Insolvency Law Reform Act 2016 – more unpaid work for liquidators?

ARITA has reported that the ILRA 2016 imposes a significantly broader range of reporting obligations on liquidators than indicated in the exposure draft of the rules, which was limited to reporting on the likelihood of a dividend.  ARITA likens the new requirement to a section 439A report in a voluntary administration. And it will not come within s 545 in the case of assetless liquidations because it is a mandatory lodgment with ASIC.

For a number of reasons, this does not seem to be the case, at least to the extent claimed. 

 

ARITA has reported to its members that IPRC 70-40 – Report about dividends to be given in certain external administrations – provides for a significantly broader range of reporting obligations than that which appeared in the exposure draft of the rules.  The exposure draft provision was limited to reporting on the likelihood of creditors receiving a dividend before the affairs of the company are fully wound up (similar to a current Bankruptcy Act provision, s 19). 

However, IPRC 70-40 now requires, according to ARITA, a “wide-ranging report in a winding up akin to a section 439A report in a voluntary administration”.

This report is required in all liquidations within 3 months of appointment.

ARITA says it will “not attract an exception under s 545 in the case of assetless liquidations due to the fact that it will be a mandatory lodgment with ASIC”.

A response

For a number of reasons, this does not seem to be the case, or to the extent claimed. 

IPRC 70-40 provides that a liquidator must provide to the creditors of the company a report containing information on the following:

                     (a)  the estimated amounts of assets and liabilities of the company;

                     (b)  inquiries relating to the winding up of the company that have been undertaken to date;

                     (c)  further inquiries relating to the winding up of the company that may need to be undertaken;

                     (d)  what happened to the business of the company;

                     (e)  the likelihood of creditors receiving a dividend before the affairs of the company are fully wound up;

                      (f)  possible recovery actions.

That report must be provided within 3 months after the commencement of the winding up.

A copy of the report must be lodged with ASIC at the same time as it is provided to the creditors.

There is an assumption that the liquidator has received a RATA from the directors, in which case their addresses will be known.  If the liquidator does not have the RATA at three months, he or she can only do what can be done.  Some creditors would be known by that stage and they should be notified.  Unless there is a complete absence of information, some estimate of assets and liabilities, inquiries, the likelihood of a dividend and possible recovery action should be able to be estimated, or speculated, as long as the report is so qualified. 

As to “what happened to the business of the company”, this seems ambiguous – was the business transferred beforehand, if so what happened to the proceeds; or what happened to cause the business to fail?

From a creditors’ point of view, of whom the liquidator knows, three months is a long enough period to wait to get a report, and if it must be limited, so be it.

Despite ARITA’s reference to s 545 not applying, there is, in my view, a case for saying that the extent of any report must be qualified by the funds available to produce it.  See my comments here.  The report may be brief, and it may only go to a few known creditors, but that is all the law requires.

And it does come down to what the liquidator requires of a petitioning creditor or director by way of indemnity or payment for the liquidator’s remuneration.  

Bankruptcy

Some comparison exists in bankruptcy with a section 19(1)(c) report which largely asks for the same information about dividends, and requires the trustee to attend to other tasks, for example assessing voidable transactions, assessing assets and liabilities.  The Official Trustee sends out a one page standard letter in cases where there is little or nothing to report.

In IGPD 14 – Proper performance of duties of a bankruptcy trustee, the Inspector-General refers to this and other duties of a trustee in s 19, saying that failing in respect of any of them is a “fundamental breach of duty although allowance needs to be made for what is reasonable in the particular circumstances …”; and that “the trustee is not obliged to take steps which would be unrealistic or expensive”. 

The ILRA 2016 has added subsection (l) to s 19(1) to say that the duties of a trustee include those under the Schedule: see IPSB section 70-50 and IPRB 70-30 set out below.  ARITA has as yet made no comment on these.

The bankruptcy requirements will be the subject of separate comment. 

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IPRB 70‑30  Initial information and declarations required to be given to creditors

             (1)  This section is made for the purposes of section 70‑50 of the Insolvency Practice Schedule (Bankruptcy).

Information about administration and creditors’ rights to be given

             (2)  The trustee of a regulated debtor’s estate must give the following information to as many creditors as reasonably practicable:

                     (a)  the name, date of birth, address and occupation of the regulated debtor;

                     (b)  in the case of a deceased debtor—the legal personal representative of the debtor;

                     (c)  the business name or name of any associated entity or related entity of the regulated debtor;

                     (d)  the fact that the trustee has been appointed in relation to the regulated debtor’s estate;

                     (e)  the date and type of administration;

                      (f)  an outline of matters investigated by the trustee up to the date of the notice is given;

                     (g)  if a statement of affairs of the regulated debtor is available—a summary of the statement;

                     (h)  in relation to a bankrupt—advice about any possible contributions that the bankrupt is liable to pay in respect of a contribution assessment period, calculated in accordance with section 139S of the Act;

                      (i)  any matters the trustee has identified as needing further investigation;

                      (j)  the right of creditors to request information, reports and documents under sections 70‑40 and 70‑45 of the Insolvency Practice Schedule (Bankruptcy);

                     (k)  the right of creditors to direct that a meeting of the creditors be held under section 75‑15 of the Insolvency Practice Schedule (Bankruptcy);

                      (l)  the right of creditors to give directions to the trustee under section 85‑5 of the Insolvency Practice Schedule (Bankruptcy);

                    (m)  the right of creditors to apply to the Inspector‑General for a review of the remuneration received by the trustee under section 90‑21 of the Insolvency Practice Schedule (Bankruptcy);

                     (n)  the right of creditors to remove and replace the trustee under section 90‑35 of the Insolvency Practice Schedule (Bankruptcy).

Declarations about relevant relationships

             (3)  The trustee must also give a declaration to as many creditors as reasonably practicable:

                     (a)  stating whether any of the following:

                              (i)  the trustee;

                             (ii)  if the trustee’s firm (if any) is a partnership—a partner in that partnership;

                            (iii)  if the trustee’s firm (if any) is a body corporate—that body corporate or an associate of that body corporate;

                            has, or has had within the preceding 24 months, a relationship with:

                            (iv)  the regulated debtor; or

                             (v)  a former trustee of the regulated debtor; and

                     (b)  if so, stating the trustee’s reasons for believing that none of those relationships result in the trustee having a conflict of interest or duty.

Time for giving information etc.

             (4)  The information and declaration must be given:

                     (a)  in writing; and

                     (b)  at the same time as the trustee first communicates with the creditors in relation to the administration of regulated debtor’s estate.

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