Insolvency Law Reform Bill 2015
Mr HAWKE (Mitchell—Assistant Minister to the Treasurer) (11:01): I move:
That this bill be now read a second time.
Today, I introduce a bill that implements the first phase of the government's reforms to strengthen and streamline Australia's bankruptcy and corporate insolvency regimes.
This bill addresses a number of identified weaknesses in the current regulatory framework governing insolvency practitioners.
These have been revealed in numerous inquiries and were comprehensively discussed in the 2010 Senate Economics References Committee report: The regulation, registration and remuneration of insolvency practitioners in Australia: the case for a new framework.
Despite increased activity by the Australian Securities and Investments Commission in relation to its oversight of the corporate insolvency industry, it is clear that the level of confidence in the insolvency industry needs to be improved. Insolvency practitioners received the lowest rating for perceived integrity in the latest survey of ASIC's stakeholders.
The government believes progressing this package of reforms will provide benefits to creditors, businesses and insolvency practitioners. The reforms will increase the efficiency of the insolvency administrations and cut unnecessary costs and red tape.
Members of this House would also be aware that earlier this year, the government commissioned the Productivity Commission to examine, amongst other issues, the impact of the personal and corporate insolvency regimes on business exits.
The government is currently considering the Productivity Commission's recommendations to ensure that financially distressed businesses are given the best opportunity to restructure, or be wound up efficiently where the business cannot be saved.
The government will consult with the community on further possible amendments to the external administration regime to provide additional flexibility for businesses in financial difficulty shortly.
However, any future reforms will require an insolvency profession that stakeholders can have confidence in. The measures in this bill will assist in providing that confidence.
A key aim of the bill is to restore confidence in the insolvency profession by raising the standards of professionalism and competence of practitioners, and identifying and removing 'bad apples' from the profession more swiftly.
The bill does this by aligning and strengthening the registration, disciplining and regulator oversight of corporate insolvency practitioners with the framework currently in place for personal insolvency practitioners.
The existing paper based process for the registration of corporate insolvency practitioners was identified as a weakness in the 2010 Senate Economics References Committee report.
Under the measures in this bill, the process for registering corporate insolvency practitioners will be strengthened to require applicants to be interviewed and assessed by a three-person committee, including industry and regulator representatives.
Rules to be made following the passage of the bill will require new entrants to have completed formal insolvency-specific tertiary studies, as well as accounting and legal studies.
Corporate insolvency practitioner registration will no longer be indefinite. In line with the current arrangements for personal insolvency practitioners, a practitioner will need to renew their registration every three years. At that time they must show evidence of compliance with any new requirements for continuing professional education set by the regulator, as well as show that they have maintained their insurance coverage.
Once again, the framework for the disciplining of corporate insolvency practitioners not meeting the appropriate standard will be aligned with the framework currently applying to personal insolvency practitioners.
Practitioners who have breached their statutory obligations will be asked to 'show cause' why they should remain in the industry. If the regulator is dissatisfied with the explanation, it may refer the matter to a committee for consideration.
The adoption of the committee approach for practitioner disciplining will mean that the Companies Auditors and Liquidators Disciplinary Board will no longer play a role in the regulation of the sector.
A disciplinary committee will have a broad range of powers in addition to deregistration and suspension, including being able to prevent an insolvency practitioner from accepting further appointments for a specified period and issue public reprimands. Where a rogue practitioner is struck off, in appropriate cases they may also be banned from working in the industry for another practitioner for up to 10 years.
ASIC and the Australian Financial Security Authority play an important role in promoting an efficient and equitable market for insolvency services. This bill will strengthen the powers of the regulators to monitor insolvency practitioners, provide information to stakeholders and intervene in individual corporate and personal insolvencies where appropriate.
Under the bill, ASIC will be given further powers to seek information or records from corporate insolvency practitioners—similar to the existing powers in relation to auditors. These new powers will aid ASIC in its efforts to undertake proactive surveillance of corporate insolvency practitioners.
To improve the level of information available to the regulators, practitioners will also be required to notify the regulators when any of a range of prescribed matters occur which may impact on the continued registration of a practitioner.
The penalties for a range of offences relating to the practitioner misconduct have also been increased to better reflect the seriousness of the breaches and to provide a more appropriate deterrent. In particular, the penalties for failing to maintain adequate and appropriate insurance, as well as failing to comply with rules regarding the banking of administrations funds, have been significantly increased.
The government recognises that confidence in how practitioners handle the funds of external administrations, as well as the protection from potentially negligent behaviour, is crucial to the overall confidence in Australia's insolvency laws.
The bill promotes market competition within the insolvency industry. It removes barriers to creditors receiving relation in the course of insolvency administrations and to creditors taking action to protect their interests in relation to an administration.
Creditors will be empowered under the bill to remove a practitioner appointed to a personal or corporate insolvency through a simple resolution of creditors at any time, and without court involvement. These changes will remove a significant barrier to removing an unjustifiably expensive or poorly-performing practitioner.
In order for creditors to better inform themselves of the conduct of the administration, creditors will also be able to appoint an independent specialist to review the performance of an insolvency practitioner.
The reforms to the registration framework for practitioners will improve the balance between the need to protect consumers of insolvency services with the need for a competitive market that provides the best opportunity for maximising returns to creditors.
The bill will also remove the unnecessary and outdated distinction between official and registered liquidators, and, as a result, all registered liquidators will be able to undertake all forms of external administration. This change will also remove the obligation on some practitioners to take on matters even where there are no assets available to meet their costs and remuneration.
While the bill removes unnecessary distinctions, it will allow for a person to apply for registration on a restricted basis to increase the number of service providers in limited sections of the market. For example, the insolvency practice rules to be made under the bill will facilitate an applicant being able to seek registration to perform receiverships only.
Rules will also reduce the period of experience that applicants must satisfy before they can apply for registration.
The bill provides a first step in aligning the regulation of the corporate and personal insolvency regimes. Removing unnecessary divergence between the two regimes will reduce legal complexity, risk and costs for insolvency practitioners, creditors, shareholders, regulators and other stakeholders.
Default creditor meeting and practitioner reporting requirements will be removed. Instead creditors will have more powers to tailor these requirements to the needs of the particular administration. A resolution of any form will also be able to be passed through a postal vote, instead of requiring the holding of a meeting.
The need for a meeting to be convened in order to obtain approval for remuneration in low-asset administrations will also be removed. Instead practitioners will have the ability to draw down up to $5,000 in remuneration before creditor approval is required.
Measures are being taken to encourage electronic communication between practitioners and creditors by allowing practitioners to make information such as reports and other documents available on their websites.
Enhancements to the initial and ongoing education of practitioners, as well as improved regulatory powers for the surveillance of practitioners, are also aimed at improving practitioner standards with flow-on effects to practitioner performance. The expected improvements in practitioner performance should result in increased efficiency of administrations.
The bill will commence upon proclamation within 12 months of royal assent. This will facilitate ASIC making the administrative and IT changes necessary to implement the package, as well as allow industry participants time to adapt to the new measures.
The new measures in this bill are currently estimated to result in savings to the insolvency industry of $50 million per annum from the commencement of this bill, with positive flow-on impacts for creditor returns. These savings will be achieved while improving confidence in the industry, improving competition for insolvency services and enabling creditors and other stakeholders to better look after their own interests.
This bill will allow for the making of insolvency practice rules which will provide further guidance on the provisions contained in this bill. The government will be consulting on these rules shortly.
Finally, I can inform the House that the Legislation and Governance Forum for Corporations was consulted in relation to the amendments and has approved them as required under the Corporations Agreement 2002.
I commend the bill to the House.