Explanatory Memorandum(Circulated by the authority of the Minister for Small Business, Assistant Treasurer, the Hon Kelly O'Dwyer MP and the Attorney-General, the Hon Senator George Brandis)
Chapter 7 - Regulator powers and miscellaneous amendments
Outline of chapter
7.1 The Bill amends the Australian Securities and Investments Commission Act 2001 to provide ASIC with further powers to assist it in its oversight of the regulation of registered liquidators. In particular, the Bill amends the ASIC Act to:
- enable ASIC to require the provision of information and books as part of an ASIC proactive surveillance program;
- enable ASIC to provide administration information to a person with a material interest in the information; and
- improve the transparency of ASIC oversight of the corporate insolvency industry.
7.2 The Bill makes a range of miscellaneous amendments including an amendment of the Corporations Act to enable the assignment of an external administrator's statutory rights of action.
Context of amendments
7.3 The divergent regulatory approaches undertaken by ASIC and AFSA in relation to surveillance also affect the approaches that the respective regulators take to communicating with creditors. As part of AFSA's complaints handling processes, it may perform an examination of the file about which an allegation has been made and report the findings to the person who made the allegation. ASIC is constrained in the extent of any information that it might otherwise similarly provide.
7.4 Significant concerns were raised during the 2010 Senate Inquiry regarding the absence of a proactive surveillance program for liquidators at that point in time. The Senate Committee stated that a merely reactive approach to monitoring registered liquidators is inadequate and expressed concern that a complaints system alone cannot deter all misconduct.
7.5 Given the significant information, technical knowledge and technical skill asymmetries present in most insolvencies, creditors may not know when misconduct is occurring within an administration or may think it is occurring when it is not.
7.6 The current wording of some of the statutory powers to conduct investigations and to communicate the outcomes of those investigations under the ASIC Act is more restrictive than the commensurate powers for AFSA under the Bankruptcy Act.
7.7 However, currently there is limited scope for ASIC to communicate information or provide copies of records to relevant stakeholders that have been obtained through their regulatory activities or under their information gathering powers. In personal insolvency the Inspector-General can provide copies of reports that result from inquiries and investigations.
7.8 The personal insolvency regulator currently has extensive powers to obtain and disseminate information regarding personal insolvency matters.
7.9 In personal insolvency, the regulator may require a practitioner to answer an inquiry made to him or her in relation to any administration in which the trustee is, or has been, engaged. This power may be exercised whether or not a breach is suspected provided it is for the purpose of discharging AFSA's functions. ASIC does not have an equivalent power.
7.10 The ability to take civil action to recover company property inappropriately dissipated prior to business failure and hold directors liable for insolvent trading are key mechanisms to address phoenix activity. The inability to obtain funding is a major obstacle to the commencement of these actions. The taking of these actions may also delay the finalisation of administrations as a whole, ultimately to the detriment of creditors. The sale of rights of action may enable the value in such rights to be realised in the absence of funding being available and may result in the pursuit of matters which would not otherwise have been able to be pursued. There is some uncertainty as to whether statutory rights of action arising under the Corporations Act may be sold, which is limiting the sale of such rights.
Summary of new law
7.11 Under the new law, ASIC will be able to give a registered liquidator a written notice to give specified information or produce specified books to assist ASIC in the performance of its functions and the exercise of its powers in relation to the requirements imposed on registered liquidators and for other limited purposes.
7.12 ASIC will also be able to obtain information from any person who is believed to have information that is relevant to an inquiry or investigation regarding a liquidator's compliance with their obligations.
7.13 The reforms will empower ASIC to share information obtained or generated by it in the exercise of its powers or performance of its functions in relation to registered liquidators, the external administration of companies and the receivership of the property of a corporation. This information may be shared with a variety of people including the corporation, the external administrator or receiver, related entities of the corporation, creditors and those reviewing an external administration. Alternatively, ASIC will be able to direct registered liquidators to provide such information directly.
7.14 In order to supplement the improved rights for creditors to require the calling of meetings, ASIC will be given a power to direct that a meeting of creditors be called. This new ability replicates a power currently available to the Inspector-General under the Bankruptcy Act.
7.15 The statutory powers of insolvency practitioners will be amended to clarify that a practitioner is empowered to assign statutory rights of action arising out of the Corporations Act that vest with the practitioner (or company) during an administration, to a third party
Comparison of key features of new law and current law
|New law||Current law|
|ASIC may, by written notice, require the production of information or books regarding an external administration from a registered liquidator or any other person.
ASIC may provide information obtained from a practitioner to a person with an interest in the administration of a company, where: the information requested relates to the person's affairs to a material extent; ASIC has notified the practitioner that it will be providing the information; and is satisfied that any objections by the practitioner should not preclude the provision of the information to the person.
ASIC may place conditions on the use of the information provided to a person. Where a person does not comply with any such condition, the person will be committing an offence punishable by 10 penalty units or three months imprisonment.
ASIC may provide information regarding the conduct of an insolvency practitioner to a prescribed body, other than a prescribed professional disciplinary body. ARITA will be listed as a prescribed body for the purposes of this provision.
ASIC must report on its regulation of the insolvency industry in its annual report
|ASIC may require the production of books regarding an external administration from a registered liquidator.
ASIC must not disclose information given to it in connection with the performance of its functions or the exercise of its powers.
ASIC may provide information regarding the conduct of an insolvency practitioner to a prescribed professional disciplinary body.
ASIC may provide information regarding a corporate insolvency matter, or the conduct of a liquidator, to another Government department or agency where the information will enable or assist that department or agency to perform its functions.
Detailed explanation of new law
Notice to registered liquidators concerning information and books
7.16 New powers are given to ASIC in relation to a registered liquidator to seek specified information and to produce specified books in order to facilitate ASIC's surveillance activities (see below under consequential amendments). [Schedule 2, Part 2, item 12, section 30B]
7.17 ASIC may give a registered liquidator a written notice requiring the liquidator to give specified information and to produce specified books to a specified member of staff member at a specified place and time. ASIC may extend the period within which the registered liquidator must give the information or produce the books to which a notice relates. [Schedule 2, Part 2, item 12, subsections 30B(1) and(6)]
7.18 ASIC may only exercise these powers:
- for the purposes of the performance or exercise of any of ASIC's functions and powers in relation to liquidator requirements (see below); or
- for the purposes of ascertaining compliance with the liquidator requirements; or
- in relation to:
- an alleged or suspected contravention of the liquidator requirements; or
- an alleged or suspected contravention of a law of the Commonwealth, or of a State or Territory in this jurisdiction, being a contravention that relates to the performance or exercise of a registered liquidator's functions, duties or powers and that either concerns the management of the affairs of a body corporate or involves fraud or dishonesty and relates to a body corporate; or
- for the purposes of an investigation under Division 1 of the ASIC Act relating to a contravention referred to in the preceding subparagraph. [Schedule 2, Part 2, item 12, subsection 30B(2)]
7.19 Liquidator requirements are defined to mean the requirements in relation to registered liquidators, the external administration of companies and the receivership of the property of corporations under:
- Chapter 5 of the Corporations Act;
- Schedule 2, to that Act (the Insolvency Practice Schedule (Corporations); and
- other provisions of that Act that relate to that Chapter or Schedule. [Schedule 2, Part 2, item 12, subsection 30B(3)]
7.20 A notice given by ASIC to a registered liquidator may specify information or books that relate to any or all of the following:
- the policies relating to the external administration of companies and the receivership of the property of corporations that the registered liquidator has adopted or proposes to adopt;
- the procedures relating to the external administration of companies and the receivership of the property of corporations that the registered liquidator has put in place or proposes to put in place;
- the external administration of a company, that the registered liquidator has conducted, is conducting or is proposing to conduct;
- any other matter relating to the external administration of companies or the receivership of the property of corporations that is prescribed. [Schedule 2, Part 2, item 12, subsection 30B(4)]
7.21 A registered liquidator to whom ASIC has given a notice must comply with the request even if giving the information or producing the books would involve a breach of an obligation of confidentiality that the registered liquidator owes to:
- a company that is, has been or is likely to be under external administration; or
- a corporation the property of which is, has been or is likely to be under receivership. [Schedule 2, Part 2, item 12, subsection 30B(6)]
7.22 ASIC may give to a person a written notice requiring the production of specified books that:
- are in the person's possession or control; and
- relate to the question whether a registered liquidator has complied with liquidator requirements, within the meaning of subsection 30B(3). [Schedule 2, Part 2, item 13, subsection 33(3)]
ASIC may give information and books in relation to Chapter 5 bodies corporate
7.23 ASIC's power to give information applies where ASIC obtains or generates information or books in the exercise of its powers or the performance of its functions in relation to:
- a person in that capacity as a registered liquidator; or
- the external administration of a company; or
- the receivership of property of a corporation. [Schedule 2, Part 2, item 16, subsection 39C(1)]
7.24 ASIC may give the information or books (administrative information) to one or more specified persons. ASIC must not give the information to a person unless ASIC is satisfied that:
- the administration information is relevant to the person;
- the administration information is relevant to the exercise of a power or the performance of a function under the Corporations Act by the person in relation to:
- a registered liquidator;
- the external administration of a company;
- the receivership of property of a corporation; or
- it is otherwise reasonable to give the administration information to the person. [Schedule 2, Part 2, item 16, subsection 39C(3)]
7.25 ASIC must comply with a detailed process before it can release the administration information to the person. If ASIC imposes a condition on the use of the information, a person who fails to comply with the condition commits an offence with a penalty of 10 penalty units or imprisonment for three months or both. [Schedule 2, Part 2, item 16, subsections 39C(4), (5), (6), (7), (8),(9) and (10)]
Miscellaneous amendments Corporations Act
7.26 An administrator is required to consider whether the company to which they have been appointed would retain any equipment or other property in the company's possession that is owned by a third party. An administrator who decides not to retain such property must notify the owner of that decision within five business days after the commencement of the administration. The law is amended to require the administrator to advise the third parties of the location of their property when they are advising those parties that they do not intend to use the property in an administration. [Schedule 3, Part 1, item 1, subsection 443B(3)]
7.27 Creditors have the right to resolve to terminate deeds of company arrangement that have been breached or to apply to the Court for remedial action. However, there is no statutory requirement for a deed of company arrangement administrator or for the directors of the company to inform creditors that a breach of the deed of company arrangement has occurred. The law is amended to require the deed administrator or the directors to notify creditors. [Schedule 3, Part 2, item 2, section 445HA]
7.28 A number of incorrect cross-references in section 161A which relates to the use of a company's former name are corrected. [Schedule 3, Part 2, items 5, 6 and 7, section 161A]
7.29 Where the Court makes an order terminating a deed of company arrangement and winding up a company, or where a provision in a deed of company arrangement provides for the termination and the winding up of a company is triggered no provision has been made for a liquidator to be appointed to the subsequent liquidation. This error has been rectified. [Schedule 3, Part 4, items 8 to 16]
7.30 A number of difficulties with the definition of relation back day are addressed. [Schedule 3, Part 5, items 17 and 18, section 91]
7.31 Part 6 of Schedule 3 contains further miscellaneous amendments. Most of these amendments relate to the lodgement of documents with ASIC which require a notice to be in the prescribed form. [Schedule 3, Part 6, items 19 to 34]
Application and transitional provisions
7.32 Part 7 of Schedule 3 contains application provisions for the amendments in Schedule 3. [Schedule 3, Part 7 item 35]