What’s up, or on, in insolvency, early in 2018?

The following commentary on submissions due, events and conferences, professional standards, international and local, hearings and case law*, all in relation to insolvency, may assist. 

(*and gift cards).

 

Submissions to government

Credit reporting of business tax debts

Draft amendments to the Taxation Administration Act 1953 would authorise the ATO to disclose business tax debts to credit reporting bureaus where, according to the Explanatory Memorandum, the businesses ‘have not effectively engaged with the ATO to manage their debt’. At least two important safeguards proposed are that notice of the proposed disclosure be given to the taxpayer, and that the Inspector-General of Taxation be consulted on the disclosure. Submissions are due to Treasury by 9 February 2018.

Bankruptcy

Submissions to a Senate committee are due on debt agreement reform and unclaimed moneys, by 16 February; with submissions on the necessarily related bill for the one year period of bankruptcy due by 31 January. These two dates may need to be aligned. The Senate committee has a common reporting date for both of 19 March 2018. Assuming some changes are made, the six month lead time in the new law means that we will wait at least until the end of 2018 before these reforms start.

Unclaimed moneys

A small but important reform is contained in the debt agreement bill, that is, to allow AFSA to determine a person’s entitlements to unclaimed dividends and other moneys.  I have criticised this for some time, in that such a determination at present must be made by a court, therefore excluding any but substantial amounts of unclaimed moneys, in view of the costs of going to court.  Many $500 or more uncollected dividends have been filling the government’s coffers over the years.  The change in law should be made retrospective.

Financial institutions

Submissions closed, in December 2017, on the new arrangements for the crisis management of banks, insurers and general insurers, and the proposed reforms, among many others, in relation to the powers of liquidators, judicial managers and administrators. Some of the detailed changes arise out of issues raised in past case law, see for example APRA v ACN 000 007 492 (Under Judicial Management) (Subject to Deed of Company Arrangement) [2010] FCA 912.

We also have pending reforms in relation to collective investments, to replace the flawed managed investment scheme regime.

Resolution of a range of financial disputes are soon to be dealt with by the Australian Financial Complaints Authority, commencing 1 July 2018. It replaces the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

Whether the government responds positively to any of the wide range of reforms suggested by Senate committees and other bodies in relation to banks is problematic.

Phoenix

Reforms in relation to unlawful phoenix activity are being considered by the government; these extend to consideration of a government liquidator, like the regimes of UK and New Zealand.

NZ is also looking at phoenix reforms, and gift cards.

Gift cards

As to the latter, while a federal Senate inquiry following the Dick Smith collapse was disbanded, NSW is looking to impose a mandatory 3-year minimum expiry date on gift cards and gift vouchers sold to consumers in NSW. Businesses will also be banned from applying post-purchase administrative fees, which have the effect of reducing the balance left on a card. Amendments to the Fair Trading Act 1987 are due to be implemented in 2018 – see the Fair Trading Amendment (Ticket Scalping and Gift Cards) Act 2017 No 52.

Ipso facto termination rights

The law regulating ipso facto termination rights commences on 1 July 2018, under the Corporations Act, with regulations yet to be released showing the details of exclusions.

UNCITRAL

UNCITRAL Working Group V is meeting in New York from 7-11 May 2018 to continue its consideration of the recognition and enforcement of insolvency related judgments, the cross-border insolvency of multinational enterprise groups, and directors’ obligations in the period approaching insolvency, relevant to our s 588GA law. It also has MSME insolvency on its agenda, with the US also suggesting cross border tracing and recovery of assets as needing attention. The local contact body in Australia is UNCCA.

Insolvency and restructuring standards

Following the commencement of the safe harbour reforms, the TMA Code now provides useful guidance for advisers and directors. It may be taken into account by courts in determining compliance with the conduct expected of directors under s 588GA, and their advisers.

As to codes, the Ten Network decision shows how courts will come to their own mind about matters of conduct, based on the evidence of current practice.  In any event, APES 330 and the ARITA Code, both 2014, still remain under review, although RITANZ is about to issue its new Code. The UK is also  reviewing its independence requirements and fee arrangements to take account of the changes in insolvency practice over the last decades, with its thinking possibly now challenged by the Carillion liquidation.

Pre-packs

The UK Insolvency Service is undertaking a review of pre-packs, to assess the impact of voluntary industry measures introduced in November 2015 to improve the transparency of connected party pre-pack sales in administration. The Small Business, Enterprise and Employment Act 2015 allows the government to in effect close down pre-packs if the profession’s own regulatory measures are not seen to be working; the deadline is 2020.

While the court in Ten Network [2017] FCA 914 did not regard months of pre-administration work undertaken in preparation for a possible formal administration if workout negotiations failed as being a UK style pre-pack, section 588GA might further extend the use of pre-packs in Australia.

APES 110 and whistleblowers

The International Code of Ethics for Professional Accountants (APES 110, of the APESB) now imposes ‘NOCLAR’ obligations on all accountants, as from 1 January 2018. The extent of that obligation is usefully discussed in Acuity, 2108 – Crime and accountants – the rules get tougher. The accounting bodies are no doubt reviewing members’ client retainers to ensure the new requirements are understood; including for insolvency practitioners. APESB will be awaiting the outcome of the Whistleblower Bill and whether it offers the sort of protection that it sought on behalf of the accounts.

In New Zealand, the NOCLAR obligations are linked to law reform in relation to the ‘effectiveness of insolvency practitioners’ whistleblowing duties in relation to serious offending’. Also in NZ, the Insolvency Practitioners Bill has been reinstated in parliament, but needs to be redrafted to reflect Cabinet’s decision to adopt the insolvency working group’s recommendations.

What with the ILRA reforms, we await reports of whistle blower action taken by the 14 prescribed professional disciplinary bodies – ARITA, CPA, CAANZ, IPA, and NSW Law Society and Bar Association, the Victorian LSC and LSB, the Qld Bar Association and Law Society; DART; the Legal Practice Board of WA’s LPB, SA’s Law Society and Legal Profession Conduct Commissioner; and the Law Society of Tasmania, ACT and the NT.

Industry notices

As to those bodies, it appears that their whistle blower ‘industry notices’ lodged with ASIC under s 40-100 are matters of public record and search (s 1274(2) Corporations Act); while ASIC’s more serious show-cause notices are not: s 15-1 IPSC; s 5-5, 15-1 IPRC. This has been raised with the authorities.

Pending decisions

We are awaiting appeal decisions in Linc Energy (QCA) and Amerind (VCA) and Killarnee (FCFCA), with an appeal decision in Macks (SASCFC) now having been delivered. The reaction of the regulators will be noted. A decision in ASIC v Joubert, heard by the AAT in December 2017, is awaited.

Other important cases are being heard, in particular between FEG and the Commonwealth Department of Employment and the receivers of the Hastie Group, next in the Federal Court on 8 February 2018.

Events

As to events, your writer is honoured to be invited to Vancouver in February 2018, to judge the QUT Ian Fletcher International Moot Competition with senior Canadian and international judges, academics and practitioners; and to attend the Annual Review of Insolvency Law conference at the University of British Columbia.  Discussions are also being had with Canadian officials in relation to regulatory matters in Australia common to the both countries.

Then there are these – the Corporate Law Teachers Association Conference at La Trobe University Melbourne on 11-13 February, an insolvency law reform session at the NSW College of Law in Sydney on 22 February; the Trail Insolvency conference in 19-20 March; ARITA’s Small-Medium Practice Conference in Port Douglas Qld on 19-20 April; the UK Insolvency Lawyers Association Academic Forum & Annual Conference in London, 20-21 April; INSOL International, in New York 30 April-1 May; UNCITRAL Working Group V – Insolvency, also in New York; and RITANZ expected in May 2018 in New Zealand.

Corrections or additions

are invited.

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3 comments

  1. Michael, The balance of Queensland’s Building Industry Fairness (Security of Payment) Act 2017 is expected to commence in 2018. That will create a number of offences which – correct me if I am wrong – liquidators are required to report to ASIC, even though seems unlikely that ASIC would action them given that they arise under state based legislation?

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