The Courts’ Insolvency Rules – their harmonisation and modernisation

The Courts could usefully conduct a review of their corporate and personal insolvency rules, both to address the recent ‘harmonising’ reforms under the Insolvency Law reform Act 2016, and to reconsider some long-standing rules that may now be of less relevance.

Following the commencement of new harmonised corporate and personal insolvency laws, the Courts have been in the process of changing their rules. The Federal Court has done so[1] but without taking the opportunity to consider both harmonising the two insolvency systems and questioning the validity of some of the long-standing differences in approach between personal and corporate.

A difficulty is that State Supreme Courts have no bankruptcy jurisdiction; and the Federal Circuit Court has no corporate insolvency jurisdiction.  Nevertheless, the fact that the Federal Court rules, and the rules of the Supreme Courts, continue with newspaper advertising, or advertising at all, when the bankruptcy rules have none, might have been reconsidered. Newspaper advertisements for bankruptcy petitions and sequestration orders were last seen in the 1990s.

Apart from that threshold issue, these several items, among others, might usefully have been reviewed.

One, the Court might have revisited the long-standing ‘premature publication rule’, under rule 5.6, which exists in corporate insolvency, but not in bankruptcy.  Its purpose is said to be to provide protection for the debtor company’s business from the publicity of a winding up application being filed by imposing a court imposed 3 days delay of the advertising of the application.[2]  Its history goes back to old English law. Its relevance today might be reviewed, and some assessment made of the protection it provides.[3] It is a matter properly for the law, not the court rules. Even if it remains relevant, there seems no particular reason why that protection should not apply to an individual in business, or indeed any debtor.

Two, the court’s consent to act – form 8 – has for some time been at variance with the declarations of independence required under the law: s 60 Corporations Act.  This continues, with the law concerning the new ‘reviewing liquidator’ under Division 90 of the Insolvency Practice Schedule (Corporations), itself a concept not harmonised with bankruptcy. The reviewing liquidator must make a written declaration that is extensive in its disclosure, and far wider than required by form 8. It remains only to note that a different style of consent to act is required in bankruptcy.

Three, the liquidator is required by form 8 to disclose their ‘hourly rates’, which are not much of an indicator of anything, and, at least in reported judgments, are rarely raised. The NSW Supreme Court Corporations Rules have in fact omitted the need for them. Judges might better ask how technologically advanced are the liquidator firm’s processes, confirmed by certified standards, as a better measure of the potential cost of the administration.

Four, the Corporations Act itself should have been changed to remove the requirement for filing a report as to affairs (RATA) with the court under s 475(7). Apart from the fact that bankruptcy statements of affairs were last filed with the court in 1996, the corporate insolvency courts, on past inquiries, do nothing with RATAs when they are filed; and the practice of liquidators filing them is, for better or worse, reported to be variable. The requirement harks back to the old State Companies Codes and separate corporate state jurisdictions under their individual Supreme Courts. One might say that none of this much matters because court rule 7.3(4) provides that RATAs are not open to public inspection, referring to s 1274(4G) of the Corporations Act.

Other potential improvements could be listed.

The future

The Council of Chief Justices might want to consider a broader review in its next ‘sunset’ examination of the rules in April 2019.[4] In the meantime, changes may need to be made in light of various pending items of insolvency law in parliament. Beyond that, and at some stage, the courts may need to embrace increasing developments in communication and technology and themselves take responsibility for having their winding up, sequestration and other orders immediately transmitted to the relevant public databases.

Comments welcome.

 

[1] Federal Court (Corporations) Amendment (Insolvency Law Reform) Rules 2017

 

[2] See Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd & Anor [2007] NSWCA 57

[3] Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368

[4] See the report of the Sunsetting Review Committee of 1 October 2017 for an explanation of this requirement.

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One comment

  1. This also applies to the use of Delegations to Registrar’s of each Court to incorporate powers given to the Court under the IPS and IPR

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