Referrals to a disciplinary committee of two senior insolvency practitioners with connections prompt my further explanations of Australia’s insolvency practitioner regulation system and raise issues about potential conflicts that can arise in any co-regulatory arrangement.
As much as is on the record, it is that two liquidators are subject to a 10 July 2020 referral to a committee under IPSC section 40-40(1)(f) that each “liquidator has contravened provisions of [the Corporations] Act”.
The disciplinary committee
Since 2017, the law allows ASIC to bring conduct matters before a discipline committee of three persons, convened ad hoc, for each discipline matter.[1] It is to comprise ASIC, a ministerial nominee, and an experienced liquidator chosen by ARITA: s 40-45.
Given the obvious need for the committee to be independent, the ASIC nominee must be unconnected with the matters leading up to the referral, as must the ministerial nominee, and have no material personal interests.[2]
ARITA
ARITA presents some different issues. ARITA is not itself represented on the committee, it simply has the role of choosing the liquidator member. That member must also be independent, and may be removed for any material personal interest, upon notice being given to ARITA.[3] While it seems that ARITA always chooses one of its practitioner members, the law does not say that an ARITA member must be chosen. Nor did the predecessor committee in bankruptcy, established in 1996, which similarly gave the then IPAA authority to choose a trustee to sit on a discipline committee.
There will be cases where it may not be wise for ARITA to choose one of its members, for example, if there are any relevant connections between it and the Liquidator. For one thing, the Liquidator may have resigned from ARITA in dispute, or their membership of ARITA may have been terminated, or they may belong to another perhaps competing association, or to none at all. On the other hand, the Liquidator may be too close to ARITA, even being a director, or prominent on its committees. There may be professional connections between say members of the ARITA board and the Liquidator, such as having worked together, or acted as a lawyer representing them.
All this accepts that the person chosen is not subject to any direction or influence from ARITA but, as we know, perceptions are important.
Apart from the Committee Liquidator chosen by ARITA, ARITA can have a prior hand in the disciplinary process leading to ASIC’s referral: – it may itself have referred the conduct of the Liquidator to ASIC by way of an industry notice under s 100-5; or an ARITA member on a committee may have lawfully disclosed otherwise confidential information about the Liquidator to ARITA;[4] or ASIC may have given confidential information to ARITA.[5]
Beyond the law, ARITA may have received a report from one of the accounting industry bodies through what is said to be their “Quality Assurance Programs”,[6] or from ARITA’s own investigations.
Industry notices
The section 100-5 industry notices are lodged by ARITA with some presumed authority under its constitution based upon its reasonable suspicion of misconduct. The notices are confidential, at least in respect of a liquidator. The law initially allowed the notices to appear on the ASIC public record but ARITA successfully argued that they should be kept confidential, otherwise, industry bodies (apart from ARITA itself, there are 15) “may choose not to lodge under this provision”.[7]
Whether ARITA should nevertheless disclose any prior exercise of any of these powers when it is at the same time choosing a liquidator to be a member of a disciplinary panel has not been raised. Nor whether it should disclose the process by which is exercises its statutory right to ‘choose’.[8]
These issues raise an inherent difficulty with maintaining independence in decision making in any co-regulatory system that enlists the profession itself in its own regulation, in particular where the profession is small in number.
As with any issues of independence, the law’s concern is not only that there may be partiality shown, but also that there might be the reasonable appearance of it. In fact, the concern goes beyond appearance, in that there can be the reality that unconscious biases operate regardless of good faith intentions, such that there can be a personal interest in the vindication of a certain outcome.[9]
Comment
While there are these minor co-regulation features of Australia’s system,[10] it is not comparable with the true co-regulation of the UK and New Zealand where the professional bodies themselves investigate and pursue misconduct of their own members, under the oversight of the regulator. Hence those bodies are required to have open and fair discipline regimes as a condition of their co-regulatory authority; for example, in NZ, as to natural justice, accountability and transparency, and a sufficiently independent disciplinary body.[11] There is no such regulation of ARITA, or the other industry bodies, in Australia, nor is there need for it.
2020
The nomination of the IPAA in 1996 was validly made in the context of giving what was a long-established professional body some responsibility for the quality of new practitioners; and this has carried over to ARITA.
In 2020, there are now other insolvency and related associations in Australia. Given that industry input is accepted as having merit in industry regulation, the criteria for representation of that industry may need to be reconsidered.
Separately, the ILRA 2017 reforms may have increased the inherent potential for conflicts of interest to exist in insolvency practitioner regulation, what with ARITA potentially being an investigator and referrer which then chooses the person to decide on the outcome. That is, paraphrasing the High Court, there could be circumstances where the personal interest of an ARITA member on a discipline committee could be in the vindication of ARITA’s referral claiming that misconduct had occurred.
Just as ARITA properly takes a strong line on conflicts of its members, its own conflicts need to be assessed in each case with these issues in mind. None of this suggests anything about the matters concerning the two practitioners referred to.
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For my related commentary on this site, see:
- · The Law in the Insolvency “Law” Reform Act 2016
- · How to become an insolvency practitioner in Australia
- · Applying to become a trustee in bankruptcy – some guidance from the case law
- · A liquidator disciplinary decision – some regulatory insights
- · Registration of a liquidator, on conditions – Mansfield
And elsewhere:
- · Bodies everywhere — the role of professional bodies in regulating insolvency practitioners (2018) (17&18) BCLB [351].
- · Regulation of Australia’s insolvency practitioners, Law Council Insolvency Workshop, 27 September 2019.
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[1] Under the Insolvency Law Reform Act 2016 (ILRA). The same applies in bankruptcy, to which this article also applies.
[2] As to the breadth of a “personal interest”, see Isbester v Knox City Council [2015] HCA 20 at [46], Kiefel, Bell, Keane and Nettle JJ; Kirby v Dental Council of NSW [2020] NSWCA 91.
[3] IPRC s 50-30. There is a duty of disclosure: s 50-50
[4] IPSC s 50-35
[5] ASIC Act s 127(4)(d); ASIC Reg 8AA
[6] ARITA Constitution, cl 6.10.
[7] Submissions to Treasury 27 September 2018 and to Senate Economics Legislation Committee 8 March 2019. For my criticisms of this protection, see my Treasury Laws Amendment (Measures for a later sitting) Bill 2018: Miscellaneous amendments.
[8] But see the internal processes of AFSA and ARITA as described in Burke v Inspector-General in Bankruptcy [2013] FMCA 2 and on appeal, [2014] FCAFC 112.
[9] Isbester v Knox, in the context of an investigator being on a prosecutorial committee.
[10] Bodies everywhere — the role of professional bodies in regulating insolvency practitioners (2018) (17&18) BCLB [351], Murray.
[11] Insolvency Practitioners Regulation Act (Prescribed Minimum Standards for Accreditation) Notice 2020 (NZ)
