A new code of conduct for insolvency practitioners in Australia now proscribes illegal anti-competitive conduct, unusual for an industry code but no doubt included for good legal reasons, given the last competition review of insolvency was in 1992.
Professionals can have the knowledge and authority to significantly influence, often in their favour, the framing of the legal environment in which they operate,[1] including how they are regulated. That can be beneficial but it also raises the potential for collusion, price maintenance and the imposition of protective barriers to entry.
Concerns about a lack of professionalism in various powerful sectors have arisen of late, banking and financial advisers being some, and continually, insolvency practitioners – trustees and liquidators who occupy a small but influential group, possessed of a particular base of expertise and knowledge.
ARITA Code
The new edition of the ARITA Code – one of the insolvency professional bodies – now contains a warning to its members against engaging in
”anti-competitive behavio[u]r … including cartels, [unlawful] collective bargaining and boycotts, exclusive dealing, misuse of market power, refusal to supply services on an anti-competitive basis and unconscionable conduct”.
Some of those behaviours are very serious and can involve criminal conduct; they can involve misconduct of individuals, or of organisations.[2]
While the ARITA Code says that it is “not a restatement of [l]egislation, regulation and judicial pronouncements[3]” the inclusion of this proscription may have been prompted by some particular concern arising out of the changing state of the insolvency market.
Trade Practices Commission Report 1992
Although that “market” in insolvency has been the subject of some limited comment over recent years – said to be “distorted” in a 2010 report[4] – the last major review was by the then Trade Practices Commission in its Report of July 1992.[5] It saw insolvency as an area where a number of market failure characteristics were then of potential concern. The Report focused on three – regulation of entry, remuneration and the then system of court appointments by rotation.
As to barriers to entry, whether IPs should remain the preserve of accountants came under scrutiny, exacerbated by what the TPC saw as overly stringent experience requirements. These included that a person applying to be a liquidator had to have prior experience under the direct supervision of a registered liquidator thereby “ensuring that insolvency practitioners came from a narrowly defined pool of professionals”. The need for membership of accounting bodies, and the separate registrations required for liquidators and bankruptcy trustees were said to further narrow the field.
As to whether accounting skills were required at all for handling small insolvencies, the Report said that “many windings up bankruptcies and smaller receiverships involve more in the way of legal and negotiating skills than they do accounting expertise”, but the Report noted that this idea was “strenuously opposed” by the then IPAA as creating a “second class of insolvency practitioner”.
The 1992 Report concluded that
“the role of an IP in Australia today is only indirectly linked to the accountancy profession”.
The Report then went on to review the arrangements for the setting of professional remuneration, leading to the then IPAA removing its set scale of fees, over its own opposition; and to review the then rotation system of the courts in appointing official liquidators.
The Insolvency Law Reform Act 2016 (ILRA)
While the then registration requirement to first be an accountant has been removed, other concerns have in fact been sanctioned, by the ILRA.
The registration requirement for 4,000 hours experience assisting a liquidator, and more, was enshrined in the law under the ILRA.[6] This compares with a minimum of 1,000 hours required in New Zealand and 600 in the UK.
The separate registration, and discipline, processes required for company liquidators and bankruptcy trustees were further entrenched by the ILRA.
And while the court rotation system has been removed, and the restrictions imposed by ASIC on ‘official’ liquidators, some government agencies have panel arrangements for certain practitioners to take court appointments as liquidator in their winding up proceedings.
Professional codes
Then there are issues within professional bodies themselves – insolvency itself was once described as “nothing less than an old-style cartel”[7] – which, while ARITA membership is voluntary, nevertheless can impose restrictions on members’ conduct which may call for scrutiny.
In the end, and apart from these issues, there can be no issue taken with ARITA’s novel and carefully drafted warning.
It is not only a useful reminder for its members but also a useful prompt for any root and branch regulatory re-examination of professional behaviour in the insolvency industry.
Next: ARITA’s Code proscription on its members discriminating on the basis of ‘including but not limited to’ race, religion, age, parental status, disability, gender identity, sexual orientation, physical features, breastfeeding, personal association, and more.
[1] See Rescuing Business, Halliday and Carruthers, Oxford, 1998.
[2] Competition and Consumer Act 2010.
[3] Presumably meaning ‘government agency regulation’ and ‘case law’.
[4] 2010 Senate Committee, The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework, 2010, [11.51].
[5] Trade Practices Commission, Study of the Professions, Final Report – July 1992, Accountancy, including Insolvency pp 63-87.
[6] Insolvency Practice Rules (Corporations) s 20-1
[7] Chanticleer, AFR, 6 November 1991.
