A new standard for insolvency practitioners – APES 330 – has just been issued written in APESB’s unique style and offering guidance on issues in insolvency practice not covered – to some extent – by the law: responsibilities to creditors and others, timeliness, remuneration, meetings, and integrity and fairness.
The new version is said to take into account what have been major regulatory and other changes in insolvency law and practice over the last 5 years, since the last update in 2014.
APES 330 comes out before the new 4th ed of the ARITA Code, upon which it is said to be based.
Professional accountants are bound by various codes and standards of conduct. These are issued by the Accounting Professional & Ethical Standards Board Limited (APESB) and then implemented and regulated by the three professional bodies – CAANZ, CPA and IPA. APESB codes are consistent with those of the International Federation of Accountants; the accountants’ international Code of Ethics – APES 110 – applies in Australia.
APESB has released a revised APES 330 Insolvency Services (APES 330) standard that supersedes the previous standard issued in September 2014. It is a code relevantly binding upon all accountants practising in insolvency and restructuring – trustees in bankruptcy and company liquidators.
Soft law codes are useful mechanisms to maintain standards not necessarily found in the law underlying the particular profession to which they apply. They can support the law and be relied upon by courts. Member compliance is a responsibility of CAANZ, CPA and IPA.
They necessarily must be updated to accord with changes in the law and practice.
In relation to APES 330, significant insolvency reforms under the Insolvency Law Reform Act 2016 (Cth) (ILRA) commenced in March 2017, ‘safe harbour’ protection for directors commenced in September 2017, and insolvency case law has developed. The offence reporting obligations under the Code of Ethics were also introduced.
While the ARITA Code, upon which APES 330 is based, is the main code for insolvency practitioners (IPs), APESB has proceeded to issue its code now, but aligned it with ARITA’s proposed new 4th ed which APESB says is expected “in due course”.
The APES Board is headed by an eminent lawyer[1] but comprises those trained in accounting and associated disciplines.[2]
An issue with insolvency is that although it is practised by accountants, it is very legally based, including as to principles and case law, and across a range of legal areas.
Some initial comments on the new APES 330 are these.
Style
APES 330 is written in a style that accords with “APESB’s drafting conventions” which readers, lawyers in particular, may find awkward and antiquated. It differs in style from that of the ARITA Code. But given its accounting focus, APES 330’s explanation and interpretation of the law and practice can be understood in general terms consistent with its principles-based approach.
ILRA
Even then, some may challenge APESB’s statement that the Insolvency Law Reform Act 2016 (ILRA) was “issued to streamline and ensure consistency across different legislative instruments [sic] in relation to insolvency” and that “no substantive amendments were made as a result of these reforms as the legislation in many respects incorporated aspects already included in [the 2104 version of] APES 330”.
The regulatory focus of the ILRA was in fact significant, though not so significant that codes like APES 330 were accorded any legislative or other status, in comparison with NZ and the UK. But an important change made by ILRA was to provide authority, and implied responsibility, to each of the accounting bodies – CAANZ, CPA and IPA – and ARITA, in their regulation of IPs. At some stage the APESB may consider introducing into APES 330 relevant guidance on the whistleblowing, committee and confidentiality arrangements introduced by the ILRA.
Independence
Independence principles are an important focus of any insolvency code. APESB says its members must be
“cognisant of legal precedence [sic] in relation to the duties of independence, impartiality, and avoidance of conflict [of interest]”.
APESB suggests that the case law precedents set out
“a requirement for independence which may be perceived to be stricter than the Code”.
In fact, the courts may well be less strict than APESB or more attuned to the need to decide upon particular circumstances, which decisions then need to be factored into the on-going development of the law. Thus the “fair-minded lay observer” may be changing with increasingly greater access to information about insolvency processes than before.
APES 330’s list of court decisions in independence to 2014[3] does not include later findings on independence, for example as to advice given by another office of the same firm as the IP, the IP’s pre-appointment dealings, and creditors’ implied acceptance of any IP conflict.[4]
Offence reporting
Importantly and necessarily, APES 330 incorporates the new offence reporting responsibilities of accountants – NOCLAR – under the international Code of Ethics.[5] While an appointed IP has no client as such, these obligations apply to IPs in pre-insolvency or other related work, in respect of clients and employers.[6]
The draft ARITA Code proposes to impose an obligation on its members beyond NOCLAR of a member reporting another member’s failing to comply with the Code or the law, as well as self-reporting breaches. ARITA also has its own breach reporting roles under the law.
In that respect, CAANZ has joint Australian and NZ membership. Its IPs under the NZ Insolvency Practitioners Regulation Act 2019 are proposed to be bound by the NZICA Code of Ethics, including the duty to self-report unethical behaviour.[7]
New Zealand
Given the potential for NZ to allow Australian IPs to practise in NZ, and for Australia to reciprocate, alignment with NZ might be wise.
More so in light of the recent decision in where Justice Gleeson said that the matter before her, involving the liquidation of Halifax Investments with operations across Australia and New Zealand, presented
“a classic candidate for cross-border cooperation between courts to facilitate the fair and efficient administration of the winding up of Halifax AU (and Halifax NZ) that will protect the interests of all relevant persons …”.[8]
Comment
Codes are important but there is a need to ensure they are applied and enforced as necessary. The Federal Court has said[9] that it is important that ensuring compliance with insolvency codes is important, demonstrating that a code
“is something more than a public relations exercise designed to assuage the concerns of those involved with insolvency practitioners”.
The Court referred to the
“importance to be attached to adherence to the code. It must necessarily add to the status of the code and assure the public generally that the courts regard adherence to its terms as a matter of utmost importance”
necessarily assuming that the Code supports and does not contradict the law.
Given the legal importance of APES 330, monitoring of member compliance by each of CAANZ, CPA and IPA will necessarily be the subject of public reporting in due course this being an important means of instilling the reality and perception of integrity in the conduct of insolvency law and practice.
Next: the ARITA Code.
[1] Chair, Nancy Milne OAM
[2] See Due process and working procedures for the development and review of APESB pronouncements August 2019
[3] See also Network Ten [2017] FCA 914, perhaps an outlier.
[4] For example, BC39 Pty Ltd v Rambaldi, in the matter of Wharington [2014] FCA 1076; Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; Walley, in the matter of Poles & Underground Pty Ltd (Adms Apptd) [2017] FCA 486;
[5] “Responding to Non-Compliance with Laws and Regulations (NOCLAR)”.
[6] See AFSA’s Accountants’ duty to disclose non-compliance with laws and regulations, (2018) 16(2) PIR, Paul Eric.
[7] See s 140.11 of the NZICA Code of Ethics and its attention to members working in Australia.
[8] Kelly, in the matter of Halifax Investment Services Pty Ltd (in liq) (No 5) [2019] FCA 1341
[9] ASIC v McDermott, in the matter of Conalpin Pty Ltd (in liq) [2016] FCA1186, Moshinsky J.
