Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Licensing of insolvency practitioners – decision making principles from New Zealand

Mr Damien Grant has succeeded before the High Court of New Zealand in challenging a decision of RITANZ declining to admit him as a member, and thereby denying him the right to practise as an insolvency practitioner under New Zealand’s new insolvency practitioner licensing regime.  This was in the context of whether Grant was of “good character” in light of his long past offences for dishonesty.  The Court found that RITANZ did not apply the correct legal test among other things and has remitted it to RITANZ to re-decide. Grant v Restructuring Insolvency & Turnaround Association New Zealand Incorporated [2020] NZHC 2876.

Although ARITA, CAANZ and other Australian insolvency industry bodies do not have the legislative authority of RITANZ, those decision-making principles are also relevant to committee hearings under Australian law which determine applications for registration and for regulation.

One difference is that Australian committee decisions are subject to merits review, whereas New Zealand’s appears based on judicial review.

Decision making principles

The rules of natural justice would apply to Australia’s committee hearings in any event, but they are specifically mandated, along with requirements as to independence and confidentiality.

Other fundamental principles of good decision making discussed in the Grant v RITANZ decision are relevant – applying the correct legal test, not taking into account irrelevant matters, taking into account relevant matters, acting reasonably, conducting fair hearings and avoiding apparent bias.  How RITANZ was found to have breached some of these principles is instructive, for example in commenting adversely that Grant’s referee reports were not given by insolvency practitioners when this was not in fact a requirement.

Fit and proper

Also relevant is the Judge’s discussion of the law’s ‘fit and proper’ or ‘good character’ test, currently the subject of some focus by AFSA in Australia.

RITANZ as a recognised body

This decision of RITANZ came before the commencement of New Zealand’s new insolvency practitioner regime on 1 September 2020, but by then RITANZ had already been approved by the Registrar as a recognized body under the Act.  This was in advance of RITANZ attending to what seem to be necessary changes to its rules as an incorporated society.

In August 2020, RITANZ had acknowledged that

“(b)ecoming a Recognised Body will necessitate some changes to the RITANZ Code of Conduct, as well as our Rules of Association, to align our processes more fully with the legislation and CA ANZ.  We will be finalising this over the coming weeks and will need to call an Extraordinary General Meeting for our Members to approve the changes required to our Rules”.

Given that RITANZ is designated as the only realistic path for someone who is not a chartered accountant to become an insolvency practitioner, it seemed to concede at the hearing that it should not be relying on “absolute discretion and no reasons given” in determining membership applications, which coloured its original decision.  As Justice Muir said:

“[13] Despite references to “absolute” and “sole” discretion, RITANZ accepts that it must, nevertheless, act in accordance with the principles of natural justice and in accordance with law, that decisions declining admission to membership involve an evaluative assessment and that they are potentially reviewable by this Court”.[1]

The High Court ordered that RITANZ re-hear Mr Grant’s membership application based on the correct legal principles set out in the judgment.  Grant would then need to apply to NZICA for a license to practise.  That would appear to give Mr Grant, or any licensed NZ practitioner, the right to practise in Australia.

Comment

Putting professional licensing decisions in the hands of professional bodies, which are themselves regulated by the state is a common feature of co-regulation.  It does mean that the professional bodies have the onus and obligation to provide fair hearings and reasoned decisions, which the state should monitor.  There are dangers of anti-competitive conduct in limiting new entrants by way of particular or high entry criteria.[2]

Lawyers

Lawyers with relevant expertise should be part of the process. It was perhaps telling that at the conclusion of his judgment, Justice Muir noted that

“this may well be a case where the [RITANZ] Board would benefit from the appointment of senior counsel assisting”.

While Australia sought to move away from liquidators using ‘senior counsel’ at disciplinary hearings, as a matter of cost,[3] the potential loss of one’s right to practise can warrant that input, as well as the quality of the decision making, and of the regulator and of the tribunal.

Australia’s focus on diversity and resilience

Australia is at the stage of broadening the range of those who can be insolvency practitioners, at this stage simply by broadening the discretion of the selection committees.[4]  The move does not seem to be aimed at increasing the numbers for the expected large numbers of COVID-19 related insolvencies, as to encourage ‘a greater diversity of practitioners into the field, and greater resilience of the sector’, which, in both respects, has come under scrutiny. The selection criteria and other issues are dependent on yet to be released regulations.

For both New Zealand and Australia, the judgment in Grant v RITANZ is relevant across many areas of professional licensing and regulation and is a useful reminder of what can be complex issues in high-level reasoning and decision making that are involved in assessing professional competence.

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[1] See generally – ‘Improving Tribunal Decisions and Reasons’, (2003) NZLRev 517, Justice Robert Fisher; ‘Disciplinary hearings: What is to be done?’ AIAL Forum, Issue 80 (May 2015), Robert Lindsay.

[2] Regulation in Australia, 2017, Freiberg

[3] Ex Memo ILRB 2015 [9.33].

[4] Corporations Amendment (Corporate Insolvency Reforms) Bill 2020

 

 

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