Australia adopted much of English corporate law at the beginning of the 20th century but one thing it did not take on was the English Official Receiver role[1] – the UK’s default liquidator and trustee in bankruptcy, among other tasks, also adopted in New Zealand as the Official Assignee.
Official liquidators
Instead, Australia opted for a free enterprise ‘official liquidator’ role whereby, apparently out of the goodness of its professional heart, the liquidator profession agreed to agree to take any court appointments to insolvent companies whether its liquidators would be paid or not.
That opaque arrangement continued for many years, extending to a select few, the A list, taking these appointments. In 1982, it was estimated that 70% of court appointments were non-paying. It led to a finding in 2013 of the corporate insolvency profession doing $47m of unfunded work annually,[2] hardly a good example of a profession showing good business acumen.
Creditors now to fund
Official liquidators were finally abolished in 2017, the government saying that instead, creditors applying to wind up a debtor company would most likely need to provide a guarantee of “a minimum amount” to a liquidator to agree to consent to being appointed. Perhaps thinking, rightly, that creditors would baulk at that arrangement, the government anticipated a reduction in the number of assetless companies being liquidated
‘as corporate insolvency practitioners would not be expected to commence such administrations without some form of guarantee or where they do not believe they are likely to be remunerated’.[3]
The fall in the number of companies entering liquidation since then may confirm the government’s anticipated outcome of the removal of official liquidators.
The government also saw this change as addressing “cross-subsidisation” where
“the costs incurred in assetless administrations are recouped through higher remuneration costs in larger administrations”.
Root and branch insolvency reform
As a root and branch insolvency reform issue, there is a logic in introducing an Official Receiver role in corporate insolvency.
Creditors will be relieved of having to fund the liquidator, a dubious and unlikely arrangement to start with, and more importantly, directors of insolvent businesses can have their SME assetless companies wound up, instead of simply letting them disappear off the register.
As to disappearing off the register, the government has in fact raised the prospect of an Official Receiver, or
“‘government liquidator'” to conduct a streamlined external administration of small-to-medium size enterprises with the option to appoint a private registered liquidator if circumstances warranted it”,
as a counter to unlawful phoenix activity, but it is yet to announce its decision.
For more detail, see my Liquidating the Official Liquidator, CCH Law Chat Blog, July 2016.
[1] Explained in McPherson’s Law of Company Liquidation at [1.410]
[2] Explanatory Memorandum to the Insolvency Law Reform Bill 2015 at [9.53]
[3] Explanatory Memorandum to the Insolvency Law Reform Bill 2015 at [9.137]
