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Insolvency News July 2007
The Parliamentary Secretary to the Treasurer, Chris Pearce MP, introduced the Corporations Amendment (Insolvency) Bill 2007 into Parliament on 13 November 2006. The Bill aims to improve Australia’s insolvency laws . It is intended to introduce efficiency and the cost effectiveness of insolvency processes, strengthen the rights of employees, and enhance the capacity of creditors to maximise their returns. Unlike the proposed Bankruptcy Act amendments to Part X Arrangements which also covers individuals, this Bill deals purely with corporations.
The main amendments are set out below.
- Protection of employee entitlements in Deed of Company Arrangement;
- Administrators will have the power to transfer shares or alter the status of members, allowing the administrator to sell the company shell and create further returns for the creditors
- A ‘Statement of Independence’ is to be provided to creditors when giving notice of the first meeting in administration
- A requirement by Administrators to provide a declaration of relevant relationships and a declaration of indemnities to the creditors
- Provision for creditors to select a new liquidator if the company proceeds from administration to a creditors’ voluntary liquidation;
- Power to ASIC to apply to the Court for a review of the remuneration of the administrators and deed administrators;
- Additional notice of meetings to creditors in voluntary administration;
- Cost reducing proposal eg. Reducing advertising requirements
- In certain circumstances allowing notification to creditors to be sent electronically
- Changes allowing creditors voluntary liquidations to commence almost immediately, overcoming the present difficulty of utilizing the Creditor’s Voluntary Liquidation regime where the Taxation Office has issued Directors’ Penalty Notices
- Proposed changes allowing for pooling the administrations of a series of insolvent companies in a group
- Clarification of the current position – where creditors rights under a guarantee are not extinguished when creditors resolve to execute a Deed of Company Arrangement;
- Where a company has changed its name within six months of an
- Administration, the former name is to be disclosed;
- Improve the regulation of insolvency practitioners by introducing more regular reporting requirements, requiring adequate insurance to be held and providing greater flexibility to the Companies Auditors and Liquidators Disciplinary Board.
It is proposed that the new legislation will be introduced in Parliament and enacted later this year. The date of commencement will be advised as soon as it hand. See schedule below as drafted by the Parliamentary Secretary, Chris Pearce MP.
Corporate Insolvency Reforms - Summary
Improving outcomes for creditors (Schedule 1)
Part 1 - Employee entitlements
- Clarify status and priority of the Superannuation Guarantee Charge in liquidation, receivership and voluntary administration
- Mandate priority of employee entitlements in a deed of company arrangement
- Clarify the rights of subrogated creditors
Part 2 – Better informing creditor decisions
- Greater disclosure of relationships that may give rise to a conflict
- Greater disclosure of basis of remuneration proposals put to creditors
Part 3 - Streamlining external administration
- Rationalise requirements to publish notices
- Allow for electronic communication with creditors
- Remove obstacles to putting a company into creditors voluntary liquidation
Part 4 - Pooling
- Facilitate pooling in liquidation
Deterring corporate misconduct (Schedule 2)
- Grant ASIC a general power to investigate liquidator conduct
- Remove uncertainty about the orders a court may make to prevent company officers and other persons avoiding liabilities
- Restore longstanding position that penalty privilege does not apply in disqualification proceedings (a key remedy for phoenix companies)
Improving regulation of insolvency practitioners (Schedule 3)
- Extend the prohibition on offering inducements to insolvency practitioners
- Update registration requirements by: recognising all forms of external administration; requiring insurance; and requiring annual reporting to ASIC.
- Introduce greater flexibility into Companies Auditors and Liquidators Disciplinary Board processes (allowing pre-hearing conferences, a 90-day delay in orders taking effect, and the publication of reasons for decisions).
Fine-tuning voluntary administration (Schedule 4)
Part 1 - General
- Clarify the effect of a deed of company arrangement (DOCA) on secured creditors and third party guarantors
- Clarify the circumstances in which a DOCA may be terminated for breach
- Require notification to ASIC when a DOCA is finalised
- Extend the administrators’ right of indemnity to all liabilities properly incurred in the conduct of the administration
- Require administrators to lodge accounts with ASIC (as for other forms of external administration)
- Extend the obligation for administrators to disclose to creditors information that is known to the administrator and which would assist the creditor in making an informed decision about the future of the company
- Introduce a reduced disclosure regime for debt for equity swaps in administration
- Extend the timeframe for the first and second meetings of creditors
- Clarify the processes for moving from liquidation to voluntary administration (stay of liquidation, appointment of administrator)
Part 2 – Rights to property during administration
- Clarify the effects of a DOCA on property subject to a lien, pledge or retention of title clause
- Clarify the circumstances in which a charge might be enforced
Part 3 – Liquidation following administration
- Clarify the priority of debts incurred during an administration or DOCA
- Introduce a requirement for an updated ‘report as to affairs’ where a company moves from administration to liquidation