Senator John Williams is familiar to us in the insolvency profession as the one politician who has had a particular focus on the operation of our insolvency regime and the conduct of its practitioners.
Senator Williams was good enough to speak with me about the new insolvency reforms, under the Insolvency Law Reform Act 2016, some of which commenced on 1 March, with the remainder on 1 September.
Senate Economics References Committee Report, September 2010
While success has many fathers, it was Senator Williams who was a driving force behind the Senate Economics References Committee inquiry in 2010 into the regulation, registration and remuneration of liquidators. It was during that inquiry that the illegal conduct of Stuart Ariff came to light. I was closely involved in that inquiry myself and the subsequent monitoring of the progress of the ensuing reforms.
Many of the issues raised in the Committee’s 2010 report have been addressed in the new 1 March laws, although not necessarily in the precise terms of the recommendations.
Among those recommendations, and the changes in the law we now have from 1 March, Senator Williams emphasised the new registration and education requirements, that will be important in raising the standards of liquidators. These include the assessment of new entrants’ suitability by an interview committee, with exams as an option, three year licensing, and tighter insurance controls. All these ideas came from recommendations of the Committee’s report. So did the proposals for a committee system for the discipline of liquidators, rather than the CALDB, more prompt and effective powers for the regulators – the ‘flying squad’ concept in the Committee’s report, and increased powers of the courts.
Senator Williams singled out as a major law reform achievement the new power given to creditors to be able to remove a liquidator through a simple resolution of creditors at any time. He said that the insolvency practitioner is supposed to work for the creditors, and this effectively puts the practitioner on notice that poor performance or excessive fees may result in action against them.
In response to my comment that some of the laws were too severe, Senator Williams said that in any area of law and regulation, laws are needed for the worst offenders. With the vast majority of practitioners, many of these laws should not be needed.
As he said in parliament on 22 February 2016, at the second reading of the Insolvency Law Reform Bill 2015, probably 95 per cent or more of
“liquidators do the right thing. Yet it is the odd one out doing the wrong thing that smears the whole industry—like in politics. It is the same thing: we all get painted with the same brush. The industry has been smeared. Hopefully, this will build better standards and more competition …”.
A single insolvency regulator
As to the Committee’s main recommendation for a single insolvency regulator, with the corporate insolvency arm of ASIC moving to AFSA, Senator Williams acknowledged that this had been rejected and was not likely to occur in the short term.
However an achievement of the new law is that ASIC and AFSA have largely the same set of harmonised laws to regulate and maintain the standards of trustees and liquidators. This should mean that two regulators, ASIC and AFSA, will take a common and co-operative regulatory approach, supplemented with the new authority and responsibilities of ARITA and the professional bodies.
It should also mean, in my view that the costs of regulation of a trustee by AFSA, and of regulation of that same practitioner as a liquidator by ASIC, should be the same, and benchmarked one against the one, to ensure regulatory efficiency is maintained.
The Senate Committee’s 17 recommendations
The 17 recommendations are to be found here. Those corporate ones which have already been addressed in the 1 March reforms, shown as section numbers, are recommendations numbered
- 3, flying squad reviews of practitioners – for example, s 40-25
- 5, licensing for 3 years, with insurance cover – s 20-30(6)
- 6, a licensing fee – Corporations (Fees) Act 2001
- 8 and 9, an exam be required for registration, which in the new law is an option – s 20-20(2)(b)
- 10, regulator review of insurance cover – s 40-25, s 25-1
- 11, a penalty for failing to have cover – s 25-1
- 14, suspension of registration for ‘overcharging’ – s 40-25.
The one Senate Committee recommendation set to commence in the 1 September reforms is recommendation 15, giving the power to creditors to remove a liquidator, ‘including where time based charging will not result in a reasonable cost-benefit outcome ‘- s 90-35. This was one of many reforms that some in the profession persuaded the government to delay to 1 September.
I thank Senator Williams for his comments.
The main recommendations of the Senate Committee report, have, in Senator Williams’ terms, already been achieved. The imminent power of creditors to remove a liquidator, while important, is one that is already available in bankruptcy without apparent significant impact. Creditors also have rights to remove practitioners at various other though early points in an administration.
The many other law and practice changes occurring on 1 September are now being absorbed by the profession, regulators and creditors.
Why wait – start now?
While there is now several months delay in awaiting those, many can start to be implemented now, with the good will of the profession, unless some legal authority is required in any particular case.
It hardly seems difficult to respond to reasonable creditors’ requests, an obligation existing all along in bankruptcy in any event; or to communicate and report promptly within 3 months how the administration is proceeding; or to invite or permit regulators to attend meetings; or to meet the new independence disclosure requirements. Indeed, some of the new requirements appear common practice in any event.
A list of those changes that might be implemented in advance is being prepared, and suggestions are welcome.
Responses to any aspects of this are also welcome. My own further comments will appear shortly.