Phase 1 – Consistent Regulation and More Power to Creditors
Recently, on 1 March 2017, the Insolvency Law Reform Act 2016 (ILRA) partially came into effect, ushering in long-awaited and significant reforms to Australia’s bankruptcy and corporate insolvency laws by amending the Corporations Act, the ASIC Act and the Bankruptcy Act.
To enable those targeted by the amendments to adjust to the changes, the rest of the ILRA will come into effect on 1 September 2017.
The ILRA has two main objectives:
- To better regulate insolvency practitioners by implementing consistent registration poor
- requirements and disciplinary processes for both bankruptcy and corporate insolvency practitioners (e.g. liquidators); and
- To better regulate external administrations (e.g. liquidations and voluntary administrations) and give greater to control to creditors.
Changes – Insolvency Practitioners
The main changes for insolvency practitioners under the ILRA are:
- Professional standards for liquidators are now on par with regulations for bankruptcy trustees.
- Only one category of practitioner for corporate insolvency, effectively removing the distinction between “official” and “registered” liquidator.
- Professional experience requirements for corporate insolvency practitioners reduced to 3 years (previously 5 years).
- Corporate insolvency practitioner registrations now require renewal every 3 years.
- Increased maximum penalties for reckless or intentional failures by a liquidator to maintain adequate and appropriate professional indemnity and fidelity insurance.
- Statutory maximum default remuneration of $5,000.00 for corporate insolvency appointments that do not need creditor meetings – e.g. assetless or low asset administrations and liquidations.
- Registration and discipline of liquidators have now been assigned to committees made up of representatives from ASIC, ARITA and a Ministerial appointee.
- External administrators must give information to creditors about all their rights as soon as reasonably practicable after being appointed. Further, an external administrator must comply with creditor requests, unless the request is unreasonable.
- If creditors seek to remove an external administrator from an external administration, the external administrator may seek the Court’s intervention to prevent the removal.
Changes – Creditors of a Company in an External Administration
Creditors owed money by a company in external administration now have the following additional powers under the ILRA:
- Creditors can request an external administrator to provide information, reports and documents. That request must be complied with unless it is unreasonable.
- Creditors can give directions to the external administrator by resolution, or through a committee of inspection.
- Creditors can, by resolution or via a committee of inspection, direct the liquidator or a company in liquidation to convene a meeting.
- Creditors can, by resolution, appoint a registered liquidator to conduct a review of the external administrator’s remuneration or any cost or expense incurred by him or her, with the costs of the review to form part of the external administration’s expenses.
- Other than a provisional liquidator, creditors can remove an external administrator and appoint a replacement by way of ordinary resolution.
The above changes are the first major reforms in the area of insolvency in 20 years. Creditors especially should familiarise themselves with the changes given they are aimed squarely at providing creditors with greater input and control in respect to the conduct of external administrations of insolvent companies.
If you would like more information regarding the above, or on any other issue relating to personal or company insolvency, please contact our specialist Insolvency team on (07) 4616 9898.
This publication has been carefully prepared, but it has been written in general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation