The law reform process of going through a piece of legislation and picking up minor errors is useful and necessary but can be unwise. What may appear to be a minor change can have unintended consequences, or the change should properly be looked at more comprehensively.
A series of miscellaneous amendments are in this Bill, including two related to corporate insolvency:
- that liquidators’ declarations as to their prior relationships and indemnities may be sent to creditors by electronic means, and
- that ‘industry notices’ alleging misconduct by a liquidator be removed from public access on ASIC’s database.
These arise from major changes made to insolvency law commencing well over 18 months ago, in March 2017, under the Insolvency Law Reform Act 2016 (ILRA).
On their face, both appear routine. But in so far as the focus has been on harmonising corporate and personal insolvency law, they miss other things.
Serving electronically
This issue might best be explained from a creditor’s perspective, in a bankruptcy with trustee X, and then in a liquidation with the same Mr X as liquidator.
For the liquidation, the law requires Mr X to prepare a declaration going into some detail about indemnities given and relationships had: see s 506A. If that is a voluntary liquidation, that is the extent of it. If it is a court appointed liquidation, the liquidator also has to have made a different declaration – a court consent to act – Form 8. What the Treasury Laws Amendment (Measures for a later sitting) Bill 2018 does is simply allow the declaration to be sent electronically, but only on certain conditions: s 600G. The court Form 8 does not have to be sent to creditors.
For the bankruptcy, the law requires Mr X, in the initial AFSA form of trustee consent to act declaration, to say that neither he as trustee nor his related entities are related to the debtor, or if they are, how. There is no requirement to send this form to the creditors, electronically or otherwise.
The permissions to use electronic communications are different in personal and corporate insolvency:
- section 600G is more restrictive in its use than the equivalent permission in bankruptcy, reg 16;
- while s 600G deems the document served the day after, bankruptcy reg 16 deems it served the day it is emailed; and
- some corporate documents, assuming the law has survived the ILRA, are served the very day they are put in the post, ahead of any s 600G service.[1]
One purpose of the ARITA Code and APES 330, in relation to those to whom they apply, is to provide consistency between personal and corporate insolvency, by imposing the same obligations on trustees and liquidators in relation to declarations of independence etc.
But these soft law codes are not statutory nor legally enforceable. It would be better if the law were consistent instead.
Industry notices removed from public access
As to the second insolvency reform in the draft Bill, the Insolvency Practice Schedule (Corporations) allows ‘industry bodies’ to lodge with ASIC a notice of possible grounds for disciplinary action against a registered liquidator (s 40-100). This is open to inspection on the ASIC data base.
As I have raised in several forums,[2] this notice is then open to public inspection. The draft Bill – by adding s 1274(2)(a)(ivb) to the Corporations Act – seeks to ensure that this notice is not public. The main industry body using these notices would be ARITA. Treasury explains that this proposed restriction on public access is consistent with the treatment of other notices which contain sensitive information.
That is not necessarily the case, particularly in bankruptcy, explained below.
For one thing, such a notice is not confidential in the hands of an industry body, which may choose to disclose it: s 50-35 IPSC.
In fact, under s 40-105, that industry notice – issued say by ARITA – may be the subject of a claim for damages by anyone referred to in the notice, for example if they are wrongly named and they suffer reputational damage. That raises the further question of natural justice if the liquidator who is the subject of an industry notice is not served with it. How else might the liquidator know of the notice to challenge it under s 40-105? It may be that such a notice would also be discoverable in any proceedings against ARITA under s 40-105, including documents surrounding the decision by ARITA to issue it.
Neither ARITA nor the other accounting bodies address this, nor other issues surrounding their new powers.[3]
And while the industry notice could not, under the Bill be publicly inspected, ASIC may decide to send it to a range of prescribed professional disciplinary bodies. They include ARITA, CAANZ, law societies and others: s 127 ASIC Act.
In personal insolvency, the Insolvency Practice Schedule (Bankruptcy) likewise allows industry bodies to lodge with the Inspector-General (IG) a notice of possible grounds for disciplinary action against a trustee: s 40-100.
There is no particular confidentiality provision in the Bankruptcy Act but s 12(4) permits the IG to provide that notice to any Commonwealth department and, as with ASIC, to any of the same prescribed professional disciplinary bodies.
As to the Register of Liquidators, suffice to say that some disciplinary processes and outcomes are to be recorded there, including particulars of any disciplinary action (defined in IPRC s 5-5) but excluding a s 40-40 show-cause notice; but see also s 1274 Corporations Act and s 127 ASIC Act. Suffice also to say that the Register of Trustees is relevantly different.
All this is too much
All this is too much for a Laws Amendment Bill, but if by making these very minor changes the legislature is suggesting that the law is satisfactory, it might like to have another look, before they come under the scrutiny of a court, or at least with a view to harmonisation.
In that respect, the Bill addresses some but not all of the required ILRA 2016 fixes which I have raised since the new law commenced in March 2017.
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[1] Yates, in the matter of G Retail Ltd (Administrator Appointed) [2006] FCA 370
[2] See also Keay’s Insolvency, 10th ed, 2018.
[3] Bodies everywhere — the role of professional bodies in regulating insolvency practitioners, Butterworths Corporation Law Bulletin BCLB 17 & 18 [350], Murray.
