Headlines from the Australian Restructuring Insolvency & Turnaround Association (ARITA) NSW/ACT divisional conference

This year’s conference was full of interesting hot topics. Here are a few of the highlights and our take on the comments made by the regulatory bodies. 

Part X 

Mark Findlay (Director in Regulation & Enforcement, AFSA) commented that the changes to the definition of a special resolution under the proposed Insolvency Practice Rules (Bankruptcy) 2016 will likely have the effect of causing the death of Personal Insolvency Agreements under Part X of the Bankruptcy Act 1966 (Cth). 

Under the Bankruptcy Act a special resolution must be passed by creditors for a debtor to enter into a Personal Insolvency Agreement. Under the proposed Practice Rules a special resolution will not pass unless 75% in number and 75% in value of the creditors vote in favour of the resolution. Currently a special resolution only needs to be passed by majority in number and 75% in value. With the number of Personal Insolvency Agreements already on the decline, this reform may well see the death of Part X and possibly section 73 compositions. 

Trustees selling the Marital Home 

AFSA encouraged practitioners to make the effort to put the paperwork together for a transfer of property to the spouse of a Bankrupt. The panel encouraged Trustees to prepare Deeds of Assignment and Transfer documents to give effect to a transfer of property to the Bankrupt’s spouse. Relying on an exchange of letters was said to be undesirable in most cases. We suspect that the hidden issue here may be stamp duty. 

Calling for Proofs 

AFSA confirmed that practitioners should call for proofs of debt early where they know they are going to realise an asset that will lead to a distribution. This comment received some resistance from attendees who were concerned about incurring unnecessary fees in calling for proofs where an asset has not been recovered. The response was that only in cases of certainty of recovery would practitioners be criticised for delaying a call for proofs. 

There can also be frustration amongst creditors when they are asked to prove their debts some years after a bankruptcy started. By then creditors would often have written off the debt and archived their files. 

Proportionality and Remuneration 

Frustrations were again expressed by attendees with the current approach of the Supreme Court of New South Wales in assessing the remuneration approval applications of Liquidators by reference to the recovery obtained and the amount distributed to creditors. The differences in approach between Judges of the Supreme Court of New South Wales and the Federal Court of Australia were compared by the speaker. 

 Recent cases have confirmed that in either Court, practitioners should expect the test of proportionality to arise. Proportionality might not be the ultimate test of whether the remuneration claimed is reasonable, but it will be relevant. 

The current thoughts are that significant evidence is required of the work completed in order to satisfy the Court that the remuneration sought is reasonable where charged on a time cost basis. Evidence of, for example, a firm's compliance with the ARITA code (having the right staff member undertake the task) is likely to assist applications of this kind. 

Attendees expressed concerns that the current approach of our Courts has meant that on smaller administrations hourly rates will likely need to be discounted so that the remuneration is proportionate to the amount recovered. 

John Winter (CEO, ARITA) made the comment that the issue of our Courts’ approach to remuneration is consuming (alongside law reform) the majority of our [ARITA’s] time and we won’t back off

National Innovation & Science Agenda 

The implications of the proposed new laws voiding Ipso Facto clauses during the period of voluntary administration were discussed. The speaker gave his opinion that in respect of an administration the restraint on Ipso Facto clauses (which allow a person to terminate a contract with the company as a result of the occurrence of an insolvency event) was reasonable as the moratorium period is limited. The contract can be terminated if the company is then placed into liquidation. 

However, the idea that Ipso Facto clauses may also be void where a company enters into a Deed of Company Arrangement was more controversial. The period of a DOCA may be a number of years and, as a result, the proposed restrictions on Ipso Facto clauses in the circumstances of a DOCA have greater ramifications for suppliers or other persons contracted to supply or service the company. 

Pre-insolvency Shenanigans

It was clear from the panel of speakers discussing the difficulties of regulating the pre-insolvency space that the ATO Phoenix Taskforce and ASIC are allocating significant resources to the gathering, sharing and analysis of data to tackle problems in this area. 

Michael Sneddon, National Director (Phoenix) of the ATO and Adrian Brown, Senior Executive Leader at ASIC gave some insight into the action being taken by their offices. 

These regulatory bodies gave the impression that they are designing algorithms that will link data held by the ATO, ASIC and the Australian Business Register to reveal the insolvency practitioners that have repeated involvement with certain pre-insolvency advisors and/or companies that appear to undergo phoenixing. Links are said to have been drawn already between certain advisors and the Liquidators to whom they frequently refer work. 

The comment was made by the ATO that what has always been known anecdotally is now being proven by the data

ASIC confirmed that certain pre-insolvency advisors are the subject of untrustworthy advisor letters that have been dispatched by ASIC to directors of companies facing Court winding up applications in certain areas. 

What is also clear is that ASIC continues to hold concerns regarding the independence of some registered Liquidators who receive repeated referrals from certain pre-insolvency advisors. 

Discussion of the above topics continued after the conference amongst attendees at a very enjoyable conference dinner. Our firm occupied its own table, surrounded by our fellow insolvency lawyers and practitioners. 

We welcome any comments from you in relation to any of the above topics. If you would be interested in an article expanding on any of these topics please let us know!


Date posted: 2016-11-16