Insolvency reform to tackle phoenix firms

New rules to give more power to creditors and funds to practitioners to hunt those who evade responsibilities

By Rob McKay | December 15, 2011

The insolvency sector is set to be shaken up with the announcement of a package of reforms that will put more power in the hands of creditors.

With the trucking industry no stranger to contentious company failure and the operation of so called ‘phoenix firms’ not unknown, the move will be greeted with interest.

"This reform package seeks to ensure that Australia's insolvency industry is underpinned by professionalism, efficiency and improved outcomes for creditors," McClelland says.

The move, unveiled by out-going Attorney-General Robert McClelland and Parliamentary Secretary to the Treasurer David Bradbury, comes after a parliamentary probe of the unethical behavior of some insolvency practitioners.

"Recent high-profile cases of misconduct by corporate insolvency practitioners have had a profound impact on confidence in the insolvency industry," Bradbury says.

"These reforms are about restoring the community’s confidence that there is a system of effective regulation, high professional standards, transparency and accountability and power for creditors to remove liquidators if necessary."

Key reform proposals include:

  • new powers for ASIC to compel practitioners to answer questions about an administration or their conduct
  • changes to the standards of entry to require practitioners to have undertaken insolvency specific education and a new registration and disciplinary system based on the personal insolvency regime
  • changes to the way information is distributed to creditors and a new right for creditors to remove a practitioner
  • giving creditors the power to pass a resolution capping practitioner fees
  • removing conflicts of interest by preventing practitioners and their related parties from deriving a benefit from the use of disbursements without the approval of creditors.

As part of the reform package, from July 1, 2012, insolvency notices will be required to be posted to a new website to be established as part of the ASIC website, replacing 53,000 newspaper advertisements over the next four years and making it easier for creditors to access information.

While practitioners will be more easily ejected from an insolvency, they will gain more funding to tackle phoenix activity where, companies seek to evade creditors and tax by reopening the same business under another guise.

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