THE FEDERAL Treasury announced a Bill to improve the efficiency and cost effectiveness of the insolvency process last week, although at least one lawyer has isolated continuing problems with the issue of pooling in insolvent corporate groups.
The Corporations Amendment (Insolvency) Bill 2007 was introduced in Parliament last week, which the Treasury said “will improve the efficiency and the cost effectiveness of insolvency processes, strengthen the rights of employees, and enhance the capacity of creditors to maximise their returns”.
“The reforms will improve the integrity of the insolvency framework,” Parliamentary Secretary to the Treasurer, Chris Pearce said.
“In particular, this Bill seeks to ensure that employee entitlements are granted priority in administration, as well as reducing unnecessary costs. The Bill continues the work that the government commenced with the response to the report of the Banks Taskforce and the Simpler Regulatory System Bill.”
Clayton Utz partner David Cowling said the majority of the reforms “are commonsense changes which will be welcomed by both liquidators and creditors. But the reforms show that there are still problems with the issue of pooling in insolvent corporate groups.
“In one sense, what we’ve been left with is ‘Pooling Lite’. Today’s reforms will not allow pooling in a voluntary administration, which is one of the most common types of corporate insolvency,” Cowling said.
“And, even in a winding-up, the procedures for pooling will now be so onerous that I wonder how many liquidators will bother to use it.”
The Treasury said the aim of the Bill is to improve the outcomes for creditors, as well as deter corporate misconduct by extending the Australian Securities and Investment Commission’s investigative powers to monitor liquidators and improving court processes in regard to misconduct by company officers.
“The key problem is that pooling benefits many creditors, but can disadvantage some others,” Cowling said. “Ever since the government committed to allowing pooling, it has been looking at how to balance those competing interests.
“The original proposal would have allowed a single dissident creditor to derail a pooling proposal. The new Bill proposes something different. Pooling will have to be approved by special creditor meetings,” he said.
“However, high voting thresholds will still threaten to give dissident creditors an effective veto over a pooling proposal.”
The Bill is also intended to improve the regulation of insolvency practitioners by introducing more regular reporting requirements, requiring adequate insurance to be held and providing greater flexibility to the Companies Auditors and Liquidators Disciplinary Board.
The voluntary administration process will be finetuned with regard to stakeholders’ experiences since the process began in 1993.