We are now past the second tranche of changes under the Insolvency Law Reform Act 2016 (Cth), comprised most importantly of Part 3 of the Insolvency Practice Schedule (IPS) (containing the General Rules relating to external administrations) which came into effect on 1 September 2017.

Part 3 of the IPS will apply to external administrations that start on or after 1 September 2017.

However, the position is not so clear for external administrations that started before 1 September 2017 and continue beyond that date (defined as ‘ongoing external administrations’ (OEA’s) in the legislation). In some circumstances, the ‘old’ legislation will continue to apply to OEA’s.

To understand how Part 3 of the IPS will apply to OEA’s (and whether the ‘old’ or ‘new’ provisions will apply, and in what circumstances), it is necessary to look to the transitional provisions in Division 3 of Part 10.25 of the Corporations Act (Transitional Provisions).

Application of Part 3 of the IPS to OEA’s

Part 3 of the IPS is separated into the following divisions:

  1. Division 60 (Remuneration and other benefits received by EA’s)
  2. Division 65 (Funds handling requirements on EA’s)
  3. Division 70 (Information disclosure requirements of EA’s)
  4. Division 75 (Conduct of meetings)
  5. Division 80 (Committees of Inspection)
  6. Division 90 (Review of the external administration of a company)

Each of the above Divisions (and many of the sections within them) has a corresponding Transitional Provision which provides for how the Divisions are to apply to OEA’s.

It is beyond the scope of this article to go through the Transitional Provisions for each section of the IPS. This article will consider the importance of having regard to the Transitional Provisions in the context of OEA’s by looking at several examples taken from Divisions 60, 65 and 70 of the IPS.

1. Division 60 of the IPS (Remuneration and other benefits received by EA’s)

The Transitional Provisions that apply to Division 60 of the IPS include sections 1580 to 1585 of the Corporations Act.

According to these Transitional Provisions, Division 60 of the IPS generally applies to OEA’s where the external administrator is appointed on or after 1 September 2017. Accordingly, the ‘old’ legislation relating to remuneration will continue to apply to external administrators of OEA’s appointed before 1 September 2017 (even if the external administration continues well beyond that date).

However, to make matters less clear, there is also an exception to this general rule: section 60-20 of the IPS (relating to the prohibition on EA’s deriving profit and advantage from the external administration) applies on and after 1 September 2017 irrespective of when the administrator was appointed.

2. Division 65 of the IPS (Funds handling requirements on EA’s)

The Transitional Provisions relating to Division 65 of the IPS include sections 1586 to 1590 of the Corporations Act.

The Transitional Provisions provide that Division 65 of the IPS applies in relation to OEA’s on and from 1 September 2017 (irrespective of the date of appointment).

In line with this, the Transitional Provisions provide that any general account held before 1 September 2017 is automatically deemed to be an ‘external administration’ account on and from 1 September 2017 for the purposes of section 65-5 of the IPS.

However, the requirement to deposit monies received by the administrator into the external administration account within 5 business days (pursuant to section 65-5 of the IPS) does not apply to money received by the administrator before 1 September 2017. The ‘old’ Corporations Regulation 5.6.06(1) continues to apply in relation to those monies.

3. Division 70 (Information disclosure requirements of EA’s)

The Transitional Provisions relating to Division 70 of the IPS include sections 1591 to 1600 of the Corporations Act.

Division 70 of the IPS generally applies to OEA’s on and from 1 September 2017.

Accordingly, section 70-10 of the IPS (requiring that administrators make certain prescribed ‘books’ or records available for inspection by creditors) came into effect on and from 1 September 2017. However, the Transitional Provisions clarify that section 70-10 does not apply to events that occur before 1 September 2017. The ‘old’ section 531 of the Corporations Act continues to apply in relation to those events.

On the other hand, section 70-45 of the IPS (requiring that administrators comply with creditor requests for documents or information) applies on and from 1 September 2017 irrespective of when the information or document was obtained or prepared.

Practical guidance

Although Part 3 of the IPS will apply neatly to external administrations that start on or after 1 September 2017, the above examples demonstrate that it remains important to have regard to the Transitional Provisions in the context of OEA’s.

In some circumstances, the ‘old’ legislation will continue to apply and in others, the ‘new’ legislation will automatically apply on and from 1 September 2017.

The key take away from this article is simply to be aware of the existence of the Transitional Provisions (and where to find them), and to appreciate that they will continue to play an important role in relation to any external administrations that started before 1 September 2017.