Professional body regulation of Australian insolvency practitioners

Having reviewed the current regulation of insolvency practitioners (IPs) by both ASIC and AFSA, ARITA is now examined, and to a limited extent CAANZ, given it and ARITA represent two of the 14 ‘industry bodies’, among others, that the legislature has designated to regulate IPs in Australia.[1]

 

The 1 March 2017 impact of the Insolvency Law Reform Act 2016 (ILRA)

Although there is no true co-regulation in Australia of the nature found in the UK, or as proposed in NZ, the legal effect of the ILRA has been to shift some regulatory authority from ASIC and AFSA to ARITA and CAANZ.

In the UK, where there is true co-regulation, the UK Insolvency Service as ‘the regulator of regulators’[2] issues an annual report on how well the recognised professional bodies (RPBs) are pursuing their roles in licensing and regulating their IP members.[3]

Despite the legal shift under the ILRA, neither ASIC nor AFSA has reported in that way. But that style of UK report, and other commentary there, and here in relation to other professions, offers useful criteria to assess the quality of Australia’s regulatory arrangements for IPs.

Co-regulation – ASIC, AFSA, ARITA, CAANZ

As to co-regulation, from merely having the power to select a trustee to sit on bankruptcy registration and discipline committees, post-ILRA ARITA can:

  • choose a liquidator for the same corporate insolvency committees;
  • share confidential information with ASIC and AFSA (as can CAANZ);
  • use information obtained from a disciplinary committee proceeding (as can CAANZ); and
  • whistle blow – that is lodge a section 40-100 industry notice with ASIC or AFSA as to an IP’s misconduct, perhaps on a complaint being made, or other source of information. By using this process, ARITA itself is broadly protected from liability, as is the complainant: s 40-105 Schedule. Any other referrals might be protected by qualified privilege.[4]

There is nothing on the record to show whether these powers have been used by ARITA, or CAANZ;[5] nor is anything shown in the regulators’ 2018 regulatory reports. CAANZ does however offer accessible public processes and reporting.

Private regulation

As to ARITA’s own regulation of what is says is well over 80% of the IP profession, it pursues non-statutory complaints and concerns, according to certain published processes. Any regulator, member of other inquirer would need to assess these as to whether:[6] regulatory triggers are current, taking into account the ILRA changes, and changes in case law; there is legal input into its investigatory and referral processes; whether ARITA ensures a separation of its investigative and discipline function, and has external independent members on its discipline committees; whether a right to a face to face hearing is offered, and a public hearing process. ARITA also seems to use the quality review processes of CAANZ, necessarily confined to its IP members. One would also look for a register or report of the outcomes and effectiveness of all these processes.[7]

Many of these criteria are listed in the literature in assessing regulatory processes,[8] including by the UK Insolvency Service in assessing the UK RPBs.

The future

It may be that this regulation of ARITA and other insolvency regulatory bodies will develop here in the future, along the lines of the UK and NZ, although this assumes that the Australian bodies will be given more co-regulatory authority.  The costs savings of co-regulation are one factor. The potential roles of RITANZ and CAANZ in NZ may offer useful ideas.

The ILRA – part of a decades long trend

Overall, the transfer of at least some authority under the ILRA to ARITA on 1 March 2017 seems to be part of a decades long trend of government shifting its public power to private bodies, well documented in public and administrative law analysis, case law and texts.[9]

The legal significance is that while at present the decisions of private bodies are generally not subject to external challenge (and CAANZ has said it would not consider any challenge to the processes of ARITA’s decisions), the transfer of government authority to them opens up the potential for their internal regulatory decisions and processes to judicial review and scrutiny, and regulatory oversight, including those of ARITA.

That development has occurred generally in England, following the Datafin decision.[10] While not fully endorsed here, its reasoning is said to represent a shift away from the decisions of private bodies being simply seen as a matter of contract between them and their members to those decisions and the internal processes by which they are made coming under broader scrutiny.

That imposed transparency of process may be said to benefit the proper development of any profession.

[From an on-going analysis of the future of the insolvency profession – thank you to many for the feedback].

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[1] See Bodies everywhere (2018) 17&18 BCLB [351], Murray.

[2] The Framework of Corporate Insolvency Law, Hamish Anderson, Oxford University Press, 2017, at [13.06].

[3] See Review of the monitoring and regulation of insolvency practitioners, 26 September 2018.

 

[4] See Disciplinary and Regulatory Proceedings, 9th ed, Treverton-Jones, Foster and Hanif, Jordan Publishing, 2017.

[5] www.arita.com.au; www.caanz.com.au

[6] See Disciplinary and Regulatory Proceedings, 9th ed.

[7] See Regulation in Australia, Federation Press, Arie Freiberg, 2017, at p 166; and Measuring non-compliance at p 384.

[8] See for example Justice in Tribunals, 4th ed, Forbes.

[9] Principles of Administrative Law, Cane & McDonald, OUP.

[10] R v Panel on Take-overs and Mergers, ex parte Datafin plc [1987] QB 815.

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