Mitch Fifield (Victoria, Liberal Party, Manager of Government Business in the Senate) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

INSOLVENCY LAW REFORM BILL

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 insolvency administrations and cut unnecessary costs and red tape.

Members of the 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 the 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. The 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 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 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 overall confidence in Australia's insolvency laws.

The Bill promotes market competition within the insolvency industry. It removes barriers to creditors receiving information 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 remove the unnecessary and outdated distinction between official and registered liquidators. 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 measures in this Bill are currently estimated to result in savings to the insolvency industry of $50 million per annum from the commencement of the 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.

The Bill allows 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 on 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.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

The Australian Labor Party will support the Insolvency Law Reform Bill 2015. However, we call on the minister to release the insolvency practice rules—the legislative instrument giving effect to much of the legislation—and other foreshadowed insolvency legislation to provide the industry with confidence.

The Insolvency Law Reform Bill makes substantial changes to the way insolvency professionals are registered, disciplined and regulated. There is broad agreement among the industry that, following some high profile cases of misconduct by corporate insolvency practitioners, reforms are needed to modernise the industry and improve standards. Draft legislation on the issue, including measures recommended in the 2010 Senate Economics References Committee report, The regulation, registration andremuneration of insolvencypractitioners in Australia:the case for a new framework, was released by the last Labor government in 2012.

The Insolvency Law Reform Bill 2015 has been criticised by the Australian Restructuring Insolvency and Turnaround Association as being 'a missed opportunity for substantive reform'; although they are generally supportive of the contents of the bill.

There is a whole series of key changes in the Insolvency Law Reform Bill 2015, and they include strengthening registration requirements for insolvency practitioners to require applicants to be interviewed and assessed by a committee and for registration to be renewed every three years. Regulators, ASIC and AFSA, may issue show cause notices for alleged misconduct, requiring practitioners to explain why they should remain in the industry. There will be an increase in penalties for practitioner misconduct, including for failing to maintain adequate insurance. ASIC will have further powers to seek information or records from insolvency practitioners and require practitioners to notify regulators of certain matters. Creditors will be given the right to remove a practitioner appointed to an insolvency through a simple resolution, without court involvement. The legislation refers some of the fine detail of the registration, discipline and regulation process to a set of Insolvency Practice Rules, which are to be made by the minister via legislative instrument.

Labor agrees with the intention of this legislation and supports modernising the insolvency practice framework, which is why we supported this process of reform when last in government. However, we call on the minister to promptly release the Insolvency Practice Rules to provide confidence in the industry that their new framework will have the intended effect of improving the insolvency practitioner regime. The government have also indicated their intent to make further changes to the insolvency regime as part of their innovation statement. The government should release any intended legislation and their response to the Productivity Commission inquiry on Business Set-Up, Transfer and Closure as soon as possible, to minimise compliance costs of several separate changes to the framework.

Across Australia, there are 7,007 registered liquidators. Last year, these insolvency practitioners worked on around 9,177 instances of companies entering into external administration. While the current insolvency framework does a fairly good job of balancing the interests of creditors and businesses in distress, there have been some high profile cases of misconduct by corporate insolvency practitioners. As a result, insolvency practitioners received the lowest rating for perceived integrity in the latest survey of ASIC stakeholders.

John Williams (NSW, National Party) Share this | Link to this | Hansard source

The lowest.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Lower than politicians, I may add, Senator Williams. The last Labor government undertook substantial industry consultation on the proposed reforms, issuing an options paper: 'A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia' and a later proposals paper: 'A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia'. This formed the basis of draft legislation, but the proposed legislation did not pass the parliament prior to the 2013 election.

The Insolvency Law Reform Bill 2015 enacts many aspects of Labor's proposed reforms to the corporate and personal insolvency framework and some new proposals from industry. This government commissioned the Productivity Commission to examine the impact of personal and corporate insolvency regimes on business exits in its Business Set-up, Transfer and Closure Inquiry Report. It made a serious of recommendations. Despite generally supporting the insolvency framework reforms, we do have some concerns around some aspects of this bill. Some fine detail of the bill is deferred to a legislative instrument called the Insolvency Practice Rules. The intended Insolvency Practice Rules have not been released yet and should be released to allow insolvency practitioners to prepare for regime change.

The bill claims a compliance saving of $50 million, but the industry association, ARITA, rejects this compliance saving, saying that regime change will cost them substantially. The government have foreshadowed further changes to the insolvency framework as part of their innovation statement. In order to minimise the cost of regime change to the industry, the government should promptly release any proposed reforms and try to harmonise the phase-in of these two separate tranches of insolvency law reforms.

In conclusion, this is a bill that Labor will be supporting. This is a bill that enacts a series of measures, many of which had actually been proposed by the previous Labor government; but, in doing so, we do want to raise our concerns that, through greater transparency, greater certainty can be given to the industry and that, with a few transparency measures that can easily be undertaken by the government, a lot more certainty can be given to industry.

John Williams (NSW, National Party) Share this | Link to this | Hansard source

I would like to contribute to the debate on this very important bill: the Insolvency Law Reform Bill 2015. I am glad the opposition is supporting this legislation. I launched the inquiry into this matter many years ago, and it seems to have taken forever to finally get this legislation into the Senate. I note the unanimous recommendations—the very scathing recommendations—from the Economics References Committee, which I was part of during the inquiry. The previous government—those opposite when they were in government—did nothing. They did not bring it forward. This goes back many, many years to when I launched the inquiry and we needed changes in this industry.

It is amazing that, when I launched the inquiry, the Insolvency Practitioners Association—the IPA as they were known then; they have changed their name—said that the inquiry was not necessary; the insolvency practitioners industry is a good industry; it is well behaved. Well, I think McVeigh and Macdonald were gone within a few weeks of that being said. We can go on about Ariff, who went jail. Patterson has also gone, et cetera. There have certainly been some nasties in this industry.

I launched the inquiry after I spoke to John Viscariello—whom I have become good friends with—in South Australia. He told me what was wrong in the industry and what was happening in his case. He had just had a court ruling by Chief Justice Kourakis. It had cost him an enormous amount of resources, time and work. The liquidator had taken $500,000 from creditors, from the sale of assets, and spent the $500,000 suing a lady for $28,000 for bankruptcy. This was $500,000 that should have gone to the little Aussie battlers, the businesses that were owed money. Instead, the lawyers and the liquidators got hold of it and spent $500,000 suing a woman for $28,000. It is just crazy. That has now been appealed. We will let the judges make their decision on that as the court runs through its process. That was one of the reasons why I launched this inquiry.

The problem I have with the industry in its current form is that, when a business goes into administration, liquidation or receivership, the liquidator is the judge, jury and executioner. They are there; they are locked in at enormous cost. Some charge $900 to $1,000 an hour. When McGrathNicol went in as administrators to Cubbie Station, their costs were about $9 million to just simply manage the place until it was sold, even though the management of the station was already retained there.

The measures in this bill will make the process to become a registered insolvency practitioner more rigorous, while making it quicker and easier for the regulator to remove rogue practitioners from the industry. I certainly welcome that. So the situation is: instead of just doing an application online or on a piece of paper, you will actually have to front a three-man committee to see if you pass the proper character test. Another important thing about this bill is that creditors will be able to remove a poorly performing practitioner without going to court. Hooray at last! A majority vote value of creditors can sack the liquidators if they think the liquidators are doing a terrible job, charging too much, not being fair or whatever

Currently, the system is that they can remove the liquidator at the first meeting, but once the liquidator has been installed they are there forever. Well, under this legislation the creditors can team up and actually remove the liquidator. That will send the message to the industry, 'You'll do your job right, or you'll get sacked,' which is a pretty important message in my book. So the ability for creditors to remove and replace practitioners provides an important element of accountability to the insolvency framework, and that is a very good part of this legislation.

An applicant will also be required to satisfy a three-person panel that they are fit to be registered as a liquidator, instead of simply being assessed on the basis of a form and the payment of a fee. If the panel believes it is necessary, it may require the applicant to sit a written exam. Rules to be made under the bill will set out that tertiary study in relation to insolvency administration will be required in addition to general accounting and legal studies. That will raise standards, which is a good thing.

Registered practitioners will be required to renew their registration every three years. I hope that this puts some money into ASIC, because for many years ASIC has had its funding cut down with budget restrictions. Amazingly—from memory—ASIC spends $10 million a year policing the insolvency practitioners industry but collects just $40,000 in registration fees. Spending $10 million and collecting $40,000 is not fair, is it? So, hopefully, this will bring some money into ASIC's coffers so that they can do their job better. I have been a big critic of ASIC since I have been in this place. I do believe now they are lifting their game. They certainly have got the message from this Senate. But, clearly, for them to do their job they actually need funding, and I support that totally.

ASIC will also be given new powers to prevent practitioners from taking on new matters where they have failed to comply with directions by ASIC—another good move giving more powers to ASIC. Penalties for a wide range of offences will also be significantly increased in order to provide a more appropriate deterrent to practitioners breaching their duties. This includes increasing the penalty for intentionally or recklessly continuing to operate as a registered liquidator without insurance, to a maximum 1,000 penalty units or $180,000.

Where an insolvency practitioner has engaged in misconduct, disciplinary committees and the court will be able to prevent an individual from acting as a liquidator ever again—banned for life—as well as to prevent them from being employed by other liquidators for up to 10 years. AFSA and ASIC will have the power to directly suspend or deregister offending practitioners in limited circumstances—or to prevent practitioners from taking on new appointments where a practitioner is failing to lodge certain documents with the regulator or comply with a direction to hold a creditor meeting. In addition to the enhanced regulatory mechanisms, creditors will be empowered to replace practitioners by resolution if they are dissatisfied with their performance.

There are some really good things in this. We could have gone further; we can always go further—depending on opinions. But I think there are some really good regulations here to raise the standards. I think that probably 95 per cent—or even 99 per cent—of liquidators do the right thing. Yet it is the odd one out doing the wrong thing that smears the whole industry—like in politics. It is the same thing: we all get painted with the same brush. The industry has been smeared. Hopefully, this will build better standards and more competition to bring prices down, because I think that their charges are outrageous. When I was running a small business, I had two customers that went down. When I got the letters from the liquidators, I simply threw them in the bin knowing full well that I would never get a cent of money from them, which I did not, of course. Usually, with those small companies, the liquidator seems to get the lot with their fees. That is how it pans out when there are not large assets of big value to be cashed in.

These changes are something I have pursued for many years—probably since soon after I came to this place. As I said, the previous government sat on them, unfortunately. I am sure that when we were in opposition we would have supported change. It was a unanimous decision by the committee; we were all on the one page. There were no political games being played in that committee report. The changes are here, and I welcome the opposition's support. I hope that the Greens support it as well, and I look forward to the passage of this legislation and hopefully improving many things, including the powers of ASIC and increasing the fines. I am on the same page as Mr Medcraft, the boss of ASIC. As we discussed in Senate estimates recently, we need these changes and we need stiffer penalties. We are very soft in this country with the fines for people who are carrying out wrongdoings. Often the fines are far too soft. We look forward to the passage of this legislation and the changes it will bring. There will be more to come shortly, I believe.

Arthur Sinodinos (NSW, Liberal Party, Cabinet Secretary) Share this | Link to this | Hansard source

I rise to sum up the debate on the Insolvency Law Reform Bill 2015. I begin by thanking those senators who have contributed to this debate for the spirit they have brought to the process. This bill amends the Bankruptcy Act 1966, the Australian Securities and Investments Commission Act 2001, and the Corporations Act 2001, to align and strengthen the corporate and personal insolvency regimes in a number of key areas. It implements phase 1 of the government's plans to reform Australia's insolvency system.

The changes in this bill will remove unnecessary costs and increase efficiency in insolvency administrations, enhance communication and transparency between stakeholders, and boost confidence in the professionalism and the competence of our insolvency practitioners. Under the changes, the process for registering as a corporate insolvency practitioner with ASIC will be reformed to mirror the process for registering as a personal insolvency practitioner with the Australian Financial Security Authority. As a result, all applicants will now be required to undergo an interview and assessment by an expert committee made up of representatives from both industry and ASIC. To further boost confidence in the competence of practitioners, there will be new requirements for insolvency-specific tertiary qualifications and for practitioners to renew their registration every three years, rather than their registration continuing indefinitely. The bill will also strengthen the power of the regulators and the mechanisms to discipline poor performers, to promote confidence in the market for insolvency services.

The amendments provide ASIC with new information-gathering powers that will assist in its efforts to undertake an efficient proactive surveillance program of corporate insolvency practitioners. These powers include the ability to direct a practitioner to provide certain information and produce specified books to assist ASIC's activities in its role as the corporate insolvency regulator. ASIC will also be given the power to give a 'show cause' notice to a practitioner in certain circumstances, such as when it believes that the practitioner no longer has the required qualifications, experience and abilities, or when it believes that the practitioner has breached a condition of his or her registration. Where ASIC is dissatisfied with the explanation, it will be able to refer the matter to a committee, for disciplinary action which may include publicly admonishing or reprimanding the practitioner or deciding that the practitioner should not accept further appointments for a specified period. The movement to a committee system approach to practitioner discipline, based on the model currently used in the personal insolvency regime, will mean that the Companies Auditors and Liquidators Disciplinary Board will no longer have a role in the disciplining of liquidators. The amendments in this bill will also improve the confidence of stakeholders in the insolvency industry. For example, mechanisms to addresses losses from any negligence or misconduct will be improved by providing a greater deterrent to practitioners failing to maintain appropriate insurance.

The government recognises that default creditor meeting and practitioner reporting requirements are imposing unnecessary costs on administrations. The amendments in this bill will remove these requirements, while creditors will instead be able to determine when and what information they are provided by an insolvency practitioner. In addition, it will be easier for creditors to remove underperforming practitioners by allowing removal through a resolution of creditors rather than through a court order. Creditors will also be able to appoint an independent specialist to review the performance of an insolvency practitioner to inform those kinds of important decisions.

Other reforms in this bill are designed to simplify and streamline key processes and reduce the regulatory burden on practitioners and creditors. As a result, the changes in the bill are expected to save businesses more than $50 million a year. For example, amendments will encourage more efficient administrations by facilitating electronic communication with creditors and allowing resolutions to be passed without holding a creditor meeting. In addition, a default remuneration amount of $5,000 indexed will be introduced to avoid unnecessary costs in low asset administrations.

The government will soon release and consult on the updated insolvency practice rules to accompany this bill. The passage of this bill will implement the first phase of the government's reforms to strengthen and streamline Australia's bankruptcy and corporate insolvency regimes. The government will continue to work with the community to develop the next phase of reforms that will build on the great start that we are making today. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.