The Insolvency Law Reform Bill 2015 has been introduced into Parliament as part of the Australian Government's strategy to modernise and strengthen the nation's insolvency and corporate reorganisation framework.
The Bill comes at a time when the Government has announced major changes to insolvency law as part of its innovation package concerning areas like insolvent trading as well as default periods for personal bankruptcies. Those changes, however, appear only to be in the embryonic stage and seem to have overshadowed other important reforms which the Government has slipped into Parliament just last week.
The new Bill will have consequences for all insolvency practices and promises to implement various reforms to align the regulation, registration and remuneration of practitioners in both corporate and personal insolvency as well as promote improved collaboration between the Australian Securities and Investment Commission (ASIC) and the Australian Financial Security Authority (AFSA).
The main changes to be aware of
The Bill will amend instruments including the Corporations Act 2001 and create a set of common rules to reduce cost, increase efficiency and stimulate competition in the practice and regulation of administrations. Some of those changes include:
- the introduction of a statutory minimum default remuneration amount in corporate insolvency to remove the existing need for creditors meetings in assetless or low asset windings up;
- increased surveillance and audit powers of the ASIC in relation to the conduct of practitioners;
- increased rights of creditors to protect their interests during the course of an administration (for example, the new law will allow creditors to resolve to remove a practitioner and appoint a replacement without recourse to the Court);
- creditors will also be able to appoint an independent specialist to review the performance of an insolvency practitioner;
- increased alignment between registrations of corporate and personal insolvency practitioners; for example, corporate insolvency practitioner registrations will no longer be indefinite and must be renewed every three years.
- mandatory default creditor meetings and practitioner reporting requirements will be removed to allow flexibility depending on the particular administration.
The overall objective of the new Bill is clearly pitched at raising the standards of competence in the insolvency profession and closing the gap in the regulatory framework between registered liquidators and registered trustees.
The Bill also contemplates the creation of a new Insolvency Practice Rule (yet to be released) which will be a critical part to the Bill and the reforms proposed by it.
The Bill represents the first substantial changes to the insolvency regime in over 20 years and should be welcomed by the profession as a step in the right direction towards modernising the current framework.
The Insolvency Law Reform Bill's of 2013 and 2014, together with the consultation between interest groups, Treasury and Attorney Generals in recent years has, in our view, meant that the Bill's reforms have not come as much of a surprise.
However, it is clear that the Bill has been introduced at a time prior to the Government issuing its formal response to the Productivity Commission's report on Business Set-up, transfer and closure, which is expected early next year. The report included other necessary reforms which appear to have been overlooked by the Bill currently being considered.
ARITA CEO John Winter has said that we "may now see the need to have two changes in a short period to a regime that has seen little review in over 20 years", in order to further accommodate the recommendations presented to the Government.
Therefore, it is possible that further changes will be seen in the near future.
The Bill is currently at the stage of its second reading speech before the House of Representatives and the question of whether it will pass into law remains to be seen.