The Insolvency Law Reform Act 2016 introduced some, let’s say, novel provisions in relation to the registration and discipline of Australian insolvency practitioners which I have explained elsewhere. The law strikes some balance between privacy of the individual practitioner and public disclosure of the selection or discipline processes. In light of the government’s proposed SME insolvency reforms involving the registration of a wider group of persons eligible to be registered as liquidators, that balance may need closer attention.
Both registration and discipline processes are confidential which is understandable and there are penalties for breach. At the same time there are exclusions allowing disclosure, necessary given the public interest and importance of what is a public interest role: see s 50-35 Insolvency Practice Schedules.
ARITA has a role in relation to both, in being able to choose a practitioner to sit on the respective committee type (registration or discipline), and being able to receive certain confidential information about the committee process, for certain purposes.
In its submission to government in relation to the SME law reforms, ARITA says that
“despite seeking specific consent from ASIC, ARITA delegates are barred from disclosing committee decisions and reasons for decisions to ARITA, indeed ASIC has taken the position that any such disclosure by our delegate would constitute an offence”.
ARITA goes on to say that it considers that disclosure of the ‘information requested’ [apparently by it] is in the best interests of the scheme in assisting with the consistency in interpretation and application of the relevant provisions. ARITA asks for ‘specific amendment to confirm that ARITA delegates to committees may share information with ARITA …’.
This seems to be referring to an interpretation of s 50-35(2) of the Second Schedule. That section does not give ASIC any particular authority such that its ‘consent’ is required. Nor for that matter does ARITA have a right to seek any consent. It is the practitioner chosen to sit on the committee who is subject to s 50-35, who is also not ARITA’s ‘delegate’ and who may not be an ARITA member in any event.
Transparency is important
Nevertheless, transparency is important. The difficulty may lie in the limited exclusion from confidentiality restrictions in s 50-35(2)(iv) which permits disclosure to assist a prescribed body – being ARITA – to perform only its ‘disciplinary’ function, not its registration function.
But even if s 50-35 extended to registration decisions, the real issue is not about disclosure to ARITA, but rather it is about open publication of the registration decision and the reasons for it. That is a separate process.
Disclosure of reasons for a disciplinary decision is within the discretion of the committee: s 40-55(1)(h). But there is no equivalent right of a registration committee to publicly issue its reasons for refusing or granting an application. It must of course give a copy of its reasons to the applicant, and ASIC/AFSA. Neither regulator can vary or challenge those decisions. A decision is reviewable by the AAT.
As an historical aside, applications for registration as trustees in bankruptcy were initially held in open court, with the application to be advertised, and interested parties invited to attend. The applicant would be questioned by the Judge as to their knowledge of bankruptcy law and their other qualities. In one 1928 case, a number of outside parties filed objections to the registration, so many that the applicant withdrew: Re J 1 ABC 15.
Should the selection process of liquidators or trustees be made more transparent?
There is a tension between transparency and privacy in any decisions appointing a person to what is a statutory office. This can be later disclosed in any tribunal or court decisions if the committee’s decision is challenged. But as I have said, if the government proceeds with its SME reforms, by giving registration committees an extended discretion to allow a person to be registered as a liquidator, without any statutory criteria, the integrity of the process may suffer unless some transparency and accountability is offered. Inconsistency in the types of applicants registered or refused registration is to be avoided in what may be a contentious item of law reform.
It may be that these issues are under consideration by the government in finalising the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020. It is not a matter for the regulators although both ASIC and AFSA issue guidance on the process set out in the law to the extent permitted, while accepting that the committees exercise their independent judgment in each matter, which the regulators must accept. We await to see how that independent judgment is to be guided under the proposed law.
In any event, ASIC’s legal or accountant’s view to which ARITA refers would be useful to see before commenting further, and how that corresponds with AFSA’s interpretation of the same provision.