The AAT has confirmed that a corporate insolvency practitioner’s ‘exposure’ to bankruptcy as being one criterion required to be met for liquidator registration, means what it says, and does not necessarily call for direct experience in bankruptcy. This corrects a view to the contrary that had been causing some concern. ASIC has reported in the ARITA journal that there may be other such decisions where too strict a view of the bankruptcy requirement has been taken.
AAT’s decision
Exposure to bankruptcy
In determining what is meant by the requirement for a prospective liquidator to have ‘exposure’ to bankruptcy, a registration committee took the view that it meant actual bankruptcy experience. That in my view is not correct: see Liquidators’ knowledge of bankruptcy law?
But for that reason, and a negative finding about the Australian residency of the applicant, the committee refused the application.
On a challenge by the applicant to this decision to the AAT, the Tribunal rejected that interpretation, properly giving the word ‘exposure’ its plain English meaning. While the Tribunal said that there was no guidance on this from the law, or ASIC, ASIC has recently reported that ‘many’ of those who have applied to be registered as liquidators under the new law have been found by the relevant committee
‘to have not satisfied the exposure to bankruptcy processes requirement because the applicant has either had no exposure, or limited exposure, to bankruptcy processes’: ASIC, Thea Eszenyi, (2018) 30(1) ARITA 44.
ASIC is also said to have taken a legal view which then somehow found its way into the committee’s decision. ASIC’s views of the law do not bind a committee, as ASIC acknowledges.
How the committee came to its view is not known, given that its reasons are not published and that the AAT determines the matter afresh. Nevertheless, the AAT does explain the committee’s reasoning.
In any event, that aspect of the law is now clear.
Residency
The AAT also disagreed with the committee in so far as it said that the applicant’s Singaporean place of residence meant he did not comply with the Australian residency requirement under the rules. It was said that ASIC would have difficulty regulating an overseas liquidator. The AAT noted however that s 20–20(5) IPSC expressly provides for registration even where an applicant does not comply with s 20–20(4)(i) and is not resident in Australia. Conditions on the registration were imposed to address that.
Cross-border regulation
The issue I have raised is that, given the extraterritorial coverage of practitioner misconduct “in a foreign country”, in IPSC s 40-40(1)(l), which would occur if a liquidator were acting with cross-border insolvency authority, ASIC does have a continued role and responsibility in their regulation: see Cross-border regulation of insolvency practitioners (2018) 19(3) INSLB 55. According to the AAT, ASIC has that responsibility in any event.
ASIC and the Committee
Finally, while the respondent to the application was the [unnamed] committee, the record shows that counsel for ASIC appeared, apparently putting arguments on behalf of, or instead of, the committee. It may be that ASIC sought leave to do so. The committee is of course independent of ASIC and ASIC must accept the committee’s decision: s 20-30 IPSC.
Conditions on registration
It seems that Mansfield accepted a large number of quite novel conditions to his registration, including to retain an Australian lawyer; to in effect be on 48 hours call to return to Australia; that his firm will open an operation in Australia and also engage an Australian specialist insolvency software provider; that he will maintain his residency in Singapore and/or Australia, or elsewhere as ASIC agrees; that he ‘will become and remain’ a professional member of ARITA; and that he will physically attend any section 439A second meetings of creditors (see s 75-50(1) IPRC).
A proposed requirement that he undertake ARITA bankruptcy training involving family law, voidable transactions, terminations of bankruptcies and income assessments was necessarily refused.
Transparency
It is only because this AAT decision has been published that some legal precedent is available on how the new law operates.
This raises the potential difficulty with the new law that as the authority for determining matters is given to ad hoc committees, with a committee being convened afresh each time to deal with a particular application, there is no publication of their reasons for refusal, or granting, of applications. Nor can there be any collection of precedents and guidelines as to how the law is being applied.
When each committee convenes and hears a matter, it determines its own processes, subject to the law found in the Schedules, the Rules, and the general law. The only guidance that can really be relied upon is that law.
In particular, the committees are independent of the relevant regulator and any other stakeholder. The only status of ASIC and AFSA is to nominate someone to the committee, and to chair the committee.
See Mansfield and a committee convened under section 20-10 of the Insolvency Practice Schedule (Corporations) [2018] AATA 1510.
