Speech by Justice Black on Insolvency Law

In a speech given to ARITA’s conference on 9 August 2017, Justice Ashley Black of the NSW Supreme Court has given a descriptive overview of some of the important issues and cases in Australian insolvency law.

Justice Black reviews the changes made by Insolvency Law Reform Act 2016 (ILRA) to the Corporations Act resulting in the replacement of many familiar provisions by new sections in the Corporations Schedule.  For example, s 449B (dealing with the court’s power to remove an administrator) and s 503 (dealing with removal of a liquidator) are repealed as of 1 September 2017 and are replaced and expanded by the rights of creditors to remove an insolvency practitioner and by the courts’ supervisory powers, both under Div 90 of the Schedule.

As with many of these changes, and also in bankruptcy, Justice Black says that the courts may well have regard to authorities on the earlier comparable sections.   

He makes polite reference to the intricacies of the legislative changes, referring to Jason Harris’ comments as to whether the ILRA is “all just a bad dream”, though he does not go so far as the recent judicial criticisms of Justice Robb’s “exceptionally opaque process” and Justice Brereton’s “legislative maze”

Justice Black notes that no government attention has been given to the view of ARITA and others on the need for a separate restructuring regime for MSMEs, based on the concepts of debt agreement law under the Bankruptcy Act.  That idea was initially raised at an earlier IPA conference by Michael Kirby and it is the subject of international focus by UNCITRAL’s Working Group V, at which Australia is sadly not represented.  INSOL International’s recent MSME paper also offers good ideas. But the reality seems to be that the government is not considering the idea, despite its concerns about phoenix activity and the cash economy.

Justice Black goes on to compare our regime with that of Singapore which has made fundamental changes to its insolvency regime, including providing a mechanism for debtor in possession funding, analogous to US Ch 11.

He examines our “onerous insolvent trading regime, by international standards” and the safe harbour reforms, noting the changes in the Treasury Laws Amendment (2017 Enterprise Incentives No 2) Bill 2017.

The Judge notes that the regime does not provide priority for debts incurred in the safe harbour period; and does not draw a distinction between large public companies and proprietary companies, or between entrepreneurial companies and traditional trading businesses. There will also be a question, he said, whether the safe harbour will be available to, or appeal to, directors of smaller proprietary companies, where non-compliance with employee entitlement and tax obligations are common. 

Justice Black deals with issues in the liquidation of trustee companies, now the subject of higher court decisions; and with schemes of arrangement. 

As to liquidators’ remuneration, he listed what he sees as issues of continuing difficulty, one being that a standard hourly rate for both large and small insolvencies has the inherent difficulty of creditors risking nil returns. While that may be said intuitively, he offers no analysis that this would in fact be the case. Justice Black also notes that insolvency practitioners are not bound to accept appointments in smaller or more complex insolvencies, without assets, and that courts will have consequential difficulty in making such appointments; or, it might be said, they will simply be unable to order that an insolvent company be wound up.  This harks back to a concern expressed by Chief Justice Bathurst at the 2013 IPA conference.  It is a concern the government seems ready to accept.

For all the significance of the ILRA changes to remuneration law and process, Justice Black sees them as only ‘modest’. 

His speech is commended.

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