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Registration will be mandatory under the Insolvency
Practitioners Bill as reported back to the House by the Commerce
Committee. This is a radical and far-reaching change from the
negative licensing regime initially proposed in the Bill.
The committee opts for the fence at the top of the cliff
The Bill as first drafted took an ambulance at the bottom of the
cliff approach to regulation under which practitioners who did not
meet their obligations or lacked independence would be
prohibited from practising or placed under supervision.
However, the Committee decided that a more proactive solution
was required and has recommended a compulsory public
register.
Other changes recommended by the Committee include:
specifying minimal eligibility criteria for insolvency
work
enhancing the duties of insolvency practitioners (for example,
to disclose conflicts and require fuller reports to creditors)
stronger criteria for disqualification from appointments,
and
specific penalties for failure to comply with statutory
obligations.
Compulsory register
The register would be administered by the Registrar of Companies
and would (at the very least) contain:
the full name of each insolvency practitioner
the practitioner's business address, and
the name and contact details of any relevant professional body
that the practitioner belongs to.
The information requirements stipulated in the Bill are rather
light but are expected to be strengthened through regulations under
the Companies Act.
The costs of establishing and maintaining the register are not
expected to be significant.
No formal qualifications necessary
The Committee is recommending minimal eligibility requirements
for registration and no formal qualifications. A practitioner
will be registered if he/she is at least 18 years old, is not
subject to a mental health treatment order, and has not been:
prohibited from practising by the Court
expelled from any relevant professional bodies
prohibited from being a director
declared personally insolvent, or
previously convicted of a dishonesty crime.
What can the Registrar do?
The Registrar will be authorised to cancel a practitioner's
registration if satisfied that:
the practitioner has failed to comply with the requirements of
the legislation on two separate occasions or on one occasion in a
serious and significant way
the registration is based on false or misleading information or
omissions, or
the practitioner no longer meets the registration eligibility
criteria.
Breaches can attract fines of up to $50,000 or two years'
imprisonment.
No appointment of family members as insolvency
practitioners
Relatives of people who, within the two years immediately before
the commencement of a liquidation, have been shareholders,
directors, promoters, auditors or receivers of a distressed company
will be disqualified from appointment as liquidators.
More information for creditors
Practitioners should provide creditors at the earliest
opportunity with information about the registration and regulation
regime and with an interests statement (for practitioners other
than receivers).
Under the amended Bill, practitioners will be required to
include additional content in their reports to creditors,
shareholders and the Registrar, with penalties for failure to do
so.
Further, the revised Bill requires receivers to provide a
summary report to the Registrar at the end of a receivership.
New regulations will be made indicating what must go in the summary
report.
What next?
The proposed new system retains the benefit proposed in the
previous regime of being able to prevent individuals with
dishonesty convictions, or who have previously failed to comply
with their obligations, from being appointed as insolvency
practitioners.
We consider that the Bill is a positive step for established and
well-regarded insolvency practitioners to the extent that the
licensing regime will entrench their position. It seems
likely, however, that in the future eligibility requirements will
become more demanding and formal qualifications will be
required.
The Bill will not come into effect until nine months after
enactment (late 2012) to allow the new system to be introduced
smoothly, and will be reviewed four years after coming into
force.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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The Court ultimately held there would be real prejudice to the employees of the Group in prolonging the administration.
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