An experienced Australian insolvency practitioner (IP) has had his right to practise as a liquidator suspended by a Court for 3 years following a finding that, in 2010, he had fabricated documents and forged signatures in the context of an ASIC investigation with the intention of misleading ASIC. This has led to his right to practise as a trustee in bankruptcy also being suspended, not by a court, but by the regulator.
This presents something of a case study in how the rather complicated IP regulation system works in Australia.
The South Australian Supreme Court said that given the isolated nature of the conduct, and the professional and personal price already paid, there was very little risk of any further such conduct. While the Court rejected ASIC’s application for a 7-10 year suspension, the court saw the need for reasons of deterrence, expression of disapproval and maintaining confidence in the system. It referred to the significant public function performed by liquidators and the high standards expected: ASIC v Macks (No 5) SASC 12.
While such an outcome might be comparable with IP regulation in related jurisdictions such as the UK and New Zealand, Australia’s system is more procedurally complicated. This is because:
- A. Australian IPs are registered and regulated separately as company liquidators, by ASIC, and as bankruptcy trustees, by AFSA (or Inspector-General). Although regulated separately, the law requires each of ASIC and AFSA to “work co-operatively” with each other in relation to persons who are registered and regulated by both: s 10-5 IPS.
- B. Australian IPs are not subject to any significant statutory regulation by any professional bodies, in contrast to NZICA and RITANZ in New Zealand, and the recognised professional bodies (RPBs) in the UK.
That is, suspension (or cancellation) of X’s registration as a liquidator does not automatically suspend or cancel X’s registration as a trustee; and vice versa. Given the separate processes, and differing issues that apply between corporate and personal insolvency, that legal outcome may be appropriate, for example if X as a liquidator had displayed some fundamental lack of knowledge of company insolvency only.
The legal structure is that if the suspended liquidator X is also a trustee, the law imposes on X an obligation to report the suspension to the bankruptcy regulator, AFSA: s 35-1 IPSB. Then, the Inspector-General may decide to suspend (not cancel) X’s registration as a trustee; no time limit for the period of suspension is given: s 40-25. The Inspector-General must give written notice to X setting out the decision and give reasons: s 40-35(2). X as trustee has a right of appeal to the AAT (s 96-1), which decides the matter afresh. The same process applies in the case of cancellation.
Separately, AFSA can issue a show-cause notice to X the trustee under s 40-40 asking X to show cause why X should continue to be registered; which may lead to the convening of a disciplinary committee hearing under s 40-45 which has a range of outcomes it can impose or allow: s 40-55. These are broader than the Inspector-General can impose. The Inspector-General is bound by the decision of the committee: s 40-65.
Separately again there may be other avenues under the Bankruptcy Act itself, for the Inspector-General to apply to the court; a right of appeal to the court may also be available to X.
In the case in question, the Inspector-General has already announced by way of a media release from a Deputy Chief Executive of AFSA that he has suspended Mr Macks’ registration as a trustee for what it describes as “fraudulent” activity, a term not used by the Court. It is not stated whether the media release purports to give the reasons for the Inspector-General’s decision under s 40-35 but it says that “[a]s a result of the Supreme Court’s findings, the Inspector-General in Bankruptcy has also suspended Mr Macks’ registration as a trustee for a period of three years” and the DCE to have “reiterated the importance of insolvency professionals acting with integrity” and so on.
Typically, in professional discipline cases, there are a number of factors taken into account, this one impacted by the Supreme Court already having taken Mr Macks’ conduct into account in its orders. Those orders factored in the interests of creditors in administrations handled by Mr Macks which were to be handled by his partner. It is not explained by AFSA how the interests of creditors in the matters handled by Mr Macks are to be handled but the benefit in bankruptcy law is that they would all automatically pass to the Official Trustee, under s 160. However, given AFSA’s acknowledgment of its limited resources, the creditors may find their matters dispersed elsewhere.
Other issues in such disciplinary decision reasons typically go to the purposes of professional sanctions, risk to the public, the particular circumstances and the likelihood of any repeat conduct. A person’s loss of their livelihood is also a factor. Comparable issues can arise in registration decisions: Licensing of insolvency practitioners – decision making principles from New Zealand | Murrays Legal Commentary
Any (further) reasons for the Inspector-General’s decision may not be made public unless released by the trustee, or unless there is an application by the trustee to the AAT or the Court.
B. Professional/industry bodies
In contrast to the UK and NZ, professional or “industry” bodies in Australia have no direct statutory role in IP discipline and membership of the main body, ARITA, is not required to be a trustee or liquidator. In any event, after some period of time, ARITA announced that on 31 March 2021 it had terminated Mr Mack’s membership following the court decision.
See further Keay’s Insolvency, 11th ed [forthcoming]; and this website.