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)

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:

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the remuneration of the external administrator;

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the duties of the external administrator in handling the property of the company;

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conflicts of interest;

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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;

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rules governing creditor and company meetings;

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the creation and conduct of a committee to monitor the external administration (called a committee of inspection);

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the rights of creditors to review the external administration;

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the rights of creditors to remove the external administrator and appoint another; and

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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:

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the approval of the remuneration of external administrators;

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practitioners' and stakeholders rights and responsibilities to communicate with each other; and

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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:

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the creditors as a whole;

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a single creditor who is owed, or a group of creditors who together are owed, a large amount; and

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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:

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resolution of the creditors; or

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if the creditors do not make a determination, by the committee of inspection; or

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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:

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ASIC;

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a person with a financial interest in the external administration;

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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:

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the extent to which the work by the external administrator was necessary or properly performed;

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the extent of the work likely to be performed by the external administrator is likely to be necessary and properly performed;

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the period during which the work was, or is likely to be performed by the external administrator;

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the quality of the work performed, or likely to be performed, by the external administrator;

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the complexity (or otherwise) of the work performed or likely to be performed;

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the extent to which the external administrator was, or is likely to be required to deal with extraordinary issues;

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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;

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the value and nature of any property dealt with, or likely to be dealt with by the external administrator;

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the number, attributes and conduct, or the likely number, attributes and conduct of the creditors;

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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;

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whether the external administrator was, or is likely to be required to deal with one or more controllers or one or more managing controllers;

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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

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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:

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determined by the Court; or

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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

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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: :

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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

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

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a related entity of the registered liquidator directly or indirectly derives a profit or advantage from the external administration of a company;

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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:

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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

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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:

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the profit or advantage arises because the external administrator employs or engages a person who was a related entity to provide services and;

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the registered liquidator did not and could not know that the person was a related entity of the external administrator;

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the creditors agree to the employment of the related entity;

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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:

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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

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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:

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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;

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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;

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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

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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:

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for purposes related to the external administration of the company; or

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in accordance with the Corporations Act; or

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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:

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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;

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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:

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

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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:

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in a members' voluntary winding up - to the members of the company;

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in a creditors' voluntary winding up - to the creditors and contributories;

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in a court-ordered winding up - to the creditors and contributories;

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if the external administrator is appointed as a provisional liquidator - to the Court; and

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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:

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in a members' voluntary winding up - to the members of the company;

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in a creditors' voluntary winding up - to the creditors

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in a court-ordered winding up - to the creditors;

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if the external administrator is appointed as a provisional liquidator - to the Court; and

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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:

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in a members' voluntary winding up - to the members of the company;

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in a creditors' voluntary winding up - to the creditors;

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in a court-ordered winding up - to the creditors;

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if the external administrator is appointed as a provisional liquidator - to the Court; and

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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:

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in the case of a members' voluntary winding up - if there is a resolution by the company;

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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

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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]