NSW Registered Clubs – insolvency law change required

Registered clubs all over the country get into financial trouble, sometimes requiring the formal insolvency processes under the Corporations Act to secure their position, and potential recovery, and often urgently.

Only in NSW is there a barrier to promptly accessing those processes. A recent article by Nicola Cosgrove and David Turner has repeated earlier calls for the legal hurdle in NSW – s 41 of the Registered Clubs Act 1976 – to be changed or repealed.[1]

That section requires either the NSW Supreme Court or the NSW Independent Liquor and Gaming Authority to approve the nomination of an insolvency practitioner appointed to any club.[2]  That requirement is found in no other state or territory law.  It means that if directors appoint a liquidator without obtaining that authority, the appointment under the Commonwealth Corporations Act is invalid[3]; and if they apply for that authority, time can pass during which the fortunes of the club may further decline.[4]

The apparent purpose of the ILGA vetting any liquidator is to ensure the person nominated is experienced in and knowledgeable of the laws concerning registered clubs in NSW.  ILGA has published criteria for the liquidator’s necessary qualities.[5]

As the article says, most of those criteria are superfluous. A liquidator registered by ASIC must be qualified and have extensive prior experience in insolvency administrations. Once registered a liquidator is regulated by ASIC, the courts and their relevant professional body. They operate under close creditor and media oversight.

A liquidator can take an appointment to any business in any industry – and many do.  Clubs present some particular issues but nothing too much out of the ordinary; and so do many other regulated businesses – for example, aged care and child care centres – where there is no such vetting.

The only conceivable need for the ILGA vetting any person to ‘act in the capacity of the liquidator’ might be in the case where the appointee does not need to be a registered liquidator;[6] even then, the Registrar of Cooperatives selects the relevant person.

I raised this issue back in 2014, in the Australian Insolvency Management Practice, CCH at [56-055], querying the need for it.

As I explained, this requirement is questionable unless it be said that the external administration of registered clubs in NSW is of such peculiarity or complexity that only specialised practitioners can be appointed. As to that, the NSW Court of Appeal in Correa referred to the “the far ranging effects which the appointment of an administrator has on the management of a registered club”.

However

  • any insolvency appointment involves ‘far ranging effects’ on the particular business, and voluntary administration has the potential to assist the club to survive;
  • it does not seem that the NSW Supreme Court inquires of the relevant expertise of a liquidator or administrator consenting to an appointment to a club;
  • nor does s 41 apply if the insolvency practitioner is appointed by the Federal Court, or another Supreme Court. It might be noted that the NSW Supreme Court has taken conflicting views of the operation of the section;[7]
  • nor is ASIC involved in advising the ILGA of the suitability of its vetting process.  There may be matters concerning the liquidator known only to ASIC. The same applies to the Registrar of Cooperatives;
  • as noted, the section also applies to a co-operative, the insolvency of which does not necessarily require a registered liquidator;
  • the section also requires approval of a controller of the club’s property, for example one appointed by a bank;
  • the section also incorrectly requires approval of an ‘official manager’, a defunct role, removed from the Corporations Act two decades ago, and a receiver or manager (sic, emphasis added); and
  • a liquidator or a special manager are also listed (under s 484 of the Corporations Act).

Section 41 has been in the Registered Clubs Act since the law was introduced in 1976, apparently without question.  The club industry is aware of the issue and that the effect of s 41, in light of the Correa decision, could be that

‘voluntary administration may become a less effective means for insolvent clubs to survive’.

That industry might have some influence in prompting its review. The call for law reform in the article by Cosgrove and Turner is convincing.

 

[1] Getting into the club: s 41 of the Registered Clubs Act as a barrier to timely external administration appointments, (2018) 19(6&7) INSLB 134 Nicola Cosgrove and David Turner, Assured Legal Solutions

[2] Section 41(1) A person is not capable of being appointed to act in the capacity of the administrator, the controller of property, the official manager, the receiver or manager, a member of the committee of management, the liquidator or the special manager of a registered club that is a company within the meaning of the Corporations Act 2001 of the Commonwealth or a co-operative registered under the Co-operatives National Law (NSW) or of acting in any such capacity unless the person has been (a)  appointed to act in that capacity by the Supreme Court, or (b)  approved to act in that capacity by the Authority.

 

[3] Correa v Whittingham [2013] NSWCA 263

[4] See Under whose authority? How recent court cases affect clubs entering voluntary administration, Club Life, August 2018, p 22, Simon Sawday, Clubs NSW Senior Policy Officer

[5] GL4004 – Guideline 9 Approval to Act as Administrator, Liquidator or in Certain Other Capacities under Section 41 of the Registered Clubs Act 1976. This is also out of date.

[6] Co-operatives (Adoption of National Law) Act 2012 (NSW) s 383.

[7] Belmont Sportsmans Club Co-operative Limited [2018] NSWSC 2; Re Coffs Harbour Catholic Recreation and Sporting Club Ltd [2015] NSWSC 1088

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