Do aspiring liquidators working in corporate insolvency practitioners really have an issue with the need to have some ‘exposure’ to bankruptcy in their required 4,000 hours experience? According to ASIC, and others, yes.
I raised this at a recent conference,[1] prompted as I was by a practitioner querying, if not complaining, that to be registered as a liquidator, under the laws introduced by the Insolvency Law Reform Act 2016 (ILRA), a corporate practitioner has to have not only corporate insolvency experience but also
“exposure to processes (including bankruptcy) under the Bankruptcy Act”, (processes but not necessarily the law?).
My response was that if a corporate practitioner of the required 4,000 hours experience has not had exposure to bankruptcy, their experience and that of their firm has been rather narrow.
The connections
For one thing, the intersection between a bankrupt shareholder and a liquidated company raises a few issues; independence issues are raised, as to whether a liquidator and trustee can be one and the same, or from the same firm; for another, directors proposing a liquidation or administration might like to know the personal consequences for themselves; liquidators and trustees will be in contact over proofs of debt, assets and information; and bankruptcy law will often provide an answer not dealt with in corporate. As well, CPD and professional training invariably covers both corporate and personal, as do journals, text books, conferences and more.
ILRA
Then there is the ILRA about which the profession needs to understand its history and significance. As I have said in the past, the ILRA had the task of bringing corporate insolvency up to speed, with many of the reforms to the Corporations Act under the ILRA coming from bankruptcy – in particular as to registration and discipline; technology; reasonableness of requests; meetings of creditors; and replacement of practitioners. The slow development of corporate insolvency was not helped by Australia having corporate and personal insolvency administered by different departments and regulators; but it was not also impeded by the corporate insolvency practitioners’ view of bankruptcy law as its poor cousin.
While corporate lawyers and practitioners might complain that tried and trusted terms have been redefined under the new law, that may have been only because they were internally inconsistent within corporate insolvency itself – committees of creditors and committees of inspections; remuneration fixed or determined; different powers between a voluntary and court liquidator, which even now persist.
We now have common sections and wording, mostly, which should be read and interpreted consistently across corporate and personal insolvency.
Section 90-15
A more particular example of the potential positive impact of the ILRA is in what is an important but unfortunate section – s 90-15 – which contains a ‘directions’ power. Despite the width of the section, which gives a court wide power to make orders ‘as it thinks fit’, the Federal Circuit Court [yes Circuit Court] has held those words to be limited by the availability of a more specific remedy: Andersen v Lennon.[2]
The term ‘as it thinks fit’ occurs 14 times throughout the new law, and there are many other common terms and concepts. That interpretation of s 90-15 may relevantly be applied more broadly, and in corporate insolvency.
Courts
We could therefore reasonably contemplate Supreme Courts having regard to bankruptcy judgments, and Federal and Supreme Court decisions on bankruptcy and liquidation being decided consistently as to virtual meetings, replacement of trustees, voting and more.
Regulators
As to the regulators, the Inspector-General in Bankruptcy now has quasi-judicial powers to review remuneration, applying the same criteria as the courts in corporate insolvency. The law of bankruptcy remuneration on proportionality, the conduct of proceedings, investigations on limited funds, and more, may well become of precedent value through the published remuneration determinations of the Inspector-General, guiding both the courts and ASIC; for example in ASIC’s decision whether to appoint a reviewing liquidator to assess whether a liquidator’s remuneration is reasonable.
The two regulators might even issue consistent guidance. ASIC even made a submission on the one-year bankruptcy.
Liquidator registration – a view from ASIC
Getting back to liquidator registration, ASIC has since, coincidentally, expressed a view[3] on liquidators’ bankruptcy exposure, which is helpful, although its views are not binding. ASIC says that registration committees have registered persons as liquidators without exposure to bankruptcy with committees imposing a condition including that the person completes bankruptcy studies (or perhaps more such studies). That in itself raises other issues.
An industry or a profession?
In any event, at a session at the Traill 17th Annual Practical Insolvency Conference,
ASIC asked practitioners in the audience whether they saw themselves as comprising an ‘industry’, or a ‘profession’?
which question connects with a purpose and aim of the registration committee process introduced by the ILRA.
[1] Traill’s 17th Annual Insolvency Conference, March 2018. What are we learning from the ILRA 2016?
[2] [2017] FCCA 2452
[3] [2018] 30(1) ARITA J 44, Registration committee requirements …, Thea Eszenyi, ASIC.
2 Responses
It can be both.
Knowledge of settled law in bankruptcy – such as that a preference claim cannot be set off against the recipient’s claim in the bankruptcy – might avoid unnecessary confusion and debate in corporate insolvency matters.