The Australian government has decided that insolvency practitioners need more time to implement long awaited law reforms aimed at improving practitioners’ reporting and accountability, enhancing their efficiency, improving their communications and increasing competition between them. The commencement of many of the reforms under the Insolvency Law Reform Act 2016 (ILRA), which became law on 29 February 2016, are being delayed over 12 months, to 1 September 2017. Although the details are not yet available, the delayed laws appear to include those concerning the powers of creditors and the courts, practitioner reporting and accountability, and more streamlining and greater transparency in the conduct of liquidations and bankruptcies.
And other important changes in the law of insolvency, some the subject of legal recommendations as far back as 2002, remain delayed until they commence on 1 March 2017.
Once the details are revealed, the reasons for the delay will be able to be better scrutinised.
The structure of the new regime
The ILRA will, when it eventually commences, effect changes in the structure and content of both the Bankruptcy Act and the Corporations Act, following a legislative drafting trend evident in the Australian Consumer Law, and the National Credit Code and in tax legislation.
As competition, consumer and tax lawyers and practitioners know, this change involves a whole new set of provisions and numbering, and re-wording of many provisions.
One benefit here is that the schedules in both personal and corporate insolvency law will comprise consistent number of provisions. For example, Division 80 of both sets of laws will deal with committees of inspection.
Under the ILRA, many of the sections of the Bankruptcy Act and of the Corporations Act have been replaced and their content restated in what is the Insolvency Practice Schedule (Bankruptcy) to the Bankruptcy Act and the (largely) comparable Insolvency Practice Schedule (Corporations) to the Corporations Act. These primarily deal with registration, discipline, meetings, reporting and powers of the courts and the regulators.
Core bankruptcy and insolvency provisions will remain in the Acts themselves – debtors and creditors petitions, winding up proceedings, public examinations, powers and duties of practitioners, disclaimer of property etc – with the process and procedure provisions now to be found in what will probably be known as the “Bankruptcy Schedule” and the “Corporations Schedule”.
We will therefore have a structure where the core provisions are to be found in the Acts themselves, with the process and procedure provisions found in the Bankruptcy Schedule and the Corporations Schedule, but with further law in the forthcoming Insolvency Practice Rules.
The Schedules are each divided into Parts 1 to 5.
Part 1, s 1-1 states the objects, including to ensure that trustees and liquidators have an appropriate level of expertise and that they behave ethically, and to regulate administrations consistently and to give greater control to creditors.
Part 1 contains the dictionary in s 5-5, in which a range of new terms relevant to the respective Schedules are introduced. Other terms remain defined in s 5 and s 9 of the Acts respectively.
Debtors subject to debt agreements and controllers or receivers are outside the regimes, with separate provisions applying.
A simplified outline of each of the whole Schedules, from Parts 2 to 4, is explained in s 1-5.
Part 2 sets out the process for registering practitioners and with their regulation and discipline by AFSA and ASIC respectively. This largely replicates the existing bankruptcy regime but adds some features.
Part 3 of the Schedules is the substantive set of laws now applicable to personal and corporate insolvency processes. It sets out provisions to regulate all administrations consistently between personal and corporate
Part 4 contains some particular provisions, as to application rights to the AAT and as to the Insolvency Practice Rules. It also contains important provisions allowing trustees and liquidators to sell voidable transactions and other such claims, for which a market is said to be developing, following similar reforms overseas.
A single set of laws is to generally apply to each one of these types of administrations, as to meetings, voting, committees, and rights of creditors, and powers of the court.
That is a major purpose of the 2016 Act, following long-standing recommendations for harmonization, based on reasons of efficiency and cost effectiveness. It was the 1988 Harmer Report which recommended that where future insolvency reforms in personal and corporate insolvency “touch matters which are common to both (particularly where these reforms affect procedural matters)” the respective laws should be consistent.
At least the delay will still allow Harmer’s recommendation to be achieved, in part, in under 30 years.
The government has yet to announce details of other more major insolvency reforms, including bankruptcy and restructuring, but also its intentions in relation to APRA’s pre-positioning powers over banks in crisis (2012 Treasury paper), managed investment schemes (2014 CAMAC report), construction industry reforms (2015 Senate Committee), anti-phoenix measures, and more.
Beyond those, thinking about the need for insolvency law and practice reform in light of the fast moving changes in cloud technology and data usage is yet to develop.