In an announcement made on 23 August 2016, the Federal Government has provided insolvency practitioners with a further six months to implement certain provisions of the Insolvency Law Reform Act 2016 (Cth) (Act). The Act is aimed at streamlining registration and disciplinary processes and consolidating conduct and procedural requirements, to reduce costs associated with and improve timeliness of external administrations and ultimately increase creditor returns.
Structure of reforms
Upon commencement, the Act will effect changes in the Bankruptcy Act 1996 (Cth) and the Corporations Act 2001 (Cth) (Acts), including:
- Replacement of various provisions within the Acts;
- Introduction of an Insolvency Practice Schedule (IPS) for each of personal and corporate administrations (comprising an annexure to the Acts), containing process and procedure provisions;
- Retention of core bankruptcy and insolvency provisions (relating to matters including debtors and creditors petitions, winding up, public examinations, powers and duties of practitioners and disclaimers) within the Acts; and
- The underpinning of the Acts and each IPS by yet-to-be-announced Insolvency Practice Rules.
On 23 August 2016, the Federal Government announced that commencement of Part 3 of the IPSes will be delayed from 1 March 2017 until 1 September 2017.
This delay appears to have been implemented in response to concerns from the industry that it would be unable to take adequate steps to become compliant with Part 3 (which relates to general rules for conduct and procedure relating to external administrations and bankruptcies) by the scheduled commencement date.
We understand that the following will still commence on 1 March 2017:
- Parts 1 and 2 of the IPS, which are primarily concerned with registration and disciplinary matters; and
- Schedule 3 of the Act, containing provisions relating to matters such as payments for property and contravention and termination of a DOCA.
The Government is yet to announce any delay as to the commencement of Part 4 of the IPSes (dealing with other matters including the Insolvency Practice Rules), in the absence of which insolvency practitioners should anticipate that that part will also commence on 1 March 2017.
Summary of key changes
Broadly, the key changes introduced by the Act include:
- A single category of practitioner for corporate insolvency which entails removal of the distinction between official and registered liquidators and alignment of liquidators’ professional standards with the regulatory framework applicable to bankruptcy trustees;
- Reduction of professional experience requirements for corporate insolvency practitioners from 5 years to 3 years;
- Harmonisation of registration requirements and disciplinary processes for corporate and personal insolvency practitioners;
- Significant increases in maximum penalties for reckless or intentional failures by a liquidator to maintain adequate and appropriate professional indemnity and fidelity insurance;
- Significant changes to remuneration of insolvency practitioners;
- Improvements to creditor rights and practitioner interactions with creditors; and
- The conferral of increased powers to ASIC to monitor and audit the conduct of administrations by insolvency practitioners.
For further information about the key changes arising from the Act, please see our previous article on this topic.