Registration will be mandatory under the Insolvency Practitioners Bill as reported back to the House by the Commerce Committee. This is a radical and far-reaching change from the negative licensing regime initially proposed in the Bill.
This Brief Counsel summarises and comments on the Committee's report.
The committee opts for the fence at the top of the cliff
The Bill as first drafted took an ambulance at the bottom of the cliff approach to regulation under which practitioners who did not meet their obligations or lacked independence would be prohibited from practising or placed under supervision.
However, the Committee decided that a more proactive solution was required and has recommended a compulsory public register.
Other changes recommended by the Committee include:
- specifying minimal eligibility criteria for insolvency work
- enhancing the duties of insolvency practitioners (for example, to disclose conflicts and require fuller reports to creditors)
- stronger criteria for disqualification from appointments, and
- specific penalties for failure to comply with statutory obligations.
The register would be administered by the Registrar of Companies and would (at the very least) contain:
- the full name of each insolvency practitioner
- the practitioner's business address, and
- the name and contact details of any relevant professional body that the practitioner belongs to.
The information requirements stipulated in the Bill are rather light but are expected to be strengthened through regulations under the Companies Act.
The costs of establishing and maintaining the register are not expected to be significant.
No formal qualifications necessary
The Committee is recommending minimal eligibility requirements for registration and no formal qualifications. A practitioner will be registered if he/she is at least 18 years old, is not subject to a mental health treatment order, and has not been:
- prohibited from practising by the Court
- expelled from any relevant professional bodies
- prohibited from being a director
- declared personally insolvent, or
- previously convicted of a dishonesty crime.
What can the Registrar do?
The Registrar will be authorised to cancel a practitioner's registration if satisfied that:
- the practitioner has failed to comply with the requirements of the legislation on two separate occasions or on one occasion in a serious and significant way
- the registration is based on false or misleading information or omissions, or
- the practitioner no longer meets the registration eligibility criteria.
Breaches can attract fines of up to $50,000 or two years' imprisonment.
No appointment of family members as insolvency practitioners
Relatives of people who, within the two years immediately before the commencement of a liquidation, have been shareholders, directors, promoters, auditors or receivers of a distressed company will be disqualified from appointment as liquidators.
More information for creditors
Practitioners should provide creditors at the earliest opportunity with information about the registration and regulation regime and with an interests statement (for practitioners other than receivers).
Under the amended Bill, practitioners will be required to include additional content in their reports to creditors, shareholders and the Registrar, with penalties for failure to do so.
Further, the revised Bill requires receivers to provide a summary report to the Registrar at the end of a receivership. New regulations will be made indicating what must go in the summary report.
The proposed new system retains the benefit proposed in the previous regime of being able to prevent individuals with dishonesty convictions, or who have previously failed to comply with their obligations, from being appointed as insolvency practitioners.
We consider that the Bill is a positive step for established and well-regarded insolvency practitioners to the extent that the licensing regime will entrench their position. It seems likely, however, that in the future eligibility requirements will become more demanding and formal qualifications will be required.
The Bill will not come into effect until nine months after enactment (late 2012) to allow the new system to be introduced smoothly, and will be reviewed four years after coming into force.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.