Some casual Friday comments on recent insolvency developments

This is a quick review of some on-going current issues in insolvency and related.

Pending decisions

The Commonwealth v Byrnes (Amerind) has now been decided, with a decision in Killarnee to follow.

New Zealand

The Amerind decision of the Victorian Court of Appeal will be of interest in New Zealand, where submissions close on 5 March 2018 in relation to the new Trust Bill before parliament.

The issue of trading trusts was raised in earlier NZ discussion papers, with close analysis of the Australian law. More recent academic comment is that while NZ has not yet confronted the issue in its case law, it should do so in its law reform.[1] That writer does say, in advance of the decision in Amerind, that

‘in light of recent case law in Australia[2] there is reason for concern that statutory priority provisions may not be applied in trading trust liquidations’,

adding that, in true New Zealand style

‘the Australian approach is wrong: properly understood, priority provisions are concerned with all liabilities, including trust liabilities. Whether New Zealand adopts the right approach remains to be seen’.

Codes

An interesting ‘decision’ has been issued by ARITA on Korda Mentha’s appointment to Network Ten. Without commenting on the circumstances in that case, the view given is that circumstances could arise where a court makes an adverse finding about some particular conduct of an insolvency practitioner (IP) but not about other conduct, in which case a membership body could review that other conduct and take some action against its member, usually in relation to non-compliance with the membership code.

A more difficult issue arises where the court endorses an IP’s conduct, or makes no adverse finding, but the conduct has nevertheless breached the body’s code. For example, a court could find that an IP’s remuneration was adequately explained by reference to the law, but the body may say that its code rules for reporting remuneration were nevertheless not followed.

A variation could be a finding by a court that despite an IP following a code requirement as to remuneration reports, evidence in support of remuneration is not sufficient;[3] or, in another scenario, that the IP potentially added unnecessary costs to the estate by the firm’s systems inefficiencies in time recording.[4]

Also, compliance by an IP with a body’s code can result in breach of the law.[5] In such a case, the code needs to be changed.

In another context, it is conceivable that loss suffered by someone as a consequence of complying with a code, but not the law, can be pursued.[6]

And while an adverse court decision about an IP’s conduct is significant, its focus may be different than that required for a body’s assessment of its member IP’s conduct. A body’s membership rules will therefore usually reserve a discretion in the body, the exercise of which should be openly explained, to decline to take action against a member despite an adverse court finding or regulator action.

This does bring into play the separation between the law and practice, and professional standards.[7]  The law is not prescriptive. An IP may be found to have failed in their duties, even if no particular statutory provision has been breached.[8]  

Independence

The Court in Network Ten necessarily said that it is the law that ultimately applies, although it may be informed by practice standards. In that respect, those standards need to be reviewed over time in what can be a changing business and professional environment. While Walton Constructions expressed a certain standard of understanding of the reasonable fair-minded observer, cases since then have accorded that observer as having quite a higher level of knowledge of the practice of insolvency. Judges have taken into account, in assessing independence, a lack of concern expressed by creditors, and the separation of offices within the one firm; and joint firm appointments as trustee and liquidator have been found not to raise any undue perception.

The developing issues in independence, rather peculiar in insolvency, appear to be a reason why ICAEW is reviewing existing restrictions on fee arrangements and the way appointments are sourced and advice obtained. The change in thinking is perhaps evident in court decisions in Australia.

These issues will be of interest to RITANZ which is about to issue its new revised Code.

The Insolvency Practitioner Registers

Decisions in Macks and Joubert are awaited and there may be others. The Registers of Liquidators, and Trustees, should now provide some transparency to the disciplinary process. However the Registers – allowed to be maintained as each of AFSA and ASIC “considers appropriate” – are not transparent and need attention. That would allow the potential for the extent of their content to be realised, including in relation to membership bodies. For example, it appears that an ARITA or CPA ‘industry notice’ lodged with ASIC under s 40-100 is on public record, it not being excluded by s 1274 Corporations Act.

Bankruptcy

The Senate Committee inquiring into the one-year bankruptcy and debt agreement Bills is holding public hearings on 5 March, in Sydney, and 6 March, in Melbourne.

Australia’s debate about reducing its 3 year period of bankruptcy will be of interest internationally, in particular England and Ireland (1 year) and Canada (9 months). Australia is often grouped with the more severe jurisdictions in responding to unpaid debt, personal and business.

Academic research is looking at our early adoption of parallels between financial profligacy and moral degeneracy, absorbed from Victorian English literature, as one reason for this.   

Disclaimer and AASB standards

The Senate environment committee has raised the issue of the ability of insolvent mining companies to use the disclaimer provisions of the Corporations Act to avoid paying the costs of site rehabilitation by claiming mining leases as onerous property during the liquidation process.

It is also examining what is said to be a lack of transparency in the treatment of future liabilities under Commonwealth accounting standards, which means that companies do not have to disclose future rehabilitation liabilities on a site-by-site basis. AASB guidance explains such issues, for example in its Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds.

Whistleblowers and APES 110

And while the APESB made earlier submissions about the need for legislative protection of its accounting constituency, whose members now have an obligation to blow the whistle under APES 110, the Board has made no submission in relation to the draft whistle blower Bill.  It may be that the necessary protection is included in the proposed law.

More soon.

Contact as needed.

 

 

[1] Liquidation of Trading Trusts: Problems for Creditors (and a lack thereof), Luke W Preston-Marshall, Thesis, University of Otago, 2017

 

[2] In particular Re Independent Contractor Services No 2 [2016] NSWSC 106.

[3] In the matter of Hunter Valley Dental Surgery Pty Ltd (in liquidation) (No 2) [2017] NSWSC 1027 at [9].

[4] Re Reiter Brothers Exploratory Drilling Pty Ltd [1994] TASSC 42

[5] Cresvale Far East v Cresvale Securities [2001] NSWSC 89.

[6] Professional Liability in Australia, Walmsley etc al, LBC, 2016, [1.650]

[7] See Legal but Harmful, M Lotzof, 2016

[8] See Dean-Willcocks v CALDB [2006] FCA 1438.

Posted by admin

Leave a Reply

Your email address will not be published.