10 November 2006
Sydney, 10 November 2006: Creditors of failed companies are the big winners from new laws released today by the Federal Government, according to Clayton Utz partner and insolvency specialist David Cowling.
The Corporations Amendment (Insolvency) Bill 2006 marks the first revision of Australia's corporate insolvency laws for over a decade. According to Mr Cowling, the draft Bill addresses many of the problems with insolvency administrations highlighted by major corporate collapses such as Ansett. It also aims to provide faster and larger returns to creditors.
"The Bill's main focus is on streamlining the insolvency process and closing a number of loopholes that were being exploited by directors of failed companies," says Mr Cowling.
"There has also been a major push to address concerns about the level of fees being charged by liquidators, with creditors, ASIC and the courts all being given a greater say in what liquidators charge for their services."
Among the changes is a new 'pooling' provision that will allow a liquidator or administrator to treat insolvent group companies as a single entity. Mr Cowling says this will reduce the time and cost involved in an insolvency administration.
"Pooling has emerged as a really big issue in the last few years, with mega-collapses such as that of the Ansett group highlighting a major gap in existing legislation," says Mr Cowling.
"The new provision should mean that fewer of the companies' assets will be eaten up in liquidation expenses - leaving more money to distribute to creditors."
The draft Bill also creates greater transparency around insolvency administrations by introducing new requirements for the approval of liquidators' and administrators' fees. Under the proposals, insolvency administrators will be required to produce detailed information in support of their claims for payment. "Creditors should now have a greater level of comfort that any potential returns from the liquidation or administration are not being eaten away by excessive fees," says Mr Cowling.
While the draft Bill focuses largely on the regulation of corporate insolvencies, it also addresses the ever-present potential for corporate misconduct. The Bill contains a number of important measures, including a requirement that voluntary administrators declare conflicts of interests.
Mr Cowling says this requirement should help to avoid the situation where directors look to appoint a 'friendly' insolvency administrator who may fail to investigate and act on breaches by the directors of the Corporations Law.
"Until now, creditors have largely been in the dark about any pre-existing relationships between the administrator and the directors," Mr Cowling says. "Given that creditors place a lot of trust in administrators, this has not been a healthy situation."
This Corporations Amendment (Insolvency) Bill 2006 marks the first review of the insolvency provisions contained in Chapter 5 of the Corporations Act since 1993.
