Not since the Harmer Report in 1988 has Australian Insolvency Law come under such close scrutiny and review. Extended dialogue between various stakeholder groups has lead to the introduction into parliament of the Corporations Amendments (Insolvency) Act 2007, which seeks to greatly influence procedures for failed companies.
The new legislation targets, amongst other things, practitioner independence and corporate misconduct by company officers. Other areas upon which the reforms have been focused include the streamlining of the Voluntary Administration process and improving results for creditors.
The reforms are extensive and seek to take advantage of opportunities identified by stakeholders since the previous round of insolvency law reform. Some of the changes focus on the following:
Reducing Misconduct By Company Officers
A commonwealth fund has been created to allow liquidators to more fully investigate failed company’s affairs and the actions of directors.
Creditor Benefits
Reduced costs through the removal of unnecessary advertising and allowing electronic communication with creditors. Further, employee entitlements have been given improved protection and the appropriate claimant for outstanding superannuation has finally been clarified.
Practitioner Independence And Remuneration
More stringent requirements have been imposed with respect to becoming a registered liquidator and disclosing to creditors any relationships that may influence current engagements. When appointed, practitioners will also now have to meet far tougher reporting obligations when seeking to have remuneration approved.
Streamlining Voluntary Administrations And Creditors Voluntary Liquidations
Directors will enjoy greater ease in placing a company into Creditors Voluntary Liquidation given the amended requirements for the holding of meetings. Further, the Voluntary Administration timeline has been amended to both assist the practitioner and allow more meaningful information to be reported to creditors.
So, what is just one of the likely practical outcomes of the reforms?
Voluntary Administrations in particular have been utilised where a Directors’ Liability Notice (the notice’) is issued by the Commissioner of Taxation pursuant to Section 222AOE of the Income Tax Assessment Act. The notice imposes a personal liability for outstanding company taxes on directors if they do not act within fourteen (14) days to either have the debt extinguished (in full or by way of payment arrangement), appoint an administrator, or proceed to wind up the company.
As a result of the legislation expediting the process by which a company may enter Creditors Voluntary Liquidation, many directors will utilise this process as opposed to commencing Voluntary Administrations when responding to 222AOE notices. In turn, this is likely to reduce costs as it will eliminate the need for a company to endure the strict reporting obligations of a Voluntary Administration when there is no chance of an agreement being struck between the company and its creditors. This makes sense as in such circumstances the company will ultimately be placed into liquidation following completion of the Voluntary Administration.
Further likely outcomes of the reforms will be the subject of articles in future editions of the Bottom Line. However, should you wish to discuss the pending reforms please do not hesitate to contact the Moore Stephens Corporate Recovery team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
