The final report of the year 2016 on the standards and performance of the insolvency profession is rather impressive.
Our 291 personal insolvency practitioners:
- recovered or realized $570 million in assets during 2015-2016, of which
- $235 million (41%) was paid in dividends to creditors;
- at a cost in remuneration of $142 million (25%).
Any complaints?
In getting in that $570 million, 189 complaints about bankruptcy trustees were made, with 13 found to be justified in some way. Most complaints were about asset recoveries and sales by trustees. Only one was found to be justified.
That is, in the context of assets and funds recovery of $570 million, only one complaint about that process was justified. There were two justified complaints about trustees’ fees.
Bankruptcy assets
As a slight digression, bankruptcy assets can involve complex and legally difficult issues, and a range of different assets, and involve difficult defences and counter-allegations.
- Carrafa v Gomez (No.3) [2016] FCCA 3139 involved the recovery of $170,000 in cash and real property, but with the trustee needing to respond to a claim under the equity of exoneration;
- The US bankruptcy of Dr Edelsten involved cross-border bankruptcy claims, and recovery proceedings in Australia under Arts 21 and 22 of the Model Law on Cross-Border Insolvency: Kapila (Trustee), in the matter of Edelsten (Bankrupt) (No 2) [2016] FCA 1269;
- share transfers were set aside under the Bankruptcy Act and under State fraudulent transfer laws in Royal v El Ali [2016] FCA 782 and Royal v El Ali (No 2) [2016] FCA 1156; and
- an injunction was obtained in a trustee’s claim made on a 1963 Austin Healey 3000 BJ8 Phase 1 Mark III, said to be an asset of a superannuation fund: Johnson (Trustee), in the matter of McCardle v McCardle [2016] FCA 1484. In that matter, the trustee was the subject of serious allegations that he had failed to act impartially and had acted contrary to the law, claims which the Judge dismissed and found to have been motivated by a sense of anger and victimisation on the complainant’s part.
A trustee was found to be in error in one case, disposing of what appeared to be accumulated detritus of a bankrupt’s life in various properties some of which had been ransacked. It turned out that the detritus meant something to the bankrupt, and had value, and regulation 16.03 required the trustee to conduct an inventory – “the fact that premises may be filled with considerable amounts of what may accurately be described as “rubbish” does not give a trustee licence to fail to prepare an inventory of personal property that potentially may have some value”: Hacker v Weston [2015] FCA 363.
Serious errors?
In AFSA’s reviews of trustees’ files over the year, only one file involved a ‘very serious’ error.
Cost effective regulation?
AFSA has adopted a process of Compliance Information Requests of trustees, a regulatory tool also used in the UK, involving less intrusive, less costly but effective regulation.
Offence referrals?
Over 60% of offences referred for prosecution by trustees were accepted for further investigation by AFSA.
Infringement notices? 13
Infringement notices issued by AFSA against trustees for late filing etc totalled 13, for the year.
So what is this heavy regulation imposed by the new law all about?
We should consider this latest regulator report on insolvency practitioners when we are reading up on the new law, some of which is commencing on 1 March 2017.
The new law – the Insolvency Law Reform Act 2016
The new law imposes extra regulation on trustees and liquidators to the point of being prescriptive ‘red tape’.
Division 42 of the Insolvency Practice Rules (Bankruptcy) 2016 requires trustees to conduct asset searches and if these reveal the bankrupt may not have been open about their assets, to make “further inquiries”.
Trustees are told not to hold meetings if they are not needed but if they are the trustee “must consider” the legal requirements for meetings, that is, the law.
Where a meeting is held, the trustee must “open the meeting and introduce himself or herself” and if the debtor is present, the debtor, but if the debtor is not present the trustee must announce that fact and if the trustee is aware of any reason why the debtor is not present, must state that reason, but in the case of a deceased debtor, the trustee must introduce the debtor’s legal personal representative, if present, but not if they are not.
Under the new law, non-compliance with these requirements, and many others, can be a ground for termination of a trustee’s registration.
The new Schedule 2 to the Bankruptcy Act is the same.
For example, it seems that the Inspector-General has had difficulty in having trustees respond to creditors’ requests for information, and indeed her requests.
Hence the new law provides that if a trustee is requested to provide information to a creditor, but for some reason does not do so, the Inspector-General can direct the trustee to comply, within 5 days, but only after having given the trustee a notice in writing stating that the Inspector-General proposes to give the trustee that direction and inviting the trustee to make a written submission to the Inspector-General within 10 business days after the notice is given stating whether the trustee has any objection to giving the relevant material, or not, and why. If the trustee still objects, the Inspector-General must take into account the reasons for that objection but the Inspector-General must not give a direction if satisfied that the trustee was entitled not to comply. But the creditor asking for the information can then apply to the Court for an order that the trustee give them the relevant material. Or the Inspector-General can apply to the Court for an order that the trustee comply with her direction and the Court can then order the trustee to give the creditor their relevant material and make such other orders, including orders as to costs, as it thinks fit. See s 70-70 and following, Bankruptcy Schedule.
What does it take to be a trustee, or liquidator?
Under the new laws, to be qualified as a bankruptcy trustee one needs to have tertiary qualifications in commercial law, accounting and insolvency, with at least 4000 hours (3 years) of relevant employment at a senior level, working closely with a registered trustee, being directly involved in planning and managing the insolvency – preparing reports, instructing lawyers, and supervising staff, and undertaking at least 40 hours of on-going training each year.
Red tape?
For a trustee of 8,000 hours or more experience, do we really need to legislatively require them how to open a creditors’ meeting? or to conduct asset searches?
And those registered as trustees are often also registered as liquidators, with a separate 4000 hours etc criteria for registration.
But while this new law is meant to harmonise the law and processes between company liquidators and bankruptcy trustees, many of these requirements are imposed only on trustees, or only on liquidators; for example, how to open a meeting.
There is then is a danger that a practitioner, who is a trustee and also a liquidator, may open a meeting of corporate creditors and introduce himself or herself without any legal authority.
The Senate has established another red tape committee to which this insolvency law reform might well be referred.
How this all happened will be discussed in the new year.
Regulator reports on the high standards of insolvency practitioners, but …
The final report of the year 2016 on the standards and performance of the insolvency profession is rather impressive.
Our 291 personal insolvency practitioners:
Any complaints?
In getting in that $570 million, 189 complaints about bankruptcy trustees were made, with 13 found to be justified in some way. Most complaints were about asset recoveries and sales by trustees. Only one was found to be justified.
That is, in the context of assets and funds recovery of $570 million, only one complaint about that process was justified. There were two justified complaints about trustees’ fees.
Bankruptcy assets
As a slight digression, bankruptcy assets can involve complex and legally difficult issues, and a range of different assets, and involve difficult defences and counter-allegations.
A trustee was found to be in error in one case, disposing of what appeared to be accumulated detritus of a bankrupt’s life in various properties some of which had been ransacked. It turned out that the detritus meant something to the bankrupt, and had value, and regulation 16.03 required the trustee to conduct an inventory – “the fact that premises may be filled with considerable amounts of what may accurately be described as “rubbish” does not give a trustee licence to fail to prepare an inventory of personal property that potentially may have some value”: Hacker v Weston [2015] FCA 363.
Serious errors?
In AFSA’s reviews of trustees’ files over the year, only one file involved a ‘very serious’ error.
Cost effective regulation?
AFSA has adopted a process of Compliance Information Requests of trustees, a regulatory tool also used in the UK, involving less intrusive, less costly but effective regulation.
Offence referrals?
Over 60% of offences referred for prosecution by trustees were accepted for further investigation by AFSA.
Infringement notices? 13
Infringement notices issued by AFSA against trustees for late filing etc totalled 13, for the year.
So what is this heavy regulation imposed by the new law all about?
We should consider this latest regulator report on insolvency practitioners when we are reading up on the new law, some of which is commencing on 1 March 2017.
The new law – the Insolvency Law Reform Act 2016
The new law imposes extra regulation on trustees and liquidators to the point of being prescriptive ‘red tape’.
Division 42 of the Insolvency Practice Rules (Bankruptcy) 2016 requires trustees to conduct asset searches and if these reveal the bankrupt may not have been open about their assets, to make “further inquiries”.
Trustees are told not to hold meetings if they are not needed but if they are the trustee “must consider” the legal requirements for meetings, that is, the law.
Where a meeting is held, the trustee must “open the meeting and introduce himself or herself” and if the debtor is present, the debtor, but if the debtor is not present the trustee must announce that fact and if the trustee is aware of any reason why the debtor is not present, must state that reason, but in the case of a deceased debtor, the trustee must introduce the debtor’s legal personal representative, if present, but not if they are not.
Under the new law, non-compliance with these requirements, and many others, can be a ground for termination of a trustee’s registration.
The new Schedule 2 to the Bankruptcy Act is the same.
For example, it seems that the Inspector-General has had difficulty in having trustees respond to creditors’ requests for information, and indeed her requests.
Hence the new law provides that if a trustee is requested to provide information to a creditor, but for some reason does not do so, the Inspector-General can direct the trustee to comply, within 5 days, but only after having given the trustee a notice in writing stating that the Inspector-General proposes to give the trustee that direction and inviting the trustee to make a written submission to the Inspector-General within 10 business days after the notice is given stating whether the trustee has any objection to giving the relevant material, or not, and why. If the trustee still objects, the Inspector-General must take into account the reasons for that objection but the Inspector-General must not give a direction if satisfied that the trustee was entitled not to comply. But the creditor asking for the information can then apply to the Court for an order that the trustee give them the relevant material. Or the Inspector-General can apply to the Court for an order that the trustee comply with her direction and the Court can then order the trustee to give the creditor their relevant material and make such other orders, including orders as to costs, as it thinks fit. See s 70-70 and following, Bankruptcy Schedule.
What does it take to be a trustee, or liquidator?
Under the new laws, to be qualified as a bankruptcy trustee one needs to have tertiary qualifications in commercial law, accounting and insolvency, with at least 4000 hours (3 years) of relevant employment at a senior level, working closely with a registered trustee, being directly involved in planning and managing the insolvency – preparing reports, instructing lawyers, and supervising staff, and undertaking at least 40 hours of on-going training each year.
Red tape?
For a trustee of 8,000 hours or more experience, do we really need to legislatively require them how to open a creditors’ meeting? or to conduct asset searches?
And those registered as trustees are often also registered as liquidators, with a separate 4000 hours etc criteria for registration.
But while this new law is meant to harmonise the law and processes between company liquidators and bankruptcy trustees, many of these requirements are imposed only on trustees, or only on liquidators; for example, how to open a meeting.
There is then is a danger that a practitioner, who is a trustee and also a liquidator, may open a meeting of corporate creditors and introduce himself or herself without any legal authority.
The Senate has established another red tape committee to which this insolvency law reform might well be referred.
How this all happened will be discussed in the new year.
Categories
Site Search