To assist insolvency practitioners when preparing their indemnity request, the ATO has developed an indemnity checklist (PDF 122KB) and Annexure A (PDF 769KB).
It is important the online version is referred to each time an indemnity request is prepared. This will ensure the information is current.
The indemnity checklist is comprised of Part 1, Part 2 and Annexure A. All indemnity requests must be in writing and address Part 1. Part 2 will also need to be addressed in all written indemnity requests where the indemnity is being sought to commence a litigation action. It is not necessary to submit Part 1 and Part 2 with the request. These documents are only intended as a guide to assist insolvency practitioners to ensure the request includes the required information.
Annexure A breaks down the total costs of an indemnity sought on a task-by-task basis, which will provide a total for the indemnity being sought. The DCT will incorporate the Annexure A document into a Deed of Indemnity in the event that the indemnity is approved. The terms of the Deed of Indemnity will not only seek to limit the amount of the indemnity to the overall total approved, but will also seek to limit the amount that the DCT will indemnify on a task-by-task basis, unless approved otherwise in a Deed of Variation. When an insolvency practitioner makes an indemnity request, they should give careful consideration to each task that is required to be undertaken and calculate the cost required to complete each task.
The DCT will only pay amounts pursuant to the terms of the Deed of Indemnity, as particularised on a task-by-task basis within Annexure A to the Deed and the terms of the Deed of Indemnity will specifically exclude payment of certain costs incurred by insolvency practitioners, including such costs relating to:
- preparing and submitting the indemnity request
- communicating with the DCT's officials in relation to the request
- executing the indemnity agreement
- reporting to the DCT
- preparing invoices and all tasks associated with invoicing, including forecasting
- general ongoing administration of the Deed of Indemnity and any variations agreed to.
The terms of the Deed of Indemnity will provide more details in relation to the costs not covered under the indemnity.
Costs and expenses should be treated as costs of the liquidation or bankrupt estate and paid in the prescribed order of priorities pursuant to section 556 of the Corporations Act 2001 (in the case of company liquidations) or section 109 of the Bankruptcy Act 1966 (in the case of bankrupt estates).
The following is an example of how the indemnity checklist may be used when initially seeking an indemnity to commence a public examination:
Available evidence may indicate that an insolvency practitioner has a viable cause of action, but as there is insufficient evidence to commence the main action, an indemnity may be sought to commence a public examination as the practitioner is without funds. As well as completing Annexure A, Part 1 of the checklist will need to be addressed in a written indemnity request.
At the conclusion of the public examination, if sufficient evidence was obtained to justify and support the commencement of recovery action, a second indemnity request may be sought to obtain a counsel opinion on the merits and prospects of success and recovery of the proposed action. If such an indemnity request is sought, then the written request must address at least Part 1 of the checklist, while Annexure A must also be completed in respect of the costs of obtaining a counsel opinion.
Where an insolvency practitioner seeks a further indemnity to pursue action once counsel has provided their opinion and indicated the proposed litigation action has good merit and prospects of success and recovery, another written indemnity request must be submitted to the DCT, thoroughly addressing Part 1 and Part 2 of the checklist. Annexure A must also be fully completed, detailing the costs on a task-by-task basis and the overall total cost of the litigation action.
Last Modified: Friday, 7 December 2012