The government has announced a review of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) which is the law that provides for a special form of incorporation for Aboriginal and Torres Strait Islander organisations, separate from Corporations Act companies.
Current problems in insolvency under the Corporations Act – trading trusts, employee priorities, drafting concerns – have already been raised.
The CATSI Act has its own detailed provisions but it also picks up various parts of the Corporations Act: for example, s 499‑10 CATSI Act applies various Corporations Act external administration provisions to an Aboriginal and Torres Strait Islander corporation that is under ‘special administration’ under the CATSI Act.
Technical Review of the CATSI Act
This review will build on the findings of what is termed an earlier ‘Technical Review of the CATSI Act’ issued by law firm DLA Piper in October 2017.
Those interested in the insolvency aspects of this Technical Review will find substantial commentary and recommendations in its 275 pages. Some are unusual and others may need to be updated.
Impact of the Insolvency Law Reform Act 2016 [ILRA]
The Technical Review was issued in October 2017 shortly after the commencement of the changes made to the Corporations Act by the Insolvency Law Reform Act 2016 [ILRA] in March and September 2017.
The Technical Review is very critical of those ILRA changes.
It therefore recommends in effect that the ILRA changes be ignored in any redrafting of the CATSI Act such that, subject to some exceptions,
“the provisions in the CATSI Act which link into the external administration area of the Corporations Act1 should refer to the provisions of the Corporations Act and the Corporations Regulations as they stood immediately before the commencement of the …. ILRA i.e. on 28 February 2017”.
Some may disagree or query whether this is workable, or necessary.
Insolvent trading trusts
The Technical Review also notes the then uncertainty about the law concerning insolvent trading trusts and offers its own reforms for the CATSI Act. These cover various scenarios – where the corporation has traded only in a trustee capacity but not in any personal capacity; has traded in both a personal and trustee capacity; has acted as trustee of more than one trust; and has acted as trustee for several trusts, some of which are solvent and some of which are not. This will need to be revisited in light of the 2019 High Court decision in Carter Holt Harvey.
The Technical Review also refers to the then “current unresolved and continuing problems with employee entitlements under section 433 and 561 of the Corporations Act” in particular, the adverse impact on the government Fair Entitlement Guarantee (FEG) scheme which operates as a ‘safety net’ for employee entitlements when an employer goes into liquidation.
The Technical Review analyses
“six Federal Court decisions which appear to have overturned over a hundred years of what was thought to be well-established law”
in relation to voidable recoveries being available to unsecured creditors and not to secured creditors.
Definition of insolvency etc
Other detailed insolvency recommendations are made in the Technical Review, in particular about the definition of insolvency, presumptions of insolvency and the appointments of special administrators.
Phases of the Review of the CATSI Act
In phase 1, views are being sought as to which parts of the CATSI Act should be considered as part of the review. This feedback will be used to help shape the scope of the review. That consultation closes on 14 February 2020.
In Phase 2, views on amendments to the CATSI Act will be sought.
The National Indigenous Australian Agency (NIAA) is leading the review. Details are on the website of the NIAA.