Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Hansard source

The incorporated speech read as follows—

The Corporations Amendment (Insolvency) Bill is a belated response to a number of recommendations made in the 1997 Review of the Regulation of Corporate Insolvency Practitioners; the 1998 Corporations and Market Advisory Committee (CAMAC) Report Corporate Voluntary Administration; the 2000 CAMAC Report Corporate Groups; the 2004 CAMAC Report Rehabilitation of Large and Complex Enterprises and the 2004 Parliamentary Joint Committee on Corporations and Financial Services Report Corporate Insolvency Laws: A Stocktake.

Updated insolvency laws that adequately respond to business practices, provide more clarity for creditors and in turn reduce the cost of obtaining finance, are vital for a strong Australian economy.

There is also the social impact of insolvency that should be considered. In 2003, the ACTU estimated that around 19,000 employees may lose up to $500 million in unpaid entitlements each year. Although other creditors may have other sources of income, employees are likely to be dependent on the wages they receive from the company and as such the impact on them is likely to be substantial.

Labor welcomes the Bill, however, a number of the changes proposed are well overdue. In particular, those relating to fine-tuning of administration processes implement CAMAC recommendations that date back to 1998. It seems extraordinary that the Howard Government has taken so long to deal with these issues.

The changes that arise from this Bill fall into four categories. These are: improving outcomes for creditors, including employees; deterring misconduct by company officers; improving regulation of insolvency practitioners and fine tuning voluntary administration procedures.

Outcomes for creditors are improved by the Bill in a number of ways. In the current system, employees are afforded a priority amongst unsecured creditors. However this priority can be displaced by a Deed of Company Arrangement. Employees have only a limited opportunity to challenge any change to this prioritisation in a deed in the event that their priority is displaced by a meeting of creditors. Changes in this Bill mean that it will now be mandatory for Deed of Company Arrangement to preserve the priority of employee entitlements when a company is in voluntary administration unless employee creditors agree to waive their priority.

The court may approve the employee creditors’ waiver and alter their priority in the Deed of Company Arrangement where it is satisfied that it would be more beneficial for employee creditors than immediate winding-up of the company.

Issues relating to the Superannuation Guarantee will also be clarified. Although the Corporations Act gives priority to superannuation contributions of employees, it has been held by the courts that the SGC, which is a statutory tax liability owed by the Commonwealth, cannot be characterised in the same way and therefore does not have the same priority.

As the SGC is related to superannuation payments and exists to ensure that the benefits for employees are received, there is a need to clarify and address the priority of the SGC in a receivership, voluntary administration or Deed of Company Arrangement, not just company liquidation.

Changes to the Superannuation Guarantee Act and the Corporations Act mean that SGC will receive the same priority as wages and superannuation contributions.

Rights of subrogated creditors, being those creditors who are entitled to be substituted for another creditor in a liquidation because they have advanced funds to meet a particular creditor’s debt, are clarified so that they have the same rights as original creditors even if an advance has not been made before the relevant date.

New disclosure requirements for administrators are introduced to address concerns about the independence of directors and make sure that creditors can make well-informed decisions when engaging administrators.

Administrators will be required to provide a declaration of any ‘relevant relationships’ and indemnities that apply to them, in a document which is a maximum of two pages in length.

Greater guidance will be given to courts to set and review remuneration of administrators and deed administrators.

A number of amendments are also made to streamline administration processes.

The requirement that a company in a creditors’ voluntary liquidation hold an annual members’ meeting will be removed as the economic interests of those members is not substantial enough when balanced against the cost of these meetings. However, if the liquidator choses not to call an annual meeting of creditors, then they must lodge a report with ASIC on the progress of the administration and notify creditors that the report will be available to creditors free of charge.

In the case of a members’ voluntary liquidation, where the economic interest is generally greater, the requirement for an annual meeting is retained.

Various requirements to publish notices and documents will also be made redundant unless there is a strong policy rationale for the publication of relevant documents.

The Bill will also allow various notices to be published together to reduce costs.

Electronic communication will now be made available to administrators for the distribution of notices to creditors provided that certain conditions are met. Currently electronic distribution is only available to notify members of meetings.

In order to increase the opportunity to recoup funds for creditors, two types of pooling orders in liquidation, voluntary and court ordered, will be made available.

Voluntary pooling will be able to occur where the liquidator of a group of companies that are all in the process of winding up makes a determination that the group of companies can be pooled for the purposes of liquidation.

Courts will be empowered to order that a group of companies is pooled for the purposes of winding-up. An application for court-ordered pooling may only be made by the liquidator or liquidators of the companies in the group as each company in the group will be taken to be jointly and severally liable for each debt payable by and each claim against each other company in that group.

The Bill also puts forward a number of proposal to deter corporate misconduct.

ASIC will now be able to use its compulsory powers to investigate liquidator’s conduct if it has reason to suspect for example, that they have failed to carry out or perform their duties.

Penalty privilege in relation to proceedings for disqualification, banning, suspension or cancellation orders or declarations to that effect, will be removed. This was one of the amendments sought after privilege was claimed in the High Court’s Rich v ASIC case where ASIC was unable to obtain certain documents in relation to the relevant orders.

Banning and disqualification orders, and orders to cancel or suspend licenses will help deter misconduct of company officers including in relation to phoenix company activity.

Insolvency practitioners will be better regulated under new provisions.

Prohibitions on inducements to members or creditors of a company to secure an appointment will now be extended to include persons such as directors, providers of professional services such as accounting and legal firms.

Registered liquidators will have to obtain and maintain professional indemnity and fidelity insurance to cover their work as insolvency practitioners.

The requirement that registered liquidators provide triennial statements to ASIC will be replaced with a requirement that a detailed statement be provided annually. This means that a liquidator’s suitability for registration will be reviewed more regularly.

ASIC will be able to cancel the registration of a liquidator automatically where the liquidator becomes disqualified from managing a corporation or by reason of bankruptcy and where the liquidator does not maintain their insurance. An application will no longer need to be made to the Companies Auditors and Liquidators Disciplinary Board (CALDB) first.

The CALDB will be given more flexibility to deal with disciplinary matters. For example, it will be able to hold a pre-hearing conference to determine procedural matters.

Small changes will be made to increase the efficiency of voluntary administration procedures.

New provisions will allow administrators to sell property subject to a lien, pledge or retention of title clause if they have the written consent of the property owner or security holder, or with the leave of court. Administrators will also be able to consent to transfer of shares if they are satisfied that it is in the best interests of the company as a whole.

The Bill will allow slightly longer periods to pass before the first and second meetings of creditors are required to be held. There will also be some slight amendments to change ‘days’ to ‘business days’ which will consequently affect the timing for things such as when notices for meetings must be given.

Labor notes the consultation with stakeholders in the insolvency area such as the Insolvency Law Advisory Group and the Insolvency Practitioners Association of Australia. And, as required by the Corporations Act, the amendments under this Bill have also been approved by the states and territories through the Ministerial Council for Corporations.

Labor supports this Bill in the interests of modernising Australia’s corporate insolvency regime. We reiterate our concern that the Howard Government has moved so slowly in relation to reforms in this area, particularly given the number of reports recommending changes dating back to 1997.