ARITA CEO John Winter: Insolvency Practice Rules delay will disadvantage profession.
Less than eight months out it must be obvious to whoever will be assistant treasurer once a government is formed that the start date for the Insolvency Law Reform Act 2016 (ILRA) must be changed. (No offence Kelly O’Dwyer but cabinet reshuffle is back on the playlist.)
At present, the Insolvency Practice Rules (IPRs) are nowhere to be seen. Without them, the profession has no idea how the ILRA 2016 is to be implemented. Yet the ILRA, which passed both houses of parliament on February 29 this year, will become law on March 1, 2017.
Without the IPRs, there can be no training. Nor can suppliers upgrade existing products to take the changes into account. Providers of specialised insolvency technologies can only wait. Education providers like the Australian Restructuring, Insolvency and Turnaround Association (ARITA) are similarly stymied.
“We’re now months and months behind in seeing the Insolvency Practice Rules and just on nine months from commencement date with Christmas and New Year in between and we’re not going to see the rules by all normal measures by at least October,” ARITA chief executive officer (CEO) John Winter said yesterday.
“Firms cannot realistically prepare until the Insolvency Practice Rules are published and then it’s going to take three months to prepare the industry training that’s necessary and then it’s six months to bring their people up to speed and that takes us well beyond the first of March next year, particularly when you factor in Christmas and New Year.”
Winter said the delay was particularly serious for technology suppliers. “What’s going to happen to the software platforms? Can Core and MYOB update their technology in time and can the firms with proprietary systems update their technology to reflect the full changes because otherwise, there’s no way they can be technically compliant,” he warned.
Exacerbating the problem is that the most obvious solution – shifting the deadline to later in 2017 – may not be straightforward. Once legislation has been gazetted and passed through parliament, changes must be made by amendment, which must pass both houses.
However National Party Senator John Williams, who can take much of the credit for driving the first major reforms to insolvency since the early 1990s’ Harmer Review, thought a change of date might not need to be made by amending the Act.
“I believe the date will fall under the Regulations in the Act and the Minister has the power to change the regulations at any time,” he said. “I’d be very surprised if it required an amendment. The Insolvency Practice Rules will be brought in and it will be up to the minister to state what date they come in,” he said.
If not, extending the deadline will require an amendment to pass through both houses. That said, it’s difficult to imagine the House of Representatives and the Senate resisting such a change.
I would caution against extending what still remains a long deadline, for at least two reasons.
First, although the new law is overly regulatory in parts, it does introduce some worthwhile reforms. For many of these, 2017 is too long away – reforms that remove financial obligations on liquidators, that will create a new source of funds from the sale of actions, that will relieve the higher courts of minor claims, that will allow creditors more access to information, that will streamline meeting processes, and others that will create commercial opportunities and efficiencies that the regime needs.
One such reform was recommended for attention in 2002, to address an ‘unjust’ outcome – the delay being a sad comment on our attention to insolvency law reform.
Second, while the rules are needed, the profession should by now be able to anticipate their content – the concept of a ‘reasonable request’ is not unknown in law, details of the meeting and other processes likewise, and reporting obligations as well. Indeed many insolvency firms’ internal process would be of a standard that can readily accommodate and be ahead of what is required. Insolvency practitioners are flexible and adept at taking on new appointments; lawyers are constantly dealing with law reforms more complex than these.
Insolvency practice, and the business world, will soon be facing more significant and disruptive changes than these.
If there must be further delay, the government can separate out those process changes where more time is said to be needed. But it is against the interests of all – creditors, the courts, practitioners and the public interest – that the whole Act be delayed.