A number of changes to Australian insolvency law will come into effect in March 2017. These changes will include the Insolvency Practice Rules. The new rules will have significant impact on creditors, and are anticipated to widen creditor’s powers in external administrations.
A number of these changes are briefly discussed in this article.
1. Creditor’s power to remove an external administrator/liquidator
A major provision affecting creditors is the increased power to remove and replace an external administrator without needing to issue court proceedings and obtain orders, or the practitioner resigning voluntarily.
The rules will allow for creditors to pass a resolution to remove and replace an administrator or liquidator in various circumstances, without having to approach the Court, or obtain the consent of the resigning appointee.
2. Creditor’s power to appoint reviewing liquidator
Creditors will be able to appoint a reviewing liquidator to assess conduct concerning matters such as the remuneration of an external administrator or out of pockets incurred.
The appointment of a reviewing liquidator will be by resolution of the creditors, or (in the case of a members’ voluntary winding up) the company.
The creditors or members seeking the appointment of a reviewing liquidator will bear the costs of such appointment.
3. Electronic attendance at creditor’s meetings
Creditors meetings will now be permitted to take place online, and there will be a requirement on administrators and liquidators to notify how information should be provided to a person who intends to attend the meeting electronically. This is expected to save costs for creditors, and minimise the impact on assets and funds otherwise available.
A creditor wishing to attend a meeting electronically must give a written statement, including a means of contacting them.
The responsibility of electronically connecting to the meeting is on the individual seeking to be present electronically.
Attendance by electronic means will deem the person ‘present’ for the purposes of the meeting.
4. Creditors’ power to request information from appointees
There are new obligations placed on administrators and liquidators to provide information reasonably requested by creditors and company members, provided that the creditor agrees to bear the reasonable costs of complying with the request.
Under the rules a liquidator or administrator must respond to such a request within 5 business days, or a later date if it has been so agreed.
If the request is unreasonably refused, ASIC will have the power to direct the external administrator to comply with the request. The party who made the request may also then apply to the court for an order that the information be provided.
The timeframe allowed is quite short, and so depending on the size of the request and the detail or age of the documents involved, it may be difficult for insolvency practitioners to respond within 5 business days.
We would encourage creditors and members to discuss their request with the insolvency practitioner’s office, to ensure that the creditor’s request is understood, and the creditor has a clear idea of a realistic timeframe.
5. Liquidator’s report to creditors
Within 3 months of the commencement of winding up, the liquidator must provide a report to creditors regarding the likelihood of receiving a dividend. This assessment is made before the affairs of a company are fully wound up.
The new rules will strengthen the powers of creditors, by allowing them to access a greater amount of information and thereby increasing their involvement in the administration process, if desired.
The practical implications of the changes and new rules will be seen as they come into effect.
It will be interesting to see how creditors and liquidators alike respond to these changes, and what other impact may emerge as the Insolvency Practice Rules come into force.
If, as a creditor, you are on the cusp of taking legal action against a major debtor, including through insolvency means, we encourage you to make yourself aware of the new Rules. If you would like help understanding how the Rules may apply to you or assist you in the appointment of an external administrator, please contact Amanda Carruthers (Director, Insolvency Practice Group) or Kinga Dezsi (Lawyer, Insolvency Practice Group) at firstname.lastname@example.org (Lawyer, Insolvency Practice Group) or (03) 9629 9629.