Changes to the Insolvency Law Reform Act 2016

With new changes to the 2016 Insolvency Law Reform Act (ILRA) coming into effect earlier this month, it is important to be aware of some of the key features that affect corporate insolvency appointments.

The first major change affecting the industry is the role of official liquidator ceasing and this status is no longer being available, further to this, an Insolvency practitioner can now refuse consent if a company’s assets do not meet the cost of the liquidation.

A couple of minor regulatory changes have come into effect relating to voluntary administration and liquidation, these vary as to the lodging of forms with ASIC to others which require voluntary administrators to specify the location of properties referred to in disclaimer notices to owner/lessor.

Alterations to the way DOCAs are handled are also outlined in the act. New s 445HA (Notification of contravention of a DOCA) will require directors to notify the DOCA administrator and DOCA administrators to notify creditors, of any material contravention of a DOCA, or a likelihood thereof, of which the director/DOCA administrator becomes aware. This change applies in relation to material contraventions, and likely material contraventions, of a DOCA that occur on or after 1 March 2017, regardless of when the DOCA was executed. However, s 446AA which amended s499 will only apply to DOCAs terminated on or after March 1st 2017. This will rectify a shortcoming by making provision for liquidator to be appointed to subsequent liquidation where court makes an order for, or DOCA provides for termination of a DOCA and winding up of the company.

On top of these more specific changes there are some broad-brush alterations that will affect all corporations. The first major one relates to an improved definition relating to relation back day. One shortcoming of the existing definition is where a winding-up application is filed, followed by a Voluntary Administration (VA) appointment, then winding-up itself. Under old s9 definition of the Corporations Act, ‘relation-back day’ was the day the administration began, which was the day defined under s 513C. With the new changes it will be the day the earlier winding-up application is filed, which prevents potential abuse of appointing a VA well after a winding-up application is filed but before winding-up order or resolution made.

In the context of illegal phoenix company activity rising, amended s 161A will broaden ability of external administrators to obtain court leave to dispense with requirement to set out a company’s former name on public documents and negotiable instruments. Previously, only DOCA administrators could apply to court for such dispensation, but now court may grant leave on the application of either a liquidator, administrator, DOCA administrator, managing controller or receiver.

The final change explored in this article is the amendment to Corporations Act s 588FGA which has a significant impact on legal proceedings, whereby ‘Court’ is amended to ‘court’.  This pertains to the issue of unfair preference matters with the ATO, where under s 588FGA, directors must indemnify the Commissioner of Taxation for certain payments set aside under s 588FF where a judgment is obtained by a liquidator for unfair preference. Previous use of term ‘Court’ only referred to a superior court, such as the Federal or Supreme courts, as having jurisdiction to make an order for payment by a director to the Commissioner pursuant to s588FGA indemnity. Amended s588FGA will now provide jurisdiction to lower courts more generally, which will come into effect irrespective of the timing of impugned payment.

All of these changes can be tricky and complex to unpack, however in the long run will tighten the insolvency industry, thereby aiding a much needed boost to public faith.

To discuss this further and for more information, please contact us at McLeod & Partners today for help from a trained insolvency specialist.

With new changes to the 2016 Insolvency Law Reform Act (ILRA) coming into effect earlier this month, it is important to be aware of some of the key features that affect corporate insolvency appointments.

The first major change affecting the industry is the role of official liquidator ceasing and this status is no longer being available, further to this, an Insolvency practitioner can now refuse consent if a company’s assets do not meet the cost of the liquidation.

A couple of minor regulatory changes have come into effect relating to voluntary administration and liquidation, these vary as to the lodging of forms with ASIC to others which require voluntary administrators to specify the location of properties referred to in disclaimer notices to owner/lessor.

Alterations to the way DOCAs are handled are also outlined in the act. New s 445HA (Notification of contravention of a DOCA) will require directors to notify the DOCA administrator and DOCA administrators to notify creditors, of any material contravention of a DOCA, or a likelihood thereof, of which the director/DOCA administrator becomes aware. This change applies in relation to material contraventions, and likely material contraventions, of a DOCA that occur on or after 1 March 2017, regardless of when the DOCA was executed. However, s 446AA which amended s499 will only apply to DOCAs terminated on or after March 1st 2017. This will rectify a shortcoming by making provision for liquidator to be appointed to subsequent liquidation where court makes an order for, or DOCA provides for termination of a DOCA and winding up of the company.

On top of these more specific changes there are some broad-brush alterations that will affect all corporations. The first major one relates to an improved definition relating to relation back day. One shortcoming of the existing definition is where a winding-up application is filed, followed by a Voluntary Administration (VA) appointment, then winding-up itself. Under old s9 definition of the Corporations Act, ‘relation-back day’ was the day the administration began, which was the day defined under s 513C. With the new changes it will be the day the earlier winding-up application is filed, which prevents potential abuse of appointing a VA well after a winding-up application is filed but before winding-up order or resolution made.

In the context of illegal phoenix company activity rising, amended s 161A will broaden ability of external administrators to obtain court leave to dispense with requirement to set out a company’s former name on public documents and negotiable instruments. Previously, only DOCA administrators could apply to court for such dispensation, but now court may grant leave on the application of either a liquidator, administrator, DOCA administrator, managing controller or receiver.

The final change explored in this article is the amendment to Corporations Act s 588FGA which has a significant impact on legal proceedings, whereby ‘Court’ is amended to ‘court’.  This pertains to the issue of unfair preference matters with the ATO, where under s 588FGA, directors must indemnify the Commissioner of Taxation for certain payments set aside under s 588FF where a judgment is obtained by a liquidator for unfair preference. Previous use of term ‘Court’ only referred to a superior court, such as the Federal or Supreme courts, as having jurisdiction to make an order for payment by a director to the Commissioner pursuant to s588FGA indemnity. Amended s588FGA will now provide jurisdiction to lower courts more generally, which will come into effect irrespective of the timing of impugned payment.

All of these changes can be tricky and complex to unpack, however in the long run will tighten the insolvency industry, thereby aiding a much needed boost to public faith.

To discuss this further and for more information, please contact us at McLeod & Partners today for help from a trained insolvency specialist.