resources where a company or individual is unable to meet their debts.

What is the problem to solve?

9.5 Various Parliamentary and Government inquiries have criticised the insolvency system and found changes are necessary to:

•

improve the effectiveness of the regulation of Australia's insolvency profession;

•

improve the effectiveness and efficiency of the regulation of Australia's insolvency laws; and

•

address a range of current regulatory and market failures in the operation of the insolvency system.

The effectiveness of the regulation of Australia's insolvency profession

9.6 Under Australia's insolvency law framework, a corporate insolvency practitioner is registered by the Australian Securities and Investments Commission (ASIC) to undertake the winding up of insolvency corporations (corporate insolvency administration), as well as the voluntary administration and receivership of corporations. A personal insolvency practitioner is registered by the Australian Financial Security Authority (AFSA) to administer the estate of an insolvent individual or regulated debtor (personal insolvency administration).

9.7 Australia has always had separate personal and corporate insolvency systems. This includes separate laws^[2], regulators^[3], agencies responsible for policy development^[4], and ministerial responsibility^[5]. This formal division mirrored the separation of corporate and personal insolvency laws in the United Kingdom prior to the Cork Report^[6] and subsequent reforms in the mid-1980s.

9.8 The current framework for the regulation of corporate insolvency practitioners has been subject to consistent criticism since the commencement of a Senate Economics References Committee (the Senate Committee) inquiry into corporate insolvency practitioners and administrators in 2009 (the 2010 Senate Inquiry)^[7].

9.9 The 2010 Senate Inquiry considered the practices of corporate insolvency practitioners in conducting external administrations, as well as the role of ASIC in overseeing the corporate insolvency profession. The 2010 Senate Inquiry gave voice to creditor discontent following high profile cases of fraud and negligence by members of the corporate insolvency industry.

9.10 Submissions to the 2010 Senate Inquiry identified a wide range of regulatory failures in relation to the regulation of corporate insolvency practitioners, and in particular expressed concerns regarding:

•

the process for the registration of new corporate insolvency practitioners;

•

the process for the discipline and deregistration of insolvency practitioners who had engaged in misconduct; and

•

the regulatory tools available to ASIC.

9.11 In The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework (the 2010 Senate Report) the Senate Committee criticised the current regulatory framework for the regulation of the insolvency profession, ASIC's performance in the regulatory oversight of registered corporate insolvency practitioners and the effectiveness of the current insurance obligations and remuneration of registered corporate insolvency practitioners.

9.12 Submissions to consultation papers released by the Australian Government in 2011, as well as subsequent consultation with industry participants and other stakeholders in 2012 and 2014^[8] further reflected concerns with the current corporate regulation in these areas.

9.13 ASIC has increased its focus on the insolvency industry since the 2010 Senate Inquiry. From 2011 ASIC has formalised a proactive corporate insolvency practitioner practice review program while continuing to review particular transactions prompted by third party complaint or internal intelligence gathering.

Source: ASIC regulation of registered corporate insolvency practitioners: January to December 2014; ASIC regulation of registered corporate insolvency practitioners: January to December 2012

9.14 When undertaking a transaction review, ASIC examines the whole of the transaction in question to ensure the registered corporate insolvency practitioner has adequately and properly performed their duties and functions-complying with the Corporations Act 2001 (Corporations Act) and the Corporations Regulations 2001 (Corporations Regulations), and the professional standards relevant to that transaction.

Source: ASIC regulation of registered corporate insolvency practitioners: January to December 2014; ASIC regulation of registered corporate insolvency practitioners: January to December 2012

9.15 ASIC figures show that the adequacy of investigation and reporting to creditors, remuneration and practitioner independence remain key areas of concern with the industry.

9.16 ASIC's increased surveillance of the insolvency profession has resulted in greater levels of formal investigation and enforcement action, as shown in Table 3.

Source: ASIC regulation of registered corporate insolvency practitioners: January to December 2014

9.17 Despite the increased activity by ASIC in relation to its oversight of the corporate insolvency industry, insolvency practitioners received the lowest rating for perceived integrity in a 2013 survey of ASIC's stakeholders. The survey noted that small businesses 'were particularly negative about the integrity of insolvency practitioners'.

9.18 The negative perception of insolvency practitioners also continues to be borne out in the level of inquiries and reports of alleged misconduct received by ASIC with 384 such reports made to ASIC in 2014, although it is noted that this is down from 446 in 2013 and 477 in 2012.^[9]

9.19 The Senate Economics References Committee, as part of the 2014 report for its inquiry into ASIC's performance, noted that:

'Clearly, the conduct of liquidations in Australia is still subject to strident criticism and the source of much dissatisfaction.'^[10]

The effectiveness of the regulation of Australia's insolvency laws

9.20 The Productivity Commission (the Commission) has found that the 'different regulatory treatment of the administration of personal insolvency and corporate insolvency imposes an unnecessary regulatory burden on insolvency practitioners and is impeding the efficient conduct of the insolvency regime'^[11]. In 2010 the Commission identified that there is clear scope for harmonisation or alignment of provisions to reduce the burden on practitioners, and commented that there was a case for harmonised or aligned provisions in relation to procedural matters such as hiring and firing practitioners, setting and reviewing remuneration, record keeping and reporting, and the holding of meetings.^[12]

9.21 World Bank research has shown that if creditors are not protected or allowed to participate in insolvency proceedings, they will have less incentive to lend in the future, with flow on effects to the development of a jurisdiction's credit market.^[13]

9.22 The Commission has commented that Australia's insolvency regime is costly and slow to get started but that, as indicated in Table 4, it is comparable with other countries (including the United States) in terms of time taken, the proportion of funds recovered, creditor participation and management of debtor assets.^[14]

9.23 The vast majority of companies being wound up in Australia (around 80 per cent) are small (those with fewer than 20 employees), and many of those have no assets to distribute.^[15] There is a need to ensure that the regulatory framework provides for the most efficient means of winding up such companies by ensuring that the administrative processes that are required under the law during the winding up process are necessary and appropriate to maintain confidence in the system.

Current regulatory and market failures

Registration processes

9.24 A number of submissions to the 2010 Senate Inquiry, and the Senate Committee itself^[16], raised concerns with the application process for registered corporate insolvency practitioners. Currently the application is considered 'on the papers' and applicants are not required to demonstrate their understanding of the legislation, or demonstrate that they are 'fit and proper' through practical scenarios.

9.25 Once a corporate insolvency practitioner is registered, ASIC has limited powers to remove or review the practitioner's registration.

High and inflexible entry standards limit competition within the market

9.26 A number of submissions to the 2010 Senate Inquiry remarked on the high level of fees charged by corporate insolvency practitioners. The Senate Committee itself noted that while these charges may be justified in complex cases, overcharging and over servicing was evident in the industry.^[17]

9.27 The Senate Committee noted that the market for corporate insolvency practitioners is distorted due to the lack of adequate incentives for practitioners to offer fees that are genuinely commensurate with the efficient and effective performance of their duties.^[18]

9.28 One reason for the lack of competition on price may be the barriers to entry into the market for insolvency services arising from the current registration requirements. Those requirements necessarily limit the ability of competent people to be appointed as a liquidator in an administration until they have can satisfy the statutory experience requirement of five years. There is no scope within the current regulatory framework for an applicant who is capable of providing insolvency services obtaining registration unless they meet the high experience and academic study requirements.

9.29 Furthermore, the current distinction between official corporate insolvency practitioners^[19] and registered corporate insolvency practitioners imposes an additional regulatory burden on corporate insolvency practitioners given the need to comply with the administrative requirement to be appointed as an official corporate insolvency practitioner. There is no corresponding tiered arrangement in the personal insolvency framework.

9.30 According to a 2011 survey of official liquidators 'the majority of official liquidators (84%) were of the view that the tasks undertaken in their capacity as official liquidators were the same as the tasks undertaken in their capacity as a voluntary liquidator'^[20].

Practitioner discipline

9.31 The potential for the removal of poorly performing registered corporate insolvency practitioners is important in maintaining the integrity and credibility of the system. As noted above, ASIC surveys as well as completed and ongoing parliamentary inquiries into the insolvency industry indicate that there is a lack of confidence in the profession.

9.32 The current systems for the cancellation or suspension of registration and discipline of registered corporate insolvency practitioners and registered trustees diverge significantly. The maintenance of two divergent regimes creates additional complexity for practitioners brought before the disciplinary process and may therefore create additional costs.

9.33 The discipline of registered corporate insolvency practitioners through the Companies Auditors and Corporate insolvency practitioners Disciplinary Board (CALDB) has previously been perceived by stakeholders to be a slow and expensive process. In particular, the level of procedural complexity in disciplinary processes has been criticised for being inconsistent with the obligation under the Corporations Act for CALDB to be fast and efficient.^[21] Cost effectiveness is also affected where respondents choose to use Senior Counsel at hearings, and ASIC consequently considers there is a need for it to be likewise represented. While the speed of disciplinary matters progressing through CALDB has improved significantly since 2010, the time taken for CALDB to finalise matters remains more than twice as long as matters finalised under the personal insolvency system.

Procedural rules

9.34 The corporate and personal insolvency regulatory frameworks currently provide procedural rules regarding: the treatment of estate monies; the obligation on registered corporate insolvency practitioners and registered trustees to lodge, and have audited, a range of reports and documents with ASIC and AFSA respectively; and the keeping of books including the period of time for which those books must be retained.

9.35 The current divergence in rules and requirements for personal and corporate insolvency creates unnecessary complexity and costs for creditors and insolvency practitioners, making it difficult for creditors of individuals as well as companies to understand how the different regimes apply without an in-depth knowledge of both frameworks. This lack of knowledge and expertise is not something that creditors can easily address and it imposes both financial and time costs on creditors to obtain the information they need to protect their interests in a corporate or personal insolvency.

9.36 The divergence also limits the ability for practitioners to easily move between corporate and personal insolvencies as the different approaches to account and record keeping increases costs and the administrative burden on practitioners. Similar but different rules may contribute to error by practitioners through the application of the wrong set of rules in an administration.^[22]

Insurance requirements

9.37 A registered corporate insolvency practitioner is required to maintain adequate and appropriate professional indemnity insurance and fidelity insurance to cover claims that may be made against him or her.^[23] An action may be brought by the company, its creditors, a bankrupt's creditors or other affected stakeholders for losses suffered as a result of an act or omission of the registered corporate insolvency practitioner or registered trustee. The insurance requirements attempt to ensure that funds are available to compensate claimants for loss suffered.

9.38 If the practitioner has acted illegally, for example by committing fraud or intentionally breaching their duties, an insurance company is likely to refuse to cover the breach which will impact on the amount a claimant will be able to recover. Likewise, if the practitioner does not hold insurance, the recovery of any losses suffered due to the breach may be reduced.

9.39 Insurance cover may also be ineffective if the insured party ceased paying premiums prior to a claim being made or where they have otherwise breached the contract, such as through inadequate disclosures. In either case, claimants may have to rely merely on the practitioner's individual resources, as claims against the insurance will not be met because of the void or non-existent status of the policy.

9.40 Concerns were raised during the 2010 Senate Inquiry about insurance cover held by practitioners. One area of concern was the inability of the regulator to know when the insurance policy of a corporate insolvency practitioner had lapsed.

Creditor engagement

9.41 Information asymmetries exist between debtors, directors, insolvency practitioners, creditors and members. For example, at the commencement of an insolvency administration, the insolvency practitioner may have little information about the financial affairs of the debtor. The debtor (or in the case of a company, its directors) may be uncooperative in completing and lodging a Report as to Affairs (RATA) which is required to be provided by the debtor at commencement of the administration..

9.42 Furthermore, insolvency administration services may involve a high level of technical complexity. Creditors, particularly small business creditors and non-business creditors, may lack the knowledge and skills to properly understand the full nature of the 'product' that is being offered. It may therefore be difficult for clients to determine what a reasonable and appropriate fee is for such services and then to be able to determine that they are getting what they have 'purchased'.

9.43 As a result, personal and corporate insolvency laws contain a number of mechanisms designed to ensure that stakeholders are appropriately informed of debtors' affairs and the process of insolvency administrations. These mechanisms impose obligations upon practitioners to provide specified types of information and rights for stakeholders to make ad hoc requests for information.

9.44 There are limited opportunities for creditors in an external administration to access the information necessary to determine whether this is actually occurring. The potential inability of creditors to access information about the conduct of the external administration negatively impacts on the ability of creditors to monitor the external administration.

9.45 In the 2010 Senate Report, the Senate Economics References Committee found that while creditors in corporate insolvency may have a right to call a meeting where creditors representing 10 per cent in value agree, the cost of calling and holding the meeting acts as an effective deterrent to creditors doing so.

9.46 Industry concerns have been raised regarding the need for corporate insolvency practitioners to report to creditors annually, or hold meetings, about the state of an ongoing liquidation, and the requirement for a final meeting of creditors under an external administration. These concerns relate to the low level of interest by creditors in these reporting mechanisms that lead to a compliance-based approach to the completion of these processes. The costs of these regulatory requirements are borne by the estate as a whole.

9.47 Creditors and members in a corporate insolvency currently possess limited opportunities to remove a corporate insolvency practitioner or administrator once they are appointed, regardless of poor performance or misconduct. Aside from the costs involved for members or creditors of seeking to remove a registered corporate insolvency practitioner, there is a high potential for the corporate insolvency practitioner's costs of defending an action (even unsuccessfully) to be borne by the liquidation or administration. Court-based remedies are also associated with significant delay, during which the incumbent practitioner will likely continue to act.

Practitioner remuneration

9.48 Concern with the level and method of remuneration charged by insolvency practitioners, particularly the proportionality of remuneration claimed on a 'time-charging' basis to assets available in the liquidation, remains a perennial issue.^[24] Anecdotally, there appears to be little indication of active price-based competition occurring between insolvency practitioners.

9.49 Complaints regarding remuneration issues, including excessive fees and poor disclosure of remuneration, constituted eight per cent of all insolvency related complaints to ASIC from 2006-2010. A further 12 per cent of complaints were in relation to criticism of insolvency practitioners failing to act in a timely manner which results in practitioners receiving a greater remuneration outcome than ought to have been required for the proper conduct of the administration.^[25]

9.50 While the law currently provides mechanisms for the review of practitioner remuneration, these mechanisms are mostly court-based and are therefore costly and only likely to be undertaken where the insolvency is of a substantial size.

9.51 The market failures which make the setting of remuneration difficult are set out in the box below.

Cross-subsidisation

9.52 Because practitioner remuneration is paid from assets, practitioners are often not remunerated in full, or at all, because no assets remain. It has been asserted that this may lead to overcharging for services where there will be money available, as a recoupment action.

9.53 The unrecovered costs borne by practitioners in assetless administrations, or administrations with insufficient assets to meet remuneration and disbursements incurred, may be seen as being borne by other administrations through the charging of these risk premiums. It has been estimated that 'insolvency practitioners are required to personally fund disbursements of $1.4 million and remuneration of $47.3 million in the conduct of their roles as Official Corporate insolvency practitioners annually'.^[26] Concerns persist both within and outside the industry about the effects of this cross-subsidisation.

Expensive options for obtaining remuneration approval

9.54 The law currently provides a mechanism in corporate insolvency for deeming the approval of remuneration up to $5,000 in a court ordered liquidation where a practitioner convenes a meeting but is unable to obtain a quorum.

9.55 In a 2011 survey of official liquidations it was found that of the 31 insolvencies surveyed, corporate insolvency practitioners used this mechanism on two occasions only. The value of remuneration drawn in those matters was $1,307 and $1,049. The limited use of the mechanism reflects commercial decisions made by practitioners of expected returns given that the costs of convening a creditors meeting ordinarily ranges from $3,000 to $4,000.

Obtaining the RATA and books of the company

9.56 RATAs are documents that must be completed and provided by debtors or directors at the commencement of an insolvency administration. They are a means of ensuring that practitioners are provided with information necessary to facilitate efficient administration. The provision of this information is also essential in ensuring that practitioners can provide an appropriate level of information to stakeholders regarding the affairs of the debtor; the likely outcomes of the administration; and the tasks that may need to be performed by the practitioner.

9.57 Where a director fails to provide a corporate insolvency practitioner with the RATA and the company's books and records there is a negative impact on the practitioner's ability to properly conduct the administration. A refusal to provide a completed RATA or to provide books may be motivated by a wish to conceal corporate misconduct in the lead up to insolvency.

9.58 A perennial issue has been directors not providing RATAs. According to lodged initial external administrators' reports from 1 July 2013 to 30 June 2014, there were:

•

1,018 reported breaches of a director's obligation to provide a RATA; and

•

869 reported breaches of a director's obligation to provide the company's books.^[27]

9.59 It is not possible to state in which situations the RATA and books are least likely to be provided as the statistics are not broken down by administration type. It is, however, assumed that it would most likely be in relation to Court-ordered windings up (as the directors are engaged in the process for commencing the external administration in a voluntary administration or a creditors' voluntary winding up).

9.60 According to a 2012 survey of official corporate insolvency practitioners, a RATA was received in 72 per cent of official liquidations, while ASIC's assistance to obtain a RATA was requested in 20 per cent of cases^[28].

9.61 Currently ASIC may assign such a referral to its Corporate insolvency practitioner Assistance Program, which seeks provision of the completed form or books, and commence prosecutions against non-compliant directors.

Source: ASIC

Regulator monitoring, oversight and intervention

9.62 The divergent powers of ASIC and AFSA in relation to surveillance also affect the approaches that the respective regulators take to communicating with creditors. As part of its complaints handling processes, AFSA may examine the file relating to an allegation and report the findings to the person who made the allegation. ASIC is constrained in the extent of any information that it might otherwise similarly provide.

9.63 Similarly, the current wording of some of the statutory powers to conduct investigations and to communicate the outcomes of those investigations under the ASIC Act is more restrictive than the commensurate powers for AFSA under the Bankruptcy Act and the Bankruptcy Regulations 1996. For example, while some of ASIC's powers are exercisable only where it suspects that there has been a contravention of the law, the Inspector-General is not similarly constrained.

9.64 In the 2010 Senate Inquiry, the Committee stated that the reactive approach to monitoring registered corporate insolvency practitioners taken by ASIC at that point in time was inadequate and expressed concern that a complaints system alone cannot deter all misconduct. Since 2010 ASIC has commenced a small proactive surveillance program however the limitations on ASIC powers continue to make that program less efficient and effective than is possible under the personal insolvency system.

9.65 Given the significant information, technical knowledge and technical skill asymmetries present in most insolvencies, creditors may not know when misconduct is occurring within an administration or may think it is occurring when it is not.

Why is government action needed?

Why should the Government intervene?

9.66 While the returns in corporate insolvency in Australia are comparable to other overseas jurisdictions, there remains clear dissatisfaction with the regulation of the corporate insolvency profession and opportunities for improving the efficiency of Australia's insolvency system.

9.67 The insolvency system has a significant effect on both the level and nature of business activity taking place within an economy. An efficient insolvency system is a strong determinant of the accessibility and cost of credit in an economy; and minimises the impact of business failure of stakeholders, such as creditors and employees. It plays a key role in the efficient reallocation of resources and the minimisation of market distortions arising from business failure.

9.68 It is difficult for the market in specialist insolvency services to operate efficiently. This is largely because of asymmetries in technical knowledge, skill and information between practitioners and creditors; the highly heterogeneous nature of the services provided; and the fractured nature of decision making by the 'client'.^[29]

9.69 These market failures adversely affect efficient price setting of insolvency services; the ability of stakeholders to conduct effective reviews of claims for remuneration; and the ability of stakeholders to monitor the progress of an administration in which they have a financial interest.

9.70 For over 100 years Governments have taken a role in regulating the provision of insolvency administration services, as well as the practitioners who provide those services.

Are there alternatives to government action?

9.71 As at November 2013, 80 per cent of registered corporate insolvency practitioners and 93 per cent of registered trustees were members of the Australian Restructuring, Insolvency and Turnaround Association (ARITA).

9.72 ARITA members are subject to the ARITA Code of Professional Practice which acts as the standard for professional conduct in the insolvency profession. According to ARITA, the Code aims to:

•

set standards of conduct for insolvency professionals;

•

inform and educate ARITA members as to the standards of conduct required of them in the discharge of their professional responsibilities; and

•

provide a reference for stakeholders and disciplinary bodies against which they can gauge the conduct of ARITA members.

9.73 As an industry code of conduct, the Code remains subject to the law as well as the views of the courts, which may decide not to accept or follow particular requirements or guidance in the Code. The Code has been updated twice since 2010.

9.74 ARITA has disciplinary processes in place to deal with breaches of the Code, however the most serious penalty available is to strip a practitioner of their ARITA membership. Such an action may have a commercial impact on the practitioner, but does not prevent the practitioner from continuing to operate in the market.

Objectives, outcomes, goals and target of government action

9.75 The Government is seeking to:

•

improve the effectiveness of the regulation of Australia's insolvency profession to restore confidence in the insolvency services industry, including through providing insolvency regulators with the powers they need to efficiently and effectively oversight the industry;

•

improve the efficiency and effectiveness of the regulation of Australia's insolvency laws by aligning Australia's personal and corporate insolvency laws; and

•

address current regulatory and market failures by:

-

enhancing competition within the market for insolvency services; and

-

empowering stakeholders with an interest in the conduct of an insolvency administration to better protect their own interests.

Options considered as part of this RIS

9.76 The RIS considers a range of options to address the problems identified above.

Options for improving the effectiveness of the regulation of Australia's insolvency profession through changes to the law regarding:

(i)

the registration, discipline and regulator oversight of insolvency practitioners (Options 1.1 to 1.5); and

(ii)

practitioner insurance (Options 3.1 to 3.3).

Options to improve the efficiency and effectiveness of the regulation of Australia's insolvency laws and better address the current regulatory and market failures are considered. Options are therefore considered with respect to:

(iii)

the procedural rules relating to external administrations (Options 2.1 to 2.3);

(iv)

better facilitating creditor involvement in an insolvency (Options 4.1 to 4.3);

(v)

remuneration for providing insolvency services (Options 5.1 to 5.3); and

(vi)

improving information for corporate insolvency practitioners during an insolvency (Options 6.1 to 6.5).

9.77 The options considered in relation to the registration, discipline and regulator oversight of insolvency practitioners will address issues in relation to the remuneration for insolvency services through enhancing competition in the insolvency services market. Similarly the other options may have benefits that address the other objectives the Government is seeking to achieve in these reforms.

1. Registration, discipline and regulation of insolvency practitioners

9.78 Five options have been identified to address the problems associated with the registration, discipline and regulation of insolvency practitioners.

Option 1.1 - status quo

Practitioner registration

9.79 The current frameworks for the regulation of registered corporate insolvency practitioners and external administrations, as set out in the Corporations Act, and for registered trustees and personal bankruptcies, as set out in the Bankruptcy Act, could be maintained.

9.80 The high entry standards for registration as a corporate insolvency practitioner set out under section 1282 of the Corporations Act would be maintained. Corporate insolvency practitioners seeking to be appointed to Court-appointed windings up continue to be required to seek further registration as official corporate insolvency practitioners with ASIC.

9.81 The consideration of applications for registration as a corporate insolvency practitioner are completed 'on the papers'. Once registered a corporate insolvency practitioner remains registered until deregistered voluntarily or involuntarily.

Practitioner deregistration or discipline

9.82 Where ASIC determines that a corporate insolvency practitioner should be deregistered or disciplined, ASIC would either refer the matter to CALDB or the Court. Alternatively, where AFSA determines that a personal insolvency practitioner should be deregistered or disciplined, AFSA would convene a three-person committee to determine the matter or refer the matter to the Court. Any person, regardless of whether the person has a financial interest in an external administration, is able to commence proceedings in relation to a practitioner's conduct of an administration.

Regulators' powers

9.83 ASIC is able to provide information to AFSA where the information will enable or assist it to perform a function or exercise a power, and vice versa. This power is at the discretion of the regulators. There is no obligation on either regulator to seek or provide information in relation to dually registered practitioners.

9.84 ASIC is also able to provide information to enable or assist the accounting bodies CPA Australia and Chartered Accountants Australia & New Zealand to perform one of their functions, but not ARITA. AFSA is able to provide a copy of any report resulting from its inquiries and investigations into the conduct of a personal insolvency practitioner or a bankruptcy administration to any person.

9.85 Where a stakeholder's attempt to obtain information from a practitioner is improperly obstructed by an insolvency practitioner, the stakeholder can go to Court to get an order to obtain access to the information.

9.86 ASIC is empowered to investigate the files of a corporate insolvency practitioner where it has reason to suspect that the corporate insolvency practitioner has contravened the Corporations Act; or has not, or may not have, faithfully performed his or her duties. The requirement for ASIC to have reason to suspect a contravention before commencing an investigation may inhibit the ability of ASIC to undertake a surveillance program on a proactive basis.

9.87 Where a creditor requests that an insolvency practitioner hold a meeting and that request is ignored or unreasonably rejected, the creditor maintains a right to apply to Court for an order requiring a meeting to be held.

Option 1.2 - alignment between corporate and personal insolvency frameworks

9.88 The current registration, deregistration, disciplinary and maintenance of registration mechanisms in the Corporations Act and Bankruptcy Act would be replaced^[30] with a new regime, based on the current Bankruptcy Act provisions. This regime would introduce a common set of provisions, with minor tailoring to the needs of each system.

Practitioner registration

Registration of insolvency practitioners

9.89 A new aligned registration process based upon the existing Bankruptcy Act provisions would be introduced replacing the current systems for registration of corporate insolvency practitioners and registered trustees. There would be a single class of practitioner in corporate insolvency (although registrations may be conditional or restricted to some kinds of administration). The separate class of official corporate insolvency practitioner, as well as debtor company specific registration, would be removed. Registered corporate insolvency practitioners would be able to perform all functions currently restricted to official corporate insolvency practitioners.

9.90 Applicants would be required to meet a set of minimum initial and ongoing standards for registration as an insolvency practitioner. These requirements would be relevant not only to initial registration, but also to subsequent disciplinary processes.

9.91 An individual would be able to be registered where they do not meet the prescribed academic requirements, provided that a committee convened to consider the application is otherwise satisfied that the individual would be able to satisfactorily perform the duties of a registered corporate insolvency practitioner or registered trustee.

9.92 The mandatory experience requirements for registration would be lowered in corporate insolvency from five years to three years, with a new obligation to complete formal tertiary qualifications in insolvency added to the current requirements for legal and accounting qualifications.

9.93 A committee would consist of a member of the relevant regulator, a representative of ARITA, and a representative of the relevant Minister. A committee would be convened on an ad hoc basis to consider applications for registration as well as disciplinary matters (see below).

9.94 The current residency requirement (that exists in corporate insolvency) would be removed. However, the regulator would be empowered to impose conditions to address non-residency.

9.95 Under an aligned registration system, the regulators would be responsible for: accepting initial applications; determining that they are complete and accompanied by the relevant fee (the 'application fee') (estimated to be approximately $2,200); and referring them to a committee convened to determine whether the applicant should be registered. The current requirements for how an application is considered in personal insolvency would substantively be adopted under both regimes.

9.96 The procedures of a committee would be based upon current personal insolvency committees. A committee would also be entitled to dispense with a hearing and determine a matter on the papers with the consent of the practitioner.

9.97 If a committee determines that a person should be registered, the regulator must register them subject to their taking out insurance and paying a registration fee (currently expected to be set at $1,300) which would be imposed as a tax. This registration fee is in addition to the application fee.

9.98 A person would be able to apply for restricted registration. This will provide flexibility in the system to increase the number of participants in limited sections of the market. For example, an applicant may seek registration as a corporate insolvency practitioner restricted to performing receiverships only.

Conditions on registration

9.99 Practitioners would be obliged to comply with any conditions on their registration, whether they are industry wide conditions, or specific conditions imposed on the practitioner by a committee or by agreement with the regulator.

9.100 Regulators would be empowered to approve industry wide conditions in relation to specific areas such as continuing professional education and the establishment and maintenance of a system for resolving complaints.

9.101 A committee would also be empowered to impose conditions upon specific practitioners.

Renewal of registration

9.102 Registration would be for a three-year period. A practitioner would be required to apply to the respective regulator for renewal of their registration. A fee would be payable (currently expected to be set at $1,700).

9.103 Renewal would be granted where the applicant has provided proof of insurance and has no outstanding administration-related taxes or fees in excess of a certain amount and has complied with any continuing professional education obligations.

Involuntary deregistration and disciplinary processes

9.104 A new aligned deregistration and disciplinary process based upon the existing Bankruptcy Act provisions would be introduced replacing the current systems for deregistration and discipline of corporate insolvency practitioners and registered trustees. The system would be modelled on the current system for registered trustees.

An aligned committee system

9.105 Where a regulator believes that a practitioner has breached their duties or obligations under the respective statute, the regulator will be empowered to issue a 'show cause' notice to the practitioner and, if not satisfied with the response, refer the matter to a committee convened by the regulator for that purpose (on an ad hoc basis) to determine the matter. A committee so convened would again consist of three members, being a delegate of the regulator, a representative of ARITA, and a third member selected by the Minister. The procedures for the committee would be the same as for a committee established for registration of a practitioner.

9.106 The regulator would also be required to issue a show cause notice and make a referral where, in the opinion of the regulator, a practitioner no longer meets the ongoing requirements to maintain registration or is no longer actively practising as an insolvency practitioner.

9.107 A committee would be empowered to grant a wide range of remedies, including: deregistration; suspension; suspension of the person's ability to accept new appointments; imposition of conditions; admonishment or reprimand; and removal of a practitioner from a specified administration.

9.108 The relevant regulators would be bound to give effect to the decision of a committee. The regulator would also be empowered to publicise or require publication of, as it sees fit, the decision and reasons for the exercises of its powers.

Regulator disciplinary powers

9.109 In parallel to being able to refer a matter to a Committee, the regulator would be empowered to impose a restricted class of remedy (deregister or suspend only) on a restricted set of grounds without referral to a Committee.

9.110 The regulators would also be empowered to:

•

suspend a practitioner's ability to accept new appointments, without requiring a reference to a Committee, if the practitioner fails to comply with a notice directing them to lodge an outstanding annual administration or practitioner return;

•

direct that a practitioner corrects an inaccurate return previously lodged; and

•

appoint replacement practitioners upon a vacancy arising following suspension or deregistration of a practitioner.

9.111 The regulator must afford natural justice to the practitioner prior to determining whether to exercise this power.

Court control over practitioners

9.112 The power of persons to seek a review of a corporate insolvency practitioner's conduct in various kinds of insolvency administration would be aligned and consolidated. In particular, there would be alignment of the persons who have standing to seek court reviews of practitioners' conduct. A person would be required to have a financial interest in an administration in order to seek a review in relation to the administration.

9.113 A Court would be empowered, when considering whether to remove a person from a particular administration, to take into account public interest considerations (such as maintaining confidence in the insolvency system as a whole) that may override the individual interests of the practitioner, creditors and members in a particular administration.

Option 1.3 - co-regulation

9.114 A co-regulation model could be adopted whereby the insolvency industry develops and administers its own arrangements, but Parliament provides legislative backing to enable the arrangements to be enforced.

9.115 Under this option, the regulators would work with the corporate and personal insolvency industries to develop and implement a scheme for the registration, discipline and deregistration of practitioners which would consist of the following:

•

a statutory board, in which all powers and functions for the registration and regulation of insolvency practitioners would be vested. The board would be empowered to vest powers and functions to professional associations; and

•

professional associations which would then be responsible for the registration and regulation of their members.^[31]

9.116 The statutory board would be responsible for:

•

determining appropriate standards for the registration of practitioners;

•

surveillance of practitioners;

•

acting upon complaints received against insolvency practitioners; and

•

delegating responsibility for functions to appropriate professional associations.

9.117 The statutory board would consist of: representatives of major industry representative bodies such as ARITA, the Chartered Accountants Australia & New Zealand, CPA Australia and the Law Council of Australia; appointees of the Attorney-General and the Treasurer; and two lay persons. The board would initially be funded jointly by industry (for example, through contributions by industry representative bodies) and the Government.

9.118 A professional body or bodies would exercise powers delegated by the statutory board, including:

•

administering the registration system for insolvency practitioners;

•

undertaking surveillance of practitioners; and

•

conducting investigations into complaints concerning insolvency practitioners.

9.119 This option would not affect the current rules with which corporate insolvency practitioners and registered trustees must obey in carrying out an external administration or personal bankruptcy, such as the procedural rules, practitioners' obligations to communicate with stakeholders or the ability to remove and replace a practitioner.

Option 1.4 - interim suspension orders

9.120 The regulators could be empowered to prohibit a practitioner from acting on a particular administration for a limited period if the regulator believes serious misconduct occurred on the part of the practitioner and that it is in the best interests of creditors.

9.121 The order would be for a short period of time pending a full hearing about whether the order should be made permanent.

9.122 The stop-order power could be valuable where there is:

•

systemic non-compliance by an insolvency practitioner with their duties and obligations or suspected fraud identified by the regulator during its surveillance activities or as a result of investigating a report of alleged misconduct received by the regulator;

•

cause to intervene to prevent the sale or transfer of assets by an insolvency practitioner to a related party in furtherance of suspected illegal phoenix activity or where the practitioner's conduct otherwise facilitates the promotion of interests other than those of creditors; and

•

an obvious conflict of interest and where the practitioner refuses to step aside.

Option 1.5 - improve regulator powers

Increased regulator powers

9.123 In order to ensure that both regulators have the powers necessary to conduct proactive practice reviews and reviews of individual administrations, both regulators would be empowered to attend premises at which the practitioner is carrying out administrations or keeps books; to inspect books; to require reasonable assistance; and to utilise copying facilities. Suspicion of a breach would not be required for these powers to be exercised.

9.124 Both regulators would be given a broad power to share:

•

regulatory information regarding persons with dual registration with the other regulator (or persons seeking dual registration, or in respect of events/actions taking place at a time when they held dual registration);

•

information with ARITA and other relevant professional bodies; and

•

information with the Department of Employment in relation to practitioners' conduct regarding the General Employee Entitlements and Redundancy Scheme.

9.125 Both regulators would be empowered to give written directions to insolvency practitioners to answer questions in respect of an administration or their conduct as a registered practitioner.

9.126 Both regulators would have discretionary powers to provide or make available to stakeholders (including creditors, members, directors, employees, the bankrupt) any information or material relating to an insolvency administration that would fall within the authority of the practitioner to provide on their own initiative. However, the regulator would not be able to provide or make available information to which legal professional privilege applies.

•

Both regulators would also be authorised to direct practitioners to provide information to stakeholders directly.

•

Each regulator would need to give the practitioner responsible for an administration notice of its intention to disclose the information.

•

Where the cost of providing the information sought may impose a significant burden upon an administration, the regulator may require the person seeking access to recompense the administration by an amount determined by the regulator as being reasonable as a precondition of it exercising this power.

9.127 Both regulators would be empowered to share information in such circumstances to enable the adoption of a 'one stop shop' approach for creditors and other stakeholders with an interest in interconnected personal and corporate small business insolvencies.

Power to direct that a meeting of creditors be called

9.128 Both regulators would be given broad powers to direct that a meeting of creditors be called. Regulators would also be empowered to require the inclusion of certain material in convening documents; and attend and participate at meetings of creditors and committees of inspection (COIs) (AFSA currently has this power in relation to meetings of creditors in personal insolvency).

What is the likely net benefit of each option?

Option 1.1 - status quo

9.129 A 'do nothing' option is to be considered in cases where problems may be self-corrected by market mechanisms. As the problems are caused by existing legislative requirements, maintaining the status quo and hence doing nothing will not resolve the issues.

Option 1.2 - alignment between corporate and personal insolvency frameworks

Aligning registration

Registration of insolvency practitioners

9.130 Unregistered individuals working in the corporate insolvency industry wishing to be registered as corporate insolvency practitioners will be able to seek registration earlier than under the status quo. Reducing the registration requirements may facilitate the entry of more practitioners into the insolvency industry thus increasing market competition for insolvency services.

9.131 The Option will facilitate the timelier introduction of new practitioners into the industry by allowing appropriately qualified individuals to register as practitioners up to two years earlier.

9.132 However to ensure standards new practitioners will be required to have undertaken insolvency specific tertiary studies, requiring new practitioners to attend an interview (and potentially sit an exam) rather than merely lodge a written application and new and increased fees.

9.133 Members from the peak insolvency industry body that choose to sit on committees established to consider registration applications will face new costs, which will not be wholly compensated through sitting fees paid by the regulators.

9.134 There will be transitional and minimal increased ongoing cost to ASIC due to the requirement for Committee consideration of a new practitioner, the interview of applicants and amendments to renewal process to accept proof of insurance.

9.135 The removal of a separate official corporate insolvency practitioner status will remove the current obligation on these practitioners to consent to act in a court ordered winding up solely because the company has no assets to cover the anticipated professional costs of the liquidation. This change will assist in addressing the current cross-subsidisation occurring within the industry where the costs incurred in assetless administrations are recouped through higher remuneration costs in larger administrations.

9.136 This current obligation is a result of an undertaking made to ASIC that an official corporate insolvency practitioner will not refuse consent to act as a corporate insolvency practitioner in a court winding up.

9.137 As a result of the change, where a person is petitioning the court to wind up a company the person will likely have to provide a guarantee of a minimum amount to the corporate insolvency practitioner in order for the corporate insolvency practitioner to agree to the appointment. This may mean a reduction in the number of assetless companies liquidated as corporate insolvency practitioners would not be expected to commence such administrations without some form of guarantee or where they do not believe they are likely to be remunerated.

Conditions on registration

9.138 By improving the ability for the regulators to register practitioners with conditions, the regulators will have more flexibility to allow more new participants, which may not previously have been registered because the system did not allow conditions to be utilised to address potential weaknesses in the applicant.

Renewal of practitioner registration

9.139 The introduction of a renewal process on practitioner registration for corporate practitioners will add new compliance costs for current practitioners, as well as new entrants. Based on industry feedback, the renewal process is not expected to increase compliance costs, as the information will be provided at the time of the annual return.

9.140 The actual renewal charge ($1700 every three years), while clearly a cost for business, will not be included in the formal RBM because the fee is classified as a direct financial cost under the RBM framework.

Aligning deregistration and discipline

An aligned committee system

9.141 The Senate Economics References Committee inquiry into corporate insolvency practitioners and administrators in 2010 heard a significant amount of criticism of CALDB for its slowness and the lack of matters put before it. Since the 2010 Senate Inquiry the timeliness of CALDB decision making has significantly improved.

9.142 CALDB has revised its operating procedures twice since 2010 significantly simplifying its proceedings and improving the efficiency and effectiveness of CALDB hearings. The changes in procedures, as well as ASIC's increased focus on the insolvency profession since that time, has resulted in a greater number of referrals to CALDB. The average time taken to hear the six matters heard by CALDB between 2012 and 2014 has halved from 19 months to 91/2 months, compared to the period 2006 and 2010.

9.143 While CALDB has improved the efficiency of its hearing processes, it remains high compared to the average time taken to hear matters through an AFSA disciplinary committee (the average time taken to hear the past six matters was 4.4 months, with five of those six matters being dealt with within three months). The movement to the personal insolvency framework for disciplinary matters aims for a more timely consideration of corporate insolvency practitioner disciplinary matters.

9.144 It is expected that the change to a Committee structure will increase the speed and the informality of a disciplinary proceeding, reducing the costs borne by a practitioner through a more limited need for the engagement of senior barristers or at least reducing the length of their engagement.

9.145 The movement to a disciplinary committee approach, and away from a Tribunal, may continue to see ASIC taking the most complex matters directly to Court. However, this may see the committee dealing with a more refined set of simpler cases allowing it to develop the expertise to be a more streamlined process than currently possible through the Tribunal structure.

Regulator disciplinary powers

9.146 This option would increase the number of types of matters which the regulators would be able to deal with directly without recourse to either a disciplinary committee or the Court. This change will improve the speed at which certain breaches can be dealt with.

9.147 This will better enable timely and appropriate disciplinary action to be taken when misconduct occurs. In order to ensure that practitioners are treated fairly, only objectively assessable breaches should be able to be dealt with by ASIC.

Court control over practitioners

9.148 The alignment of the Court's powers for the discipline of practitioners will aid practitioner and stakeholders understanding of those powers, which will make the system both fairer and more efficient as costs previously wasted on understanding the various systems are avoided.

Source: ASIC, Treasury assumptions, ARITA

Option 1.3 - co-regulation

Industry

9.149 This option would transfer the cost of determining market entrants from the Government (through the regulators) onto private professional bodies. It would also transfer the cost of disciplining practitioners onto these bodies.

9.150 Currently, there is no professional body or industry association that is resourced or structured to undertake this type of a role across the whole insolvency industry. The professional body or industry association willing to undertake these obligations would need to be substantially reformed. Up-front and ongoing funding for this reform would need to be obtained from industry members. Given the small size of the industry (685 registered corporate insolvency practitioners and 208 registered trustees), the cost per industry participant of maintaining the infrastructure needed for effective co-regulation (including ongoing surveillance, dispute resolution, and continuing professional education etcetera) may be prohibitive.

9.151 Once established however, self-regulatory schemes tend to be more flexible and impose lower compliance costs on industry participants than direct government regulation^[32].

9.152 It has been recognised that industry members can be harder on 'erring colleagues than generalist tribunals' because of the appreciation of the damage that reports of errors or neglect can have on the reputation of the professional as a whole. Industry members would be expected to be able to quickly perceive where unprofessional errors have occurred^[33].

9.153 By providing more power to industry bodies, there is an increased potential for new entrants to be effectively prevented from entering the market as it is in the interests of the current members to restrict the number of entrants to the market.

Consumers

9.154 Granting professional bodies these responsibilities would provide an opportunity for anti-competitive behaviour where it is in the interests of the bodies' members to restrict the number of entrants to the market. The limiting of competition for insolvency services is likely to result in an increase in the cost of these services.

9.155 Given the highly complex nature of corporate insolvency, and the presence of significant and entrenched information asymmetry between practitioners and creditors, there is a significant risk of consumers being harmed where a practitioner knowingly, or unwittingly, breaches their duties and obligations.

9.156 As well, community cynicism regarding industry regulating itself may lead to a distrust of self-regulatory schemes. Professionals, as decision makers, can occasionally be incapable of seeing or reluctant to see the perspective of stakeholders and may be overly attentive to the burdens on fellow professionals^[34].

Government

9.157 Any movement toward further co-regulation will encompass transition costs for the Government in the immediate term. However, following the initial transitory period, the cost to Government (in particular, the cost to ASIC and AFSA) of co-regulation should be reduced compared to a purely regulatory system.

9.158 The Court would retain its powers to censure or deregister practitioners. The cost borne by Courts in dealing with applications for investigation or deregistration would not be effected.

Option 1.4 - interim suspension orders

9.159 While it is desirable for regulators to be able to act quickly to protect the public in situations where it perceives that a corporate insolvency practitioner is breaching his or her obligations in a manner that is detrimental to the interests of creditors, the flow-on impacts of this option outweigh the potential benefits of that prompt action. Particularly in situations where the regulator does not subsequently take further formal disciplinary action and the creditors have potentially unnecessarily borne the costs of the disruption.

9.160 There are currently a range of other professions where a member of the profession can be stood down on an interim basis for acting within their field of employment. However, the suspension of an insolvency practitioner would be expected to have a detrimental impact on third parties (in particular, on the creditors of the company and potentially any employees impacted by a disruption to a company being traded on in a voluntary administration or winding-up due to the removal of the controller of the company). This type of impact distinguishes itself from the other professional areas where these powers are available, such as the legal or medical professions.

9.161 The standard approach in the Corporations Act is that a licence or registration can be cancelled or suspended without a hearing on objective grounds, such as the bankruptcy of the person, but a hearing is required for grounds that involve elements of subjective judgment (such as not being a fit and proper person). This approach assures that an individual is afforded procedural fairness before their livelihood is detrimentally affected.

9.162 While a hearing prior to administrative action is the norm, as noted above there is precedent in the Corporations Act for ASIC to take administrative action that detrimentally affects the rights of individuals or companies for a short period in order to protect the public interest.

9.163 Such a power would cause significant reputational damage to the practitioner involved. It would also have a significant negative impact on the efficient administration of the company to which the stop order applies as the administration would have to halt during the period or a replacement practitioner be found to continue the work during the stop order period.

Option 1.5 - increased regulator powers

Increased regulator powers

9.164 An effective proactive surveillance regime is necessary to provide confidence to the market about the conduct of corporate insolvency practitioners, however such a regime must be implemented as efficiently as possible in order to minimise the regulatory burden on practitioners themselves.

9.165 This option would better align the powers available to ASIC in undertaking its proactive surveillance with those available to AFSA removing potential constraints around the exercise of its powers where a suspicion of contravention is not present.

Power to direct that a meeting of creditors be called

9.166 Irrespective of the rights that exist for a stakeholder to obtain information, there may be cases where an insolvency practitioner may improperly obstruct these rights. In such situations empowering the regulatory to intervene to facilitate the provision of information can provide a lower cost alternative to Court intervention. This option would provide for the same powers currently available to the Inspector-General under the personal insolvency framework to be made available to ASIC in relation to corporate external administrations.

9.167 Empowering the regulator to force access to information by stakeholders may decrease monitoring costs and effectiveness for stakeholders and promote confidence through increased transparency. Improving the potential for information to become available may also have a deterrence effect on misconduct. Administrations and practitioners may also avoid ongoing costs where any decisions not to release information are then 'confirmed' by a similar refusal by the regulator to provide access.

9.168 There are a number of consequences that flow from empowering the regulator to force access to information which need to be balanced against any gains. Disclosure may result in costs to administrations (such as losses from disclosing commercially sensitive information) that are not justified in light of the benefits of disclosure. Disclosure may also result in costs that are more direct to an administration, in the form of remuneration and disbursements incurred in providing the information.

9.169 Providing regulators with the power to disclose information may also result in their being exposed to increased workloads. There is also a risk that any such power may result in the regulator second guessing a practitioner on decisions to provide information that are essentially business judgements best left to the practitioner. These disadvantages can however be mitigated through imposing appropriate restraints on any rights by the regulator to provide access.

9.170 Empowering a regulator to call a meeting of creditors ought to address concerns that an external administrator (or registered trustee) facing removal or questions regarding their conduct may delay the calling of a meeting of creditors or interfere with meeting processes for the purposes of avoiding questions on their conduct or consideration of their removal. Additionally, if the registered corporate insolvency practitioner is dishonest, the practitioner, as chair of the meeting, would remain in a position to breach further requirements for the fair conduct of a creditors' meeting to prevent them from being removed.

Source: Source: ASIC, Treasury assumptions, ARITA

2. Procedural rules

9.183 Three options have been identified to address the problems associated with the procedural rules relating to insolvency in order to reduce complexity for insolvency practitioners and other stakeholders involved in both corporate and personal insolvency. While some of the other reforms will assist in restoring confidence in the honesty of the insolvency profession.

Option 2.1 - status quo

9.184 The current rules regarding: the treatment of estate monies; the obligation on registered corporate insolvency practitioners and registered trustees to lodge, and have audited, a range of reports and documents with ASIC and AFSA respectively; the keeping of books and the period of time for which those books must be retained remain divergent between the corporate and personal insolvency systems. Registered trustees are required to keep the original administration books for six or fifteen years.

Option 2.2 - remove statutory procedural rules

9.185 This option removes the rules regarding: the treatment of estate monies; the obligation on registered corporate insolvency practitioners and registered trustees to lodge, and have audited, a range of reports and documents with ASIC and AFSA respectively; the keeping of books and the period of time for which those books must be retained.

Option 2.3 - alignment of procedural rules

9.186 This option aligns the rules regarding funds handling, record keeping and audit requirements between corporate and personal insolvency.

9.187 The requirements on corporate insolvency practitioners and registered trustees to handle estate funds under all administrations would be aligned with minor enhancements, although this would not extend to rules regarding the investment of estate funds. Strict liability offences will apply to late-banked monies, monies withdrawn from accounts without authority or where a practitioner fails to bank funds into the correct account. The penalties for these offences will be increased to provide a genuine deterrent.

9.188 Where an insolvency practitioner is replaced, possession of both debtor and administration records would now pass to the newly appointed practitioner; with rights for former practitioners to inspect and obtain copies. The regulators would also be empowered to take possession of, and transfer, administration and debtor records to new practitioners. This would include any circumstance where there is a temporary vacancy.

9.189 Corporate insolvency record destruction rules will be reproduced in personal insolvency law, but with record destruction dates aligned with trustee release timeframes seven years rather than with the current five-year timeframe in corporate insolvency. The regulators will be empowered to allow electronic copies to be preserved in substitution of hard copies of documents. The unauthorised destruction of records or failing to keep records will be an offence.

9.190 Rules regarding the audit of insolvency administration accounts will be aligned, with audits being able to be initiated by court order as well as at the regulator's initiative. A decision by the regulator to initiate an audit would be reviewable by the AAT.

What is the likely net benefit of each option?

Option 2.1 - status quo

9.191 A 'do nothing' option is to be considered in cases where problems may be self-corrected by market mechanisms. As the problems are caused by existing legislative requirements, maintaining the status quo and hence doing nothing will not resolve the issues.

Option 2.2 - remove all procedural rules

9.192 The option would reduce costs for practitioners by allowing each individual to determine the optimal manner for handling estate funds; however, it would have a negative impact on creditor confidence in the insolvency system. As it would make the handling of funds less transparent, it would make the detection of inappropriate handling of funds by practitioners more difficult for both creditors and regulators reducing the scope for appropriate oversight of practitioner conduct.

9.193 By removing the statutory requirements for these procedural rules, it is expected that the Court would exercise its ability to oversee corporate insolvency practitioners as officers of the Court. In so doing, practitioners would likely remain subject to general trust law in relation to the holding of trust monies.

Option 2.3 - alignment of requirements, with modifications

9.194 Inconsistent rules make it difficult for creditors of individuals as well as companies to understand how the different regimes apply without an in-depth knowledge of both frameworks (something which creditors are unlikely to have). This lack of knowledge and expertise is not something that creditors themselves can easily address and it may impose both financial and time costs on creditors who wish to obtain information necessary to protect their own interests.

9.195 Aligning the disparate and slightly differing formulation of rules regarding the handling of funds will result in minimal costs for practitioners in order to educate themselves of the changes, but should have small long-term savings in internal practice costs for practitioners operating in both personal and corporate insolvency by aligning rules across the different forms of external administration. Alignment should also make it easier for creditors to understand their rights.

9.196 Increasing the level of penalties for breaches of these obligations will provide an appropriate disincentive to insolvency practitioners from either falsifying or failing to keep a proper record of the liquidation. Ensuring the integrity of the books of a liquidation or bankruptcy is paramount to providing creditors and regulators with the ability to monitor the progress of an external administration.

9.197 Clarifying the rules for the transfer of documents between incoming and outgoing practitioners will reduce legal uncertainty for the practitioners themselves (with flow-on savings from legal advice), and improve the efficiency of the process (with flow-on time savings for the respective administrations).

9.198 Providing the Regulator with the ability to take possession of books reduces legal uncertainty in situations where an administration or a number of administrations are vacated by a practitioner (for example, due to illness, death or for disciplinary reasons). Providing this power allows an independent party to take possession of the books while new practitioners are found to take on the files.

Source: AFSA, ARITA

Insurance

9.206 Three options have been identified to address the problems associated with practitioner insurance in order to assist in restoring confidence in the insolvency profession.

Option 3.1 - status quo

9.207 Currently, a registered corporate insolvency practitioner is required to maintain adequate and appropriate professional indemnity (PI) insurance and fidelity insurance to cover claims that may be made against him or her^[35].

9.208 In corporate insolvency, a breach of these requirements is an offence of strict liability and the penalty is five penalty units. If ASIC becomes aware that a corporate insolvency practitioner has contravened these requirements, they have the option of cancelling a corporate insolvency practitioner's registration.

9.209 In personal insolvency, a breach of the insurance requirements is not an offence but the Inspector-General may ask a personal insolvency practitioner to provide a written explanation why they should continue to be registered.

Option 3.2 - increase severity of penalties for failing to maintain insurance

9.210 The penalties for failing to hold insurance could be increased from 5 penalty units to 1000 penalty units to better reflect the seriousness of the breach and to provide a stronger deterrent effect.

Option 3.3 - require notification of lapsed insurance policies

9.211 The Government could adopt part of the recommendation of the Senate Committee's Inquiry that the insurance industry be required to notify the regulator if a practitioner's insurance lapses or expires, as this would aid the detection of breaches of the insurance requirements.

What is the likely net benefit of each option?

Option 3.1 - status quo

9.212 A 'do nothing' option is to be considered in cases where problems may be self-corrected by market mechanisms. As the problems are caused by the absence of market mechanisms to effectively deter the breach of practitioner's holding insurance, maintaining the status quo and hence doing nothing will not resolve the issues.

Option 3.2 - increase severity of penalties for failing to maintain insurance

9.213 It is important to ensure that there is a significant incentive for practitioners to maintain their insurances. The current criminal penalties for non-compliance with insurance requirements do not provide that incentive.

9.214 The penalty for a registered corporate insolvency practitioner who intentionally or recklessly fails to meet their obligation to maintain insurance coverage and who exposes third parties to potential resulting loss should be severe in order to deter this behaviour (including cancellation or suspension of their registration as an insolvency practitioner).

Option 3.3 - require insurers to give notification of lapsed insurance policies

9.215 Insurers would be required to amend their systems in order to cater for the provision of notices to regulators, as well as to accurately identify all insolvency practitioners. Industry feedback has been that an insurer's systems would generally code full service accounting firms with insolvency as one service among many as 'accountants' not 'corporate insolvency practitioners'. These system changes would have a cost to the insurers, which may result in insurance providers opting not to offer insurance to the limited size of the insolvency practitioner population.

9.216 Such a notification process would also be expected to lead to a number of 'false positives' as insurers may not be expected to be aware of whether the reason for the lapse in insurance was as a result of the practitioner transferring to another insurer.

4. Improving creditor oversight and engagement

9.221 Three options have been identified to address the problems associated with creditor oversight and engagement with corporate insolvencies.

Option 4.1 - status quo

9.222 Under this option, the current ability of creditors to obtain information and influence the direction of an insolvency would be maintained

9.223 Creditors and COIs would continue to be able to request information regarding an external administration, however the practitioner is not obligated to provide the information unless they are a registered trustee. Creditors of a company in external administration wishing to call a meeting are required to pay the costs of calling and holding the meeting, regardless of the number or percentage of debt held by the creditors in the company.

9.224 Corporate insolvency practitioners would also continue to hold annual and final creditors meetings, as well as send out hard copies of biannual reports to creditors, regardless of the interest of the creditors for whose benefit the meetings are held.

9.225 If the creditors of a company in external administration believe that the corporate insolvency practitioner appointed is not providing value for money, or otherwise should be removed, the creditors would petition the Court for the corporate insolvency practitioners' removal. However, creditors in a bankruptcy are able to remove a personal insolvency practitioner through a creditor resolution.

9.226 Upon removal of a practitioner (whether it be a corporate insolvency practitioner, administrator or registered trustee) from a matter, the administration documents (as opposed to the books of the company itself) likely remain the property of the outgoing practitioner, subject to an express order of the Court.

Option 4.2 - Improving information available to creditors in an aligned manner

9.227 Under this option, amendments would be made to encourage the utilisation of COIs, remove default meeting and reporting requirements, and provide stakeholders with more powers to obtain information when they want it.

Align and consolidate rules for committees of inspection

9.228 The current divergent rules governing COIs in liquidations, voluntary administrations, deeds of company arrangement, bankruptcies, controlling trusteeships and personal insolvency agreements would be aligned. The rules for convening a COI would be common in all administrations, unless there are substantive reasons for divergence.

9.229 COIs would be convened without the involvement of a company's members.^[36] Rules made under the Act will allow members to be involved where there is a reasonable prospect of them having a financial return because of the conduct of the administration.

9.230 Eligibility for membership of a COI would mirror the current non-pooling corporate and the personal insolvency provisions.

9.231 In order to assist a COI monitor the administration, the COI may be able to obtain specialist advice or assistance, with the expenses taken to be an expense of the administration.

9.232 Members of a COI would be banned from receiving benefits or purchasing assets from the administration without the approval of the Court or the general body of creditors.

Reporting to stakeholders generally

9.233 The current mandatory reporting requirements (including annual and final reporting to creditors) will be removed.

9.234 The obligations on all insolvency practitioners to comply with reasonable requests for information from creditors and members/debtors in liquidations, voluntary administrations, DOCAs, bankruptcies, controlling trusteeships and personal insolvency agreements would be aligned. An insolvency practitioner would be required to give, or make available, information about the administration of the estate to a creditor who reasonably requests it, as is currently the case under the Bankruptcy Act.

9.235 This ability to request information would be extended to the Department of Employment where the company's employees will be calling on the Fair Entitlements Guarantee as a result of the company's liquidation.

9.236 Creditors (and COIs, if delegated by creditors) would be empowered to pass resolutions imposing reasonable reporting requirements regarding the debtors affairs and administrations.

9.237 Rules would be made under the Act to outline when a request will not be reasonable. This would include where there are insufficient funds to pay for the preparation and dissemination of the reporting requirements.

9.238 The current anomalous requirement for notice of a Court decision to wind up a company to be placed in a newspaper would be replaced with the need for the notice to be published on ASIC's Public Notices Website like all other external administration public notices.

Meetings of creditors

9.239 The current mandatory reporting requirements (including annual and final reporting to creditors, and annual and final meetings requirements in corporate insolvency) will be removed, as will the initial creditors' meeting in a voluntary winding up.

9.240 In order to ensure that creditors in a creditors' voluntary liquidation are able to have an opportunity to replace the corporate insolvency practitioner early in the liquidation, the threshold for holding a creditors meeting would be lowered to five per cent by value for replacement resolutions requests made in the two weeks following notification of the commencement of an administration.

9.241 A practitioner in any form of administration would be required to convene a meeting of creditors whenever: the creditors so direct by resolution (at meeting or postal vote); the COI so directs; it is so requested in writing by at least 25 per cent by value of creditors; or it is so requested in writing by less than the specified threshold of the creditors, being a creditor, or creditors who together, represent 10 per cent by value AND who have lodged with the practitioner sufficient security for the cost of holding the meeting.

9.242 Given the short timeframes involved in voluntary administrations, which reduces the practicality of relying on requests to call meetings, initial meetings in this form of administration would be retained.

9.243 During an administration, a resolution of any form would be able to be passed through a postal vote.

Annual returns

9.244 For every estate that an insolvency practitioner administers during a year, the practitioner would be required, within a specified period after the end of that year, to give the respective regulator a return, in the approved form, in relation to the administration of that estate. This would align the laws to the current personal insolvency requirements. The current offence under the Bankruptcy Act would however be removed. Instead, the practitioner would be liable to personally pay a default late lodgement fee (the fee would be imposed as a tax).

9.245 This new obligation in corporate insolvency would be offset by the removal of the requirement to lodge six-monthly copies of receipts and payments with ASIC.

Option 4.3 - Better empower creditors to replace poorly performing practitioners

9.246 Creditors (and members in a members' voluntary winding up) in all forms of administration would be empowered to remove a practitioner through an ordinary resolution. Currently, creditors in a personal bankruptcy are able to remove a corporate insolvency practitioner without obtaining a Court-order.

9.247 In order to protect against abuses of process, insolvency practitioners would retain a right to apply to Court to prevent removal in restricted circumstances. The Court would not, however, be empowered to conduct a merits review of the collective decision of members/creditors to remove a practitioner.

9.248 Insolvency practitioners would be obligated to provide, in the initial notifications to creditors in all administrations, information on creditors' rights to remove and replace practitioners.

What is the likely net benefit of each option?

Option 4.1 - status quo

9.249 A 'do nothing' option is to be considered in cases where problems may be self-corrected by market mechanisms. As the problems are caused by existing legislative requirements, maintaining the status quo and hence doing nothing will not resolve the issues.

Option 4.2 - Improving information available to creditors in an aligned manner

Align and consolidate rules for committees of inspection

9.250 A COI can also play a valuable role where there are contentious or substantial issues in the external administration or bankruptcy requiring the advice (particularly on industry issues), consent or ratification of a workable representative group of creditors or contributories.

9.251 The provisions setting out the rights and rules for committees are spread throughout Chapter 5 of the Corporations Act. This may not facilitate their easy use and understanding by creditors. There is also significant divergence between personal and corporate insolvency rules, both in respect of key powers and obligations and in respect of procedural matters.

9.252 Aligning the disparate and slightly differing formulation of rules regarding the formation and conduct of committees of inspection will result in minimal education costs for practitioners, but should have small long-term savings in legal/ time costs for practitioners and creditors. Alignment is also expected to make it easier for creditors to understand their rights^[37].

9.253 COIs provide an important means for the efficient oversight of insolvency practitioners by creditors, as well as a means for efficiently making decisions on behalf of creditors (for example, approval of remuneration). Improving the rights of COIs to obtain information from the practitioner and engage specialist advice will allow them to more effectively monitor the administration of a liquidation.

9.254 Under this option, a COI would be able to incur expenses obtaining specialist advice where the committee obtains external administrator or Court approval for incurring expenses. These expenses would then be taken to be incurred by a person as a member of the committee, make the expense an administration expense. It is expected that this power would be used rarely, and only where the size, expense and complexity of the administration warrants it^[38]. The need for court or practitioner approval will also assist in limiting the potential for unnecessary costs being incurred by the COI.

9.255 Removing the statutory right of contributories to membership of a COI will reduce the compliance costs for practitioners by clearly removing the requirement for a meeting of contributories to be called. While industry practice has been to form COIs without considering contributories for some time, a recent West Australian Supreme Court decision^[39] highlighted the fact that 'a failure by a corporate insolvency practitioner to hold separate meetings of the creditors and contributories to determine if a COI should be established, and its membership, constitutes a contravention of s 548(1) of the [Corporations Act]'.

9.256 While current industry practice is not to hold these meetings, the recent decision in ex parte Woodings is expected to alter industry practice such that regulatory savings are expected from the measure due to:

•

providing legal certainty to COIs already established in ongoing administrations by removing the potential for legal challenge to COI decisions or the need for Court orders to be obtained to validate the formation of established COIs; and

•

avoiding the need to attempt to hold meetings of contributories into the future.

Source: ASIC, Treasury assumptions, ARITA

Reporting to stakeholders generally

9.257 Removing the current mandatory reporting requirements in corporate insolvency, including annual and final reporting to creditors will mean that insolvency administrations will no longer be required to incur costs for annual and final reporting to creditors where creditors are not interested in the contents.

9.258 It is expected that this amendment will save the costs associated with the development of statutory reports, as well as postage and handling costs, in creditors' voluntary winding ups where these reports would otherwise have been provided.

9.259 To ensure that creditors are able to obtain this information when they desire it, creditors will be able to resolve their own information requirements of practitioners. Removing any ability for creditors to obtain meaningful information regarding the administration would severely restrict their ability to monitor the administration, the conduct of the practitioner or protect their interests during the administration.

9.260 The savings from removing the reporting obligations will be offset by an expectation that creditors would exercise their new right to request reasonable reporting requirements in order to continue to require an annual report in 20 percent of administrations.

9.261 Requiring an insolvency practitioner to give, or make available, information about the administration of the estate to a creditor who reasonably requests it will make practitioners more responsive to creditors, and facilitate creditors obtaining the information that they need to satisfy themselves regarding whether the provision of services by the practitioner is good value for money.

9.262 Rules to be made following passage of the primary legislation will provide for when such requests are reasonable and unreasonable in order to avoid vexatious and unnecessary requests being made which either frustrate the administration or waste resources.

9.263 A rule that practitioners will be able to reject a request for the provision of information where the practitioner has otherwise made the information available to creditors, will encourage the utilisation of the practitioners' website as a means of providing information to creditors in an efficient manner.

9.264 Extending the ability to request information to the Department of Employment where the company's employees will be calling on the Fair Entitlements Guarantee provides the Government with the same rights that an employee would have had were the FEG scheme not in place. This change is expected to result in new costs of around $10,400 per annum.

9.265 Allowing for notices of successful applications to the Court for the winding up of a company will save practitioners the difference between the current cost of placing a notice in a national newspaper (which is estimated at $1000) and the lodgement fee for publication on the Public Notices Website (which is estimated at $151).

Source: ASIC, Treasury assumptions, ARITA

Meetings of creditors

9.266 The removal of the current mandatory including initial and annual meetings in a creditors voluntary winding up, and final meetings in all forms of corporate insolvency will mean that insolvency administrations will no longer be required to incur costs for meetings of creditors where creditors are not interested.

9.267 It is expected that this amendment will save the costs associated with the holding of meetings in corporate insolvencies where these meetings would otherwise have been held in order to determine matters arising during the administration.

9.268 To ensure that creditors are able to call meetings when they desire it, 25 percent of creditors by value will be able to call meetings and have the cost treated as an administration cost. Removing any ability for creditors to call meetings would limit their ability to monitor the administration through face-to-face questioning of the practitioner, or to effectively and efficiently make decisions as a whole.

9.269 The savings from removing the meeting requirements will be offset by an expectation that creditors would continue to call an initial meeting on 20 percent of occasions, and require an annual and final meeting in 20 percent of administrations.

9.270 Facilitating postal voting will provide a more efficient means for obtaining creditor resolutions on decisions needed for the smooth operation of the administration. Allowing creditors to object to a resolution being determined through a postal vote will limit the potential for practitioners utilising the mechanism as a means of avoiding appropriate scrutiny of decisions.

9.271 The costs of preparing the resolution materials, printing and postage would continue to be incurred unless the corporate insolvency practitioner has the consent of creditors to provide materials electronically. The potential for further savings by deeming consent of creditors to the electronic provision of documents will be consulted on as part of the development of the legislative rules.

Source: ASIC, Treasury assumptions, ARITA

Annual returns

9.272 The current obligation for corporate insolvency practitioners and receivers to lodge 6-monthly copies of receipts and payments with ASIC is an important means of accountability. However the provision of this lodgement is through providing a pdf scan of the receipts and payments. This limits both the ability of ASIC to utilise the information provided in the receipts and payments, as the information is not provided in a manipulable format, and to determine whether other information may be of interest to creditors.

9.273 In contrast the current annual returns completed by registered trustees in relation to all bankruptcies allows for relevant information about an administration to be provided to the regulator in a format which can be manipulated for the regulators purposes, for example to determine the practitioners' asset realisation charge or to determine industry statistics.

9.274 It is expected that this amendment will not result in substantial savings as the same sort of information is likely to be expected, although there will be some savings from practitioners only being required to lodge information once a year instead of twice. However the final regulatory cost or saving for this reform will not be able to be determined until the form is developed by ASIC. The regulatory costs of the final form will be determined by ASIC as part of its implementation of this measure.

Option 4.3 - Better empower creditors to replace poorly performing practitioners

9.275 This option would provide creditors with greater control in an administration or liquidation.

9.276 The barriers to removal from appointment means that there is less incentive for a corporate insolvency practitioner, once appointed, to attempt to minimise the cost of the liquidation or to improve the quality of their outputs. Allowing creditors the power to remove a corporate insolvency practitioner for market-related reasons, not only where gross negligence or impropriety is present, may result in more competitive pricing of services. These impacts on pricing may influence not only the initial cost estimates quoted in order to obtain the work, but on an ongoing basis throughout the administration or liquidation (for example, if creditors feel that they are not getting value for money).

9.277 Breaking down the barriers to removal could also be expected to result in better communication between the corporate insolvency practitioner and creditors during the liquidation as the corporate insolvency practitioner seeks to ensure that the creditors are satisfied with the propriety of costs and appreciate the work being performed on their behalf.

9.278 Offsetting these benefits is the risk that creditors may however choose to unwisely replace an insolvency practitioner. Their assessments of the practitioner may be incorrect or they may misjudge the benefits of replacement compared with the costs and disruption involved in changing the practitioner.

9.279 There may also be circumstances where a change of practitioner is sought to obstruct the proper operation of the insolvency regime. For example, creditors being pursued for preferences may seek a change of practitioner to disrupt litigation in progress. Industry submissions to various Government consultation processes have raised concerns that a corporate insolvency practitioner's investigation and recovery efforts will be compromised with cost consequences to creditors generally, if creditors are able to remove a practitioner without Court involvement. This risk will be mitigated through allowing the Court to prevent removal where the removal is for an improper purpose.

Source: ASIC, Treasury assumptions, ARITA

5. Practitioner remuneration

9.289 Three options have been identified to address the problems associated with practitioner remuneration.

Option 5.1 - status quo

9.290 Under this option, provided a practitioner obtains the approval of the creditors for his or her remuneration, the form of the approval will continue to generally remain up to the practitioner subject to any requirements imposed by the practitioner's professional body. A corporate insolvency practitioner will continue to have a casting vote on a resolution for the approval of their own remuneration where the vote is deadlocked.

9.291 Where the company has few assets, and the expected remuneration of the corporate insolvency practitioner is $5,000 or below, the corporate insolvency practitioner will continue to be able to convene and hold a meeting to consider the remuneration resolution. If the meeting is held, and a quorum is not reached, the creditors will be taken to have approved $5,000 in remuneration for the corporate insolvency practitioner.

Option 5.2 - align obligations on practitioner remuneration

9.292 Under this option, the rules regarding the ability of a practitioner to obtain approval of fees, the duties of the practitioner with respect to remuneration and the ability of creditors to obtain a cost assessment, will be aligned between the corporate and personal insolvency regimes.

Obtaining approval of fees

9.293 When requesting approval for his or her remuneration from creditors of an administration, an insolvency practitioner would only be able to seek prospective approval on the basis of a capped fee. The fee would need to be set through a resolution, including a written resolution, of the whole body of creditors or a resolution of a COI where one has been established. Once the initial fee cap is set, that amount may be revised at a later date by a creditor resolution, COI resolution or by the Court.

9.294 A corporate insolvency practitioner would also be prevented from using a casting vote as chair of a creditors' meeting, where the resolution is one for the approval of the remuneration of the practitioner in any external administration. Where there is a conflict between a resolution by number and value, the motion would be defeated.

9.295 A practitioner would however, be empowered to claim a maximum fee of $5,000 without being required to attempt to hold a meeting to approve fees that failed due to lacking a quorum. Registered trustees currently have this power.

Remuneration duties

9.296 A practitioner would be prevented, without approval, from: directly or indirectly deriving a profit or advantage from a transaction, sale or purchase for or on account of the estate; or conferring upon a related party a profit or advantage from a transaction, sale or purchase for or on account of the estate.

9.297 Personal and corporate insolvency rules would also be aligned in relation to the ability of practitioners to accept gifts and benefits, provide a benefit to another person in order to obtain a job, and acquire property from the insolvency administration.

Cost assessment

9.298 ASIC or the Court would be empowered to appoint a cost assessor to review and report on the reasonableness of the remuneration and costs incurred in all or part of an administration.

9.299 A cost assessor would be given rights to access administration records, and to require records of the corporate insolvency practitioner's firm relating to the administration (for example, time sheets or diaries) in order to complete a cost assessment. A cost assessor would be under a duty to act independently; in the interests of creditors as a whole; and avoid actual and apparent conflicts of interest. Cost assessors would only be able to report on their findings to creditors as a whole, the COI, the regulators, law enforcement, and the court. Costs, as approved by the initiating body, are borne by the administration. The Court would have a power to set, vary or review costs.

9.300 The court would also be given broad powers to intervene in (for example, prevent or vary the terms of a review; remove and replace the reviewer) or to assist a review.

9.301 AFSA would be allowed to initiate a review of a trustee's remuneration by the Inspector-General in Bankruptcy on its own initiative, without a referral from a bankrupt or creditor.

Option 5.3 - rely on industry codes of conduct

9.302 Under this option the Government could request that the peak insolvency body and the professional accounting bodies consider strengthening their industry guidance to:

•

provide for fee caps for prospective approval of remuneration;

•

restricting the use of casting votes by a practitioner on their remuneration; and

•

to allow cost assessors to review a practitioners' work.

What is the likely net benefit of each option?

Option 5.1 - status quo

9.303 A 'do nothing' option is to be considered in cases where problems may be self-corrected by market mechanisms. As the problems are caused by existing legislative requirements and the information asymmetry inherent in the relationship between insolvency practitioners and creditors, maintaining the status quo and hence doing nothing will not resolve the issues.

Option 5.2 - align obligations on practitioner remuneration

9.304 Under this option the rules regarding the approval of remuneration and the duties of corporate insolvency practitioners with respect to remuneration will be aligned with those currently in place for personal insolvency practitioners.

Obtaining approval of fees

9.305 Requiring pre-approval of a cap on fees by creditors, in conjunction with increased powers for creditors to remove a corporate insolvency practitioner, may better allow competitive forces to impact on the level of remuneration claimed by insolvency practitioners.

9.306 However, it would be unreasonable for practitioners to be bound by an estimate of cost or time made prior to appointment (at least unless they voluntarily agree to be so bound in a particular matter). This risk can be mitigated by allowing practitioners to seek remuneration above the initial cap through a new creditor resolution or resolution of a COI.

9.307 The proposal will encourage increased clarity of understanding about the expected level of remuneration between the approving creditors and the practitioner. It is expected that there would be a negligible regulatory cost for practitioners as this is currently considered to be industry best practice^[40].

9.308 The proposal will remove the need for convening a meeting for administrations where the work involved, or the assets in the administration, is not expected to exceed the maximum default cost for an administration.

9.309 The option is estimated to save practitioners from incurring unnecessary costs of calling and holding a meeting in half of all low asset administrations, where the only need for the meeting is obtaining approval of remuneration. Such a cost is estimated to not be incurred in the other half of low asset administrations as there is insufficient funds to pay any remuneration that would be approved, and would have been uncommercial for the practitioner to incur any such expense. The measure is therefore estimated to save the insolvency industry $11.8 million per year.

9.310 Corporate insolvency practitioners would also be banned from using a casting vote for a resolution on his or her own remuneration will remove the perception of, and potential for, conflict of interest in relation to remuneration resolutions. Corporate insolvency practitioners may however incur Court costs for remuneration approval where there has been a deadlock instead of dealing with the issue in the creditors meeting^[41].

Remuneration duties

9.311 The alignment of insolvency practitioners' duties regarding remuneration will result in explicit rules preventing a corporate insolvency practitioner deriving, or conferring upon a related party, a benefit without approval by the creditors. The alignment of insolvency practitioners' duties will also reduce complexity for unsophisticated creditors dealing with both systems (for example, in relation to the administration of interrelated small companies).

9.312 The proposal will potentially result in increased costs to the administration due to the need for a resolution to be passed in situations where previously no agreement was needed, but will remove the potential for conflicts of interest in relation to the conferring of a benefit on a related party (for example, a family member etc.). The measure is unquantifiable, but there may be a small administrative increase in costs.

Cost assessment

9.313 It can be difficult for creditors to assess the reasonableness of a practitioner's claim for remuneration. This Option will give creditors the power to obtain the information that they need regarding the conduct of an administration from an independent third party.

9.314 This option will assist in providing creditors with the information that they need in order to be able to meaningfully exercise their rights to challenge a practitioner's remuneration (or other rights, such as the right to replace a practitioner).

Source: ASIC, Treasury assumptions, ARITA

Option 5.3 - changes to industry codes of conduct

9.315 Effective self-regulation can limit the presence of overly prescriptive regulation and allow industry the flexibility to provide greater choice for consumers and to be more responsive to changing consumer expectations. However, community cynicism regarding the insolvency industry regulating itself may lead to a distrust of any increased reliance on self-regulatory measures.

9.316 Unlike under Option 5.2, industry regulation could not override statutory requirements to obtain approval for remuneration and therefore would not be able to provide the savings through providing maximum default remuneration.

9.317 Furthermore, industry codes of conduct do not provide legal obligations, which parties other than a professional body can enforce. This may therefore limit the scope of the measures to be enforced compared to Option 5.2.

Recommended option

9.318 It is recommended that Option 5.2 be implemented.

9.319 This option will reduce unnecessary costs for the approval of remuneration in low-asset insolvencies, assist creditors in both personal and corporate insolvencies to better understand when a practitioner can confer benefits on related parties. This option will also assist in providing creditors with the information that they need in order to be able to meaningfully exercise other rights, such as the right to replace a practitioner.

9.320 Not unexpectantly there has been much industry comment on potential changes to practitioner remuneration during the various consultation processes. These comments have rarely challenged the desired outcomes but instead focused on the practical implications and potential consequences of the draft provisions.

9.321 Amongst other things, Option 5.2 seeks to limit the misuse of disbursements by creditors through allowing creditors to control the use of disbursements where the practitioner or a related party would receive a profit or advantage.

9.322 Insolvency industry submissions in the latest consultation were strongly critical of any measure that would require that insolvency practitioners obtain approval from creditors for the engagement of the practitioners firm before the administration could commence. Most modern practice structures engage all staff (including potentially the corporate insolvency practitioner themselves), computer and office equipment, stationery and office supplies through related entities. An exception to facilitate this type of appropriate commercial conduct to apply is therefore necessary to mitigate these concerns while continuing to address egregious behaviour.

9.323 Amendments were also made to replace the obligation not to 'give up' remuneration which is present in the Bankruptcy Act, the meaning of which remains unclear despite its long presence in the law, with the obligation not to give any inducement to secure an appointment as a corporate insolvency practitioner to a particular administration which is currently present in the Corporations Act.

9.324 It has been five years since the completion of the 2010 Senate Inquiry and the ARITA code of conduct has been amended twice during that time. Despite these efforts there has been little change in the confidence in which the market has with the profession as indicated by ASIC's 2013 stakeholder survey. Judicial concern with current industry practices around remuneration has also been commented on recently indicating that industry efforts to address community concerns in the absence of regulatory reform have failed.

6. Improving information for corporate insolvency practitioners

9.325 Five options have been identified to address the problems associated with insolvency practitioners obtaining the RATA and books of the company from the company's directors in order to improve the efficiency of external administrations.

Option 6.1 - status quo

9.326 Under this option, where the directors of a company wish to wind up their company, the directors call a meeting of the company. At that meeting a corporate insolvency practitioner will be appointed. After that meeting the directors will be continue to be obliged to provide the corporate insolvency practitioner with a completed report as to affairs (RATA).

9.327 Where directors fail to submit a detailed RATA early in an administration:

•

the corporate insolvency practitioner will continue to expend additional time and expense identifying the company's assets and liabilities and getting directors to comply with their statutory obligations; and

•

the corporate insolvency practitioner may continue to approach ASIC under the Corporate insolvency practitioner Assistance Program (LAP). The LAP seeks the provision of the completed RATA or the company's books and commences prosecutions against non-compliant directors.

9.328 Where ASIC prosecute a director for breaching their obligations, the Court can continue to apply a penalty of 10 penalty units in a creditors voluntary liquidation or 25 penalty units in a court-ordered liquidation.

Option 6.2 - require RATA to be provided at point of appointment of corporate insolvency practitioner

9.329 Under this option, where a director wishes to place his or her company into liquidation, the director would be required to provide a RATA to the corporate insolvency practitioner at the company meeting at which the corporate insolvency practitioner is engaged.

9.330 If a RATA is not provided the practitioner would not accept the appointment.

Option 6.3 - Administratively suspend a director for failure to provide RATA or books of company

9.331 Under this option, a new 'contingent' disqualification provision for directors that fail to comply with their obligations to provide a report as to affairs (RATA) or to provide the books and records of the company to the registered corporate insolvency practitioner could be included in the Corporations Act. The new process could be utilised by ASIC either as an alternative or in addition to criminal prosecution.

9.332 Under the new scheme, ASIC would provide a warning notice to the director. If the director did not comply with their obligations or provide a reasonable excuse, ASIC may then formally demand compliance by the director. If the director did not comply with the demand, ASIC would be required to file a notice of disqualification on the public record. Upon being recorded on the public register, the director would be prohibited from managing a company.

9.333 There would be a delay after lodgement and notice to the director before the suspension became effective, to enable directors to seek judicial review. In particular, a director would be able to approach a Court to prevent the disqualification from taking effect where the director has a reasonable excuse for not providing the RATA or the books and records.

9.334 The disqualification would come to an end upon a person complying with their lodgement obligations; upon the completion of the insolvency administration; or after three years of non-compliance.

Option 6.4 - improve the RATA form

9.335 Under this option, the content and form of the RATA could be revised by ASIC to make the form more user-friendly and easier for directors to understand and complete.

Option 6.5 - increase the penalty level for failure to provide RATA

9.336 Under this option, the penalty for failure to lodge a report as to affairs would be increased to 50 penalty units and aligned across all forms of insolvency.

What is the likely net benefit of each option?

Option 6.1 - status quo

9.337 ASIC has noted that the failure to submit a detailed RATA early in an administration results in:

•

the corporate insolvency practitioner expending additional time and expense identifying the company's assets and liabilities and getting directors to comply with their statutory obligations; and

•

the corporate insolvency practitioner approaching ASIC under the Corporate insolvency practitioner Assistance Program (LAP). The LAP seeks the provision of the completed RATA or the company's books and commences prosecutions against non-compliant directors.

9.338 A 'do nothing' option is to be considered in cases where problems may be self-corrected by market mechanisms. As the problems are caused by the failure of the existing legislative requirements to encourage directors to provide meaningful information to insolvency practitioners in a timely fashion, maintaining the status quo and hence doing nothing will not resolve the issues.

Option 6.2 - require RATA to be provided at point of appointment of corporate insolvency practitioner

9.339 This option would not place a new obligation on directors but rather bring forward the point at which the directors of a company are expected to have prepared the RATA, and is therefore not expected to have a regulatory cost for directors. By requiring the RATA to be prepared earlier, corporate insolvency practitioners will be able to provide information to creditors earlier about the administration, which will better enable creditors to exercise their rights to replace a corporate insolvency practitioner before the costs of changing become prohibitive. This option will have unquantifiable cost savings for insolvency practitioners who would not be required to seek the RATA from directors at the later point in time.

9.340 The option would not however address issues regarding the non-provision of the RATA in a court-ordered winding up, where it would be expected that directors are less likely to be forthcoming in providing the information^[42].

Option 6.3 - Administratively suspend a director for failure to provide RATA or books of company

9.341 This option would seek to achieve a similar outcome as that currently provided for in personal insolvency^[43] with the regulator assisting insolvency practitioners to obtain important information regarding the company under administration, which will assist in the efficient completion of the winding up.

9.342 The measure may assist in addressing phoenix activity in limited circumstances where a director has transferred assets out of their initial company (OldCo) into a new company (NewCo), placed OldCo into liquidation, is refusing to assist the corporate insolvency practitioner in completing the winding up of OldCo and is managing NewCo.

9.343 This option was included as part of the 2012 Bill. The measure was criticised by company directors for:

•

imposing a penalty that is not proportionate to the misconduct;

•

failing to provide appropriate Court oversight to the new power for ASIC to disqualify directors;

•

providing insufficient procedural fairness;

•

inappropriately balancing the power of ASIC with the rights of the individual directors; and

•

failing to recognise the significance of disqualifying directors.

9.344 The option was further criticised by insolvency practitioners for not addressing a director's incentive to breach their obligations. In particular, in a no-assets, no-records matter, a director that is attempting to avoid their obligations to provide information may be able to avoid disqualification by delaying the process and ensuring that the company administration finishes before the disqualification starts.

Option 6.4 - improve the RATA form

9.345 This non-regulatory option would make it easier for directors to complete their regulatory obligations, which can be expected to result in more directors either choosing to complete the form or completing the form in a manner which results in corporate insolvency practitioners obtaining the information they need to commence a winding up in an efficient manner.

9.346 The current RATA form approved by ASIC remains fundamentally the same as the Statement of Affairs prescribed in the Uniform Companies Acts in 1961. A large number of the questions are no longer relevant in the modern economy and can be confusing for directors who are required to fill out the form.

9.347 A survey of insolvency practitioners undertaken in 2011 clearly indicated that there was considerable dissatisfaction with not only the non-provision of books and RATAs but also with the inadequate information received by corporate insolvency practitioners in many RATAs. Corporate insolvency practitioners blamed not only the directors themselves for this, but also that the incomprehensibility of the form used^[44].

Option 6.5 - increase the penalty level for failure to provide RATA

9.348 This option would provide a more appropriate penalty for breaches of the directors' obligation to provide corporate insolvency practitioners with a report as to affairs thereby providing a better disincentive for breaches. It would also remove the unjustified divergence between the penalty levels for identical conduct based of how the insolvency proceedings have commenced.

9.349 Increasing the penalty for breaches of these provisions is expected to have a positive impact on the rate of compliance, with positive flow on impacts for the efficiency of those insolvencies.

CONSULTATION ON THESE OPTIONS?

2010 Senate Inquiry

9.356 During its inquiry, the Senate Committee received 94 submissions from industry representatives, industry participants, academics, Australian Government agencies and other affected parties. It also held hearings in Canberra, Adelaide, Newcastle and Sydney.

9.357 Concerns were raised during the Inquiry about a perceived lack of regulatory oversight of corporate insolvency practitioners by ASIC. In particular, a perception that ASIC:

•

pursues a reactionary and slow approach rather than a proactive approach to the supervision of corporate insolvency practitioners and liquidations; and

•

is reluctant to take enforcement action when a complainant, such as a creditor or director, has their own private remedies such as the right to seek orders from the Court.

9.358 The Committee also received submissions, and testimony, on a wide range of issues including:

•

the current level of regulatory oversight of corporate insolvency practitioners and administrators;

•

the timeliness and cost-effectiveness of the CALDB;

•

the difficulty of obtaining private remedies against a corporate insolvency practitioner;

•

the level of remuneration charged by insolvency practitioners; and

•

a range of miscellaneous issues regarding the adequacy of a range of basic rules regarding maintaining insurance cover, record keeping rules and other procedural requirements in respect of which there had allegedly been abuses.

2011 Options Paper

9.359 34 submissions were received in response to the options for reform outlined in the Options Paper released on 2 June 2011.

9.360 Generally, the submissions from industry stakeholders favoured alignment of the corporate and personal insolvency systems. This was, however, subject to comments that change should only be made where it was considered appropriate in the circumstances.

9.361 The majority of submissions from private individuals expressed disappointment in the Options Paper as those individuals did not feel that the failures of ASIC to act on complaints were adequately recognised or addressed.

9.362 Following the receipt of submissions, Treasury officials met with key industry stakeholders to discuss the problems raised by the submissions, and the options for addressing those problems.

2011 Proposals Paper

9.363 29 submissions were received in response to a Proposals Paper released by the former Government on 14 December 2011. The submitters were similar those that submitted to the earlier Options Paper.

9.364 Generally, the submissions from industry stakeholders favoured alignment of the corporate and personal insolvency systems. This was, however, subject to comments that change should only be made where it was considered appropriate in the circumstances.

9.365 Submissions from private individuals continued to express disappointment that the recommendation of the Senate Economics References Committee to remove responsibility for corporate insolvency from ASIC was not agreed to.

9.366 Following the receipt of submissions, Treasury officials met with key industry and private stakeholders to discuss the problems raised in the submissions. Those views were taken into account in drafting the exposure draft of the Insolvency Law Reform Bill, which was released in 2012.

Exposure of the draft Insolvency Law Reform Bill 2012

9.367 Following release of the Exposure draft of the Bill on 19 December 2012, Treasury and the Attorney-General's Department held several roundtable consultation sessions with interested stakeholders and received 16 written submissions.

9.368 Industry comments received through both formal submissions and industry roundtables were broadly supportive of the Bill. The consultation process highlighted a number of areas where unintended consequences were likely as a result of the draft Bill.

9.369 Directors were strongly critical of the measure relating to the disqualification of directors that failed to provide the corporate insolvency practitioner with the company's books, records or a RATA on the grounds that it was unjustifiably harsh. That proposal was removed from the draft Insolvency Law Reform Bill 2014.

Exposure of the draft Insolvency Law Reform Bill 2014

9.370 The proposed legislative package was released for community consultation in late-2014, with targeted consultation with industry stakeholder groups undertaken during the consultation period in order to identify and deal with identified issues in an efficient manner.

9.371 In conjunction with the release of the legislative package, a proposals paper on the regulations and other legislative instruments was also released for public comment. Specific consultation with interested stakeholder groups was then organised in order to identify issues and ensure that the suggested reforms to be included as subordinate legislation will be able to be implemented as envisioned.

9.372 Further unintended consequences were uncovered as part of the consultation process on the Bill, and further refinements were made to the drafting of a range of provisions.

Financial System Inquiry

9.373 The Financial System Inquiry draft report released in 2014 asked for views on the costs and benefits of implementing the 2012 proposals to reduce the complexity and cost of external administration for SMEs.

9.374 The final Financial System Inquiry report found that 'in some cases, external administration and bankruptcy processes overlap, causing disproportionate complexity and cost. This particularly affects small and medium-sized enterprises, where the owner faces personal bankruptcy if their incorporated business fails' and that the 'complaints and dispute resolution processes relating to the external administration regime could be improved'.^[45]

Future consultation

9.375 A draft of the legislative instruments will be released for public comment with further targeted industry consultation to follow. The legislative instruments will stipulate what are inherently reasonable requests for information or meeting materials for practitioners; determine what the mandatory reporting requirements are for insolvencies and the extent to which the provision of information are deemed to have been provided to creditors through electronic means. The final terms of the regulations and rules will therefore have a significant impact on the final regulatory costing for the package.

9.376 In accordance with the Best Practice Regulation procedures, this RIS will continue to be improved taking into account industry comments up until the final decision point at which the legislative instruments are made by the Ministers.

Post implementation consultation

9.377 To review the effectiveness of the changes it is proposed that the Treasury, Attorney-General's Department, ASIC and AFSA undertake a review five years after implementation. The review would assess the impact of the proposal and its effectiveness in meeting its objectives, taking account of any implementation and administrations costs.

IMPLEMENTATION AND EVALUATION OF THE CHOSEN OPTIONS

9.378 The recommended options will be implemented through the Insolvency Law Reform Bill 2015, amending regulations and new legislative instruments to be known as Insolvency Law Rules which will be made by the relevant Ministers responsible for corporate and personal insolvency.

9.379 The amendments to the subordinate legislation will be progressed through regulations and rules to be consulted on and made in the first half of 2016. The consultation period will be used to assist in identifying the finalised regulatory savings from the package which will be determined by the final terms of the Insolvency Practice Rules.

9.380 Where amendment is necessary to administrative processes, which are the responsibility of ASIC or AFSA, those changes, will be consulted on by those agencies in compliance with the Australian Government Guide to Regulation.

9.381 To review the effectiveness of the changes it is proposed that the Treasury, Attorney-General's Department, ASIC and AFSA undertake a review five years after implementation. The review will assess the impact of the proposal and its effectiveness in meeting its objectives, taking account of any implementation and administrations costs.

Appendix 1

Glossary

Appendix 2

Regulatory Burden Measurement

Index

Schedule 1: Amendments relating to the Insolvency Practice Schedule (Bankruptcy)

Schedule 2: Amendments relating to the Insolvency Practice Schedule (Corporations)

Schedule 3: Other amendments