Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Liquidators, and ASIC, acting without authority – all fixed

When a person inadvertently exercises powers without legal authority, a prompt legal response is required. The consequences can be serious, as two company liquidators, and more so ASIC itself, recently found out. The two liquidators join a long list of fellow bankruptcy trustees who have also inadvertently not renewed themselves.

Liquidators’ registrations expiring

Two liquidators inadvertently allowed their registrations as liquidators to lapse, in what is a rather complex set of transitional arrangements for the commencement of the Insolvency Law Reform Act 2016.  Under the former provisions in the Corporations Act, the registration of a liquidator had no specified end date; now, the process for the registration of liquidators is aligned with trustees in bankruptcy, under the Bankruptcy Act, and both must renew their registration every three years.

Under the transitional provisions, on the commencement of the new law on 1 March 2017, both liquidators were required to renew their registrations by a due anniversary date, being 3 May 2017.[1]

Only on 30 June did they realise they had not done so and that their registrations had expired.  In the meantime, they had exercised their power and authority in “dozens” of existing insolvencies and taken on new ones. 

They promptly applied to the Federal Court to remedy their situations. They explained that they did not receive a reminder apparently provided by ASIC to other liquidators. The Court has power under s 20-70(2) of the Corporations Schedule to extend the time and Justice O’Callaghan did so. There was no prejudice that could be caused by the extensions: Deppeler, in the matter of Deppeler [2017] FCA 768.

But the more significant issue was whether the Court could assist by regularising all that had been done by the liquidators during the period following 3 May 2017. For one thing, s 45-1 provides that the Court may make remedial orders “in relation to a registered liquidator”, which they were not.

The Judge heard the matters on 20 July and 4 August 2017, including to hear ASIC’s views.

Outcome

The outcome is that on 4 August 2017 the Judge declared that:

  • between 3 May 2017 and 10 July 2017 the [liquidator] is taken to have been registered as a liquidator under Subdivision B of Division 20 of the Insolvency Practice Schedule (Corporations) of the Corporations Act; and
  • that his registration as a liquidator for the three year period from 3 May 2017 to 2 May 2020 is not subject to the transitional condition in section 1560(2) of the Act, which is to the effect that an “old Act registrant” must not accept further appointments as external administrator of a company; or section 1560(4) of the Act, which is to the effect that ASIC is taken to have cancelled his registration.  

Liberty was given, for anyone, to apply to the court in case some person wants to raise an issue about this retrospective arrangement. 

The Judge’s reasons for this decision are Deppeler, in the matter of Deppeler (No 2) [2017] FCA 978.   

Comment

There have been a number of such extensions of time for trustees in bankruptcy over the years, under the Bankruptcy Act, including in relation to transitional arrangements in 1996 when bankruptcy first adopted the need for re-registration of trustees every three years.  The Judges were in each case well-disposed to remedy what was simply oversight, or, in some cases, claimed misleading information from the Inspector-General or acknowledged omission to remind the trustee.[2]

One major difference in bankruptcy is that on a registered trustee ceasing to be trustee, the Official Trustee automatically becomes the trustee: s 160 Bankruptcy Act.  There is then a ready process available of transferring the estates back to the trustee, once they are re-registered. 

There is no comparable arrangement in corporate insolvency.

ASIC’s own problem

As earlier advised, ASIC’s own problem has been remedied by the Treasury Laws Amendment (2017 Measures No. 3) Act 2017.

In many cases, the law allows the Courts to remedy the lack of authority, based on set criteria, as the Court applied in Deppeler.  In other more serious cases, the lack of authority requires legislative attention, that is, a remedial act of parliament. 

ASIC requires law to be enacted to remedy the invalidity of a number of ASIC staff employment agreements, going back years. Those staff members had purported to exercise significant coercive powers under the ASIC Act without a proper legal basis, including compelling the production of documents that may then have been used in evidence in court proceedings. 

The Treasury Laws Amendment (2017 Measures No. 3) Act 2017 remedied this. Subject to constitutional constraints, Commonwealth law can do most things, including to provide, as this Act does, that certain invalid agreements “are, for all purposes, taken to be, and always to have been, valid agreements”, and that the Act will be “taken to have commenced immediately after the commencement of the ASIC Act 2001 on 15 July 2001”.

The constitutional constraints raise issues about retrospective impact on a person’s rights, and the “acquisition of property on just terms”, under paragraph 51(xxxi) of the Australian Constitution, supported by s 1350 of the Corporations Act.  That then gets complicated.

 

[1] See ASIC’s Regulatory Guide 258 – Registered Liquidators: Registration, Disciplinary Actions and Insurance Requirements.

[2] Including cases involving trustees Lean, Hamilton, Erskine, Cornell and Hall. Case references are available.

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One Response

  1. Timely reminder of the problems with he ILRA commencement, the current confusion and the difficulties wither manner in which the 2 government departments have mannered the substantial changes.

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