The new regulatory regime of insolvency practitioners under the Insolvency Law Reform Act 2016 provides for co-regulation shared between the regulators – ASIC and AFSA – and a large number of professional bodies – ARITA; CPA Australia; CAANZ; the IPA; the NSW Bar Association; the Law Society of NSW; the Victorian Legal Services Commissioner; the Victorian Legal Services Board; the Bar Association of Queensland; the Queensland Law Society; the Legal Practice Board of WA; the Law Society of SA; the Legal Profession Conduct Commissioner of SA; the Law Society of Tasmania; the Law Society of the ACT; and the Law Society NT, along with all Commonwealth departments, and more.[i]
Professional bodies can receive information about the misconduct of their members from the two regulators, AFSA and ASIC, and can themselves refer misconduct matters to those regulators. Discipline committee members can take information obtained during the hearing process back to their professional body. The responsibility is ‘shared’.
A purpose of this regime is said to be to speed up referrals about insolvency practitioner misconduct. The Victorian Legal Services Board might, it seems, act quicker than AFSA or ASIC? The regime appears to give the regulators a more extensive spread of powers over liquidators and trustees than over company officers.
Apart from that new legal regime, it seems that the professional bodies themselves already refer misconduct matters between themselves, in relation to the conduct of those practitioners who choose to be members of both or more. This assumes an acceptance or agreement of the member under the terms of the relevant membership that this can occur.
A recent example
A recent example is that of an insolvency practitioner who was the subject of disciplinary proceedings by ARITA, and who was then subject to subsequent disciplinary proceedings by CAANZ, based on ARITA’s findings. There appears to have been no action taken by ASIC and ASIC did not attend the hearing.
ARITA had reported on its website that “the ARITA Board unanimously passed a resolution in accordance with clause 7.2(a) of the ARITA Constitution” that the practitioner be expelled from its membership for his refusal to comply with the penalties applied as a result of “ARITA Disciplinary Proceedings”. Those penalties appear to have been that the practitioner resolve with the creditors or before the court what was found to be a conflict of interest, repay remuneration and attend ARITA training.[ii]
Disciplinary Tribunal of Chartered Accountants Australia and New Zealand
The matter was dealt with by the professional conduct Committee (PCC) of CAANZ and then elevated to the CAANZ Disciplinary Tribunal.
After a public hearing, the Tribunal found that there had been a breach of APES 330 – Insolvency Services, based on ARITA’s findings. However, in determining penalty, the Tribunal took into account that “the matters were not at the more serious end of the scale”, there had been a “significant impact” on the practitioner’s practice from “ARITA’s published findings and ensuing adverse publicity”, and that the member had “present good standing and a previously unblemished record”.
On those bases the Tribunal determined that a reprimand only, plus costs, was appropriate.
ARITA’s procedural fairness
At the hearing, counsel for the practitioner challenged
“procedural fairness issues regarding the decision making of ARITA” such that the “Tribunal should not rely on the findings made by ARITA”.
But the Tribunal decided that it was
“not a court of law and not in a position to determine issues of procedural fairness of other professional bodies” and was content to rely on ARITA’s finding on its face.
Those procedural fairness issues were not explained and although that appears to be a sensible decision of the Tribunal, there could be cases where a professional tribunal is not satisfied, because of issues raised by the member, that he or she was dealt with unfairly by another body.
The new law
This may be an issue under the reforms, commencing 1 March 2017. While the CAANZ Tribunal was not prepared to entertain a submission from the practitioner that ARITA’s hearing process was flawed, both ASIC and AFSA may need to, on matters referred to them by any industry body. The regulator’s decision to use and rely upon that information may be reviewable by a court.
The right of an industry body to refer insolvency practitioner misconduct matters to ASIC and AFSA is found in s 40-100. The body is protected from liability if it acts in good faith and its suspicion about the conduct was reasonable: s 40-105.
That does raise the question of the quality of the processes of the numerous industry bodies – their attention to procedural fairness, independence and transparency of process – and hence the quality of the matters they might refer. By virtue of the government having prescribed each of them as having authority under s 40-100 of the Act, we can assume that such an assessment was done.
In any event, the regulators should properly conduct an initial assessment of any information referred by industry bodies as to how the information was obtained, from where or whom, and what opportunity, if any the member had to respond to it. A regulator would want to gather its own evidence rather than rely on that provided by a body, even if the body had progressed to the point of acting under its own rules to make a finding against its practitioner member. Regulators have model litigant and other higher standards under the law.
It would therefore be open to ASIC, or AFSA, to not pursue an investigation based on the information provided if they consider that the industry body relied on information or documents that were tainted, for example from misuse of court process or confidential information, or did not accord procedural fairness in coming to any finding of misconduct. Properly, the regulators will merely use that information to conduct their own investigation.
The Tribunal
The CAANZ Tribunal hearing seems to offer some useful processes for the s 40-40 committees. The hearing was open, and the Tribunal included a “non-accountant member”. A Legal Adviser to the Tribunal was present and “counsel” put the case for the PCC. It is assumed no-one from the investigative process leading to the hearing attended.[iii] The practitioner was represented by a senior counsel and a junior counsel and two general counsel of his firm. The “pleading” seems to fully set out the allegations, including the findings of ARITA. Reasons for decision were given, in sufficient detail to understand the decision and leave it open to scrutiny. Separate reasons for the sanction decision were also given. There was a further right of appeal.
Other bodies
CPA Australia, IPA, RITANZ and other bodies have similar formal hearing arrangements, with independent members, and published processes. ARITA has announced that its “independent tribunal”, first mooted in 2015,[iv] is not now planned until mid-2017, along with a move of its Code of Practice “to a new framework that operates independently”.[v]
As to the other industry bodies, all established legal bodies, their interests appear more distant but the circumstances are conceivable. For example, a Tasmanian lawyer could bring a bankruptcy trustee’s conduct to the attention of the Law Society of Tasmania which may itself then refer the matter to AFSA.
It should of course be pointed out that any insolvency practitioner, or creditor, can complain to a law society or bar association about a lawyer’s conduct.
Overkill, or lack of proportionality?
The terms “overkill” or lack of proportionality come to mind in relation to this new regime, based on the mathematical outcomes of the number of possible referrals, and their potential cross-overs and circularity, and on the limited evidence on which the reform is based.
The new law creates or involves over 15 ‘industry bodies’, various ‘professional discipline bodies’, numerous ‘Commonwealth entities’, a ‘prescribed body’, many section 50-35 bodies, and ‘relevant bodies’, along with the existing ‘professional accounting bodies’. This is on top of three accounting bodies, plus ARITA and others.
A concern is that there has been set up a number of quasi-regulators in insolvency, a circumstance that the UK is trying to reduce and which other countries are avoiding.
And assuming they each know of their new role, is there then placed a positive responsibility on them, or expectation, to refer a misconduct matter to ASIC or AFSA, such that it is the industry body which is in default if it does not?
Or an Australian first?
On the other hand, it may be that this is an Australian initiative that could offer a template for the broad based co-regulation of other professions – accountants and auditors, doctors, engineers and health professionals, directors and company officers, and politicians.
Whatever …
In establishing the bankruptcy committee system in corporate insolvency, the government said ([9.33] Explanatory Memorandum to the ILRB 2015) that it wanted to dispense with the perceived slow and expensive CALDB process and its
“procedural complexity. … Cost effectiveness is also affected where respondents choose to use Senior Counsel at hearings, and ASIC consequently considers there is a need for it to be likewise represented”.
This change was
“expected to result in net regulatory savings”.
Whatever the validity of the government’s expectation of the impact of the insolvency law reforms on the cost of discipline hearings, the level of legal representation in the CAANZ matter, operating in the private sphere, below that of the new committee system, suggests otherwise. It may also mean that the level of legal expertise on the committees should be elevated.
Indeed, practitioners would want to be well represented when matters of their reputation and livelihood are at stake, and when there is a complex set of new laws, without legislative or judicial precedent, yet to be tested, and when attention to the fundamentals of administrative law principles can’t always be assumed by regulators or existing or new players in the professional discipline area.
And if things do go wrong in some way, it may not be the regulators who are criticized, but the local law society.
[i] That is at least how the law is written; how ready the regulators will be to share information is perhaps another question. Anecdotal information suggests that little or no information from ASIC has ever been released under the existing s 127 ASIC Act. The ATO is another example.
[ii] See www.arita.com.au
[iii] Isbester v Knox City Council [2015] HCA 20
[iv] (2015) 27(1) A Insol J 14.
[v] ARITA 2017 Strategic Plan
Umpteen professional bodies regulating insolvency practitioners – overkill? or a spreading of the risk?
The new regulatory regime of insolvency practitioners under the Insolvency Law Reform Act 2016 provides for co-regulation shared between the regulators – ASIC and AFSA – and a large number of professional bodies – ARITA; CPA Australia; CAANZ; the IPA; the NSW Bar Association; the Law Society of NSW; the Victorian Legal Services Commissioner; the Victorian Legal Services Board; the Bar Association of Queensland; the Queensland Law Society; the Legal Practice Board of WA; the Law Society of SA; the Legal Profession Conduct Commissioner of SA; the Law Society of Tasmania; the Law Society of the ACT; and the Law Society NT, along with all Commonwealth departments, and more.[i]
Professional bodies can receive information about the misconduct of their members from the two regulators, AFSA and ASIC, and can themselves refer misconduct matters to those regulators. Discipline committee members can take information obtained during the hearing process back to their professional body. The responsibility is ‘shared’.
A purpose of this regime is said to be to speed up referrals about insolvency practitioner misconduct. The Victorian Legal Services Board might, it seems, act quicker than AFSA or ASIC? The regime appears to give the regulators a more extensive spread of powers over liquidators and trustees than over company officers.
Apart from that new legal regime, it seems that the professional bodies themselves already refer misconduct matters between themselves, in relation to the conduct of those practitioners who choose to be members of both or more. This assumes an acceptance or agreement of the member under the terms of the relevant membership that this can occur.
A recent example
A recent example is that of an insolvency practitioner who was the subject of disciplinary proceedings by ARITA, and who was then subject to subsequent disciplinary proceedings by CAANZ, based on ARITA’s findings. There appears to have been no action taken by ASIC and ASIC did not attend the hearing.
ARITA had reported on its website that “the ARITA Board unanimously passed a resolution in accordance with clause 7.2(a) of the ARITA Constitution” that the practitioner be expelled from its membership for his refusal to comply with the penalties applied as a result of “ARITA Disciplinary Proceedings”. Those penalties appear to have been that the practitioner resolve with the creditors or before the court what was found to be a conflict of interest, repay remuneration and attend ARITA training.[ii]
Disciplinary Tribunal of Chartered Accountants Australia and New Zealand
The matter was dealt with by the professional conduct Committee (PCC) of CAANZ and then elevated to the CAANZ Disciplinary Tribunal.
After a public hearing, the Tribunal found that there had been a breach of APES 330 – Insolvency Services, based on ARITA’s findings. However, in determining penalty, the Tribunal took into account that “the matters were not at the more serious end of the scale”, there had been a “significant impact” on the practitioner’s practice from “ARITA’s published findings and ensuing adverse publicity”, and that the member had “present good standing and a previously unblemished record”.
On those bases the Tribunal determined that a reprimand only, plus costs, was appropriate.
ARITA’s procedural fairness
At the hearing, counsel for the practitioner challenged
But the Tribunal decided that it was
Those procedural fairness issues were not explained and although that appears to be a sensible decision of the Tribunal, there could be cases where a professional tribunal is not satisfied, because of issues raised by the member, that he or she was dealt with unfairly by another body.
The new law
This may be an issue under the reforms, commencing 1 March 2017. While the CAANZ Tribunal was not prepared to entertain a submission from the practitioner that ARITA’s hearing process was flawed, both ASIC and AFSA may need to, on matters referred to them by any industry body. The regulator’s decision to use and rely upon that information may be reviewable by a court.
The right of an industry body to refer insolvency practitioner misconduct matters to ASIC and AFSA is found in s 40-100. The body is protected from liability if it acts in good faith and its suspicion about the conduct was reasonable: s 40-105.
That does raise the question of the quality of the processes of the numerous industry bodies – their attention to procedural fairness, independence and transparency of process – and hence the quality of the matters they might refer. By virtue of the government having prescribed each of them as having authority under s 40-100 of the Act, we can assume that such an assessment was done.
In any event, the regulators should properly conduct an initial assessment of any information referred by industry bodies as to how the information was obtained, from where or whom, and what opportunity, if any the member had to respond to it. A regulator would want to gather its own evidence rather than rely on that provided by a body, even if the body had progressed to the point of acting under its own rules to make a finding against its practitioner member. Regulators have model litigant and other higher standards under the law.
It would therefore be open to ASIC, or AFSA, to not pursue an investigation based on the information provided if they consider that the industry body relied on information or documents that were tainted, for example from misuse of court process or confidential information, or did not accord procedural fairness in coming to any finding of misconduct. Properly, the regulators will merely use that information to conduct their own investigation.
The Tribunal
The CAANZ Tribunal hearing seems to offer some useful processes for the s 40-40 committees. The hearing was open, and the Tribunal included a “non-accountant member”. A Legal Adviser to the Tribunal was present and “counsel” put the case for the PCC. It is assumed no-one from the investigative process leading to the hearing attended.[iii] The practitioner was represented by a senior counsel and a junior counsel and two general counsel of his firm. The “pleading” seems to fully set out the allegations, including the findings of ARITA. Reasons for decision were given, in sufficient detail to understand the decision and leave it open to scrutiny. Separate reasons for the sanction decision were also given. There was a further right of appeal.
Other bodies
CPA Australia, IPA, RITANZ and other bodies have similar formal hearing arrangements, with independent members, and published processes. ARITA has announced that its “independent tribunal”, first mooted in 2015,[iv] is not now planned until mid-2017, along with a move of its Code of Practice “to a new framework that operates independently”.[v]
As to the other industry bodies, all established legal bodies, their interests appear more distant but the circumstances are conceivable. For example, a Tasmanian lawyer could bring a bankruptcy trustee’s conduct to the attention of the Law Society of Tasmania which may itself then refer the matter to AFSA.
It should of course be pointed out that any insolvency practitioner, or creditor, can complain to a law society or bar association about a lawyer’s conduct.
Overkill, or lack of proportionality?
The terms “overkill” or lack of proportionality come to mind in relation to this new regime, based on the mathematical outcomes of the number of possible referrals, and their potential cross-overs and circularity, and on the limited evidence on which the reform is based.
The new law creates or involves over 15 ‘industry bodies’, various ‘professional discipline bodies’, numerous ‘Commonwealth entities’, a ‘prescribed body’, many section 50-35 bodies, and ‘relevant bodies’, along with the existing ‘professional accounting bodies’. This is on top of three accounting bodies, plus ARITA and others.
A concern is that there has been set up a number of quasi-regulators in insolvency, a circumstance that the UK is trying to reduce and which other countries are avoiding.
And assuming they each know of their new role, is there then placed a positive responsibility on them, or expectation, to refer a misconduct matter to ASIC or AFSA, such that it is the industry body which is in default if it does not?
Or an Australian first?
On the other hand, it may be that this is an Australian initiative that could offer a template for the broad based co-regulation of other professions – accountants and auditors, doctors, engineers and health professionals, directors and company officers, and politicians.
Whatever …
In establishing the bankruptcy committee system in corporate insolvency, the government said ([9.33] Explanatory Memorandum to the ILRB 2015) that it wanted to dispense with the perceived slow and expensive CALDB process and its
This change was
Whatever the validity of the government’s expectation of the impact of the insolvency law reforms on the cost of discipline hearings, the level of legal representation in the CAANZ matter, operating in the private sphere, below that of the new committee system, suggests otherwise. It may also mean that the level of legal expertise on the committees should be elevated.
Indeed, practitioners would want to be well represented when matters of their reputation and livelihood are at stake, and when there is a complex set of new laws, without legislative or judicial precedent, yet to be tested, and when attention to the fundamentals of administrative law principles can’t always be assumed by regulators or existing or new players in the professional discipline area.
And if things do go wrong in some way, it may not be the regulators who are criticized, but the local law society.
[i] That is at least how the law is written; how ready the regulators will be to share information is perhaps another question. Anecdotal information suggests that little or no information from ASIC has ever been released under the existing s 127 ASIC Act. The ATO is another example.
[ii] See www.arita.com.au
[iii] Isbester v Knox City Council [2015] HCA 20
[iv] (2015) 27(1) A Insol J 14.
[v] ARITA 2017 Strategic Plan
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