A CRACKDOWN on corporate insolvency by the Australian Securities & Investments Commission (ASIC) is likely to have flow-on effects for the work of lawyers, according to a leading partner.
ASIC told a conference in Sydney last week that in an effort to complement the Government’s announcements about insolvency law reform in March, corporate insolvency has now been identified as a key national regulatory priority for ASIC.
Through insolvency law reform, policy and guidance initiatives, ASIC will now tackle insolvency and assist company directors to address financial difficulties early, said ASIC Commissioner, Professor Berna Collier.
For insolvency lawyers, who have seen a drop in work due to a booming economy, this may be a welcome development.
In an interview with Lawyers Weekly, Holding Redlich partner Penny Pengilley said ASIC’s plans will affect the work of lawyers, particularly in the areas of refinancing and insolvency.
ASIC’s crackdown could see more litigation due to companies being in financial difficulties, or because of the improper dealings of directors, or some may just experience the “misfortune of the market”, said Pengilley.
ASIC’s focus will also be on preventing insolvencies, it said. In an effort to actively manage their companies financial positions, directors should seek early advice when financial difficulties arise, said ASIC’s Collier. “It is better if insolvency practitioners are appointed sooner rather than later,” she said.
As companies make efforts to seek advice when they have financial difficulties, there will be an increase in strategic advice for lawyers, said Holding Redlich’s Pengilley.
“On the one hand I think you will definitely have a greater level of that strategic advice that people will be seeking from experienced insolvency lawyers, financial advisers and insolvency practitioners. Whether that leads to a huge amount of work may depend on the nature of each particular company and the circumstances it faces,” Pengilley said.
But, work will arrive as a flow-on effect of ASIC’s attempts, as well. It is likely ASIC will take on more prosecutions in its invigorated attack on corporate insolvency, particularly in the most egregious cases, Pengilley argued. “They are showing more preparedness to do that in an effort to send a strong signal to the marketplace,” she said.
“But this could be a different group of lawyers, such as commercial litigators with that very hard-edged focus. It may not be the same people you would go to for strategic advice if you thought the company was in difficulty,” she said.
Pengilley said lawyers may find they have a lot of smaller files rather than a few big ones. This, she said, has changed since the late 1980s and ’90s because of access to funding.
“One thing that has changed since the late ’80s is the availability of litigation funding. Quite apart from recent court decisions about whether or not funding agreements can be enforced, for a while now it was clear that for a company in liquidation in particular, arrangements can be made.
“Looking back, it may have been that other claims were never brought because of difficulties with funding, while now there may be more claims that could have a difference and may mean more litigation. Now those claims may be brought against the directors and related companies — they may just be legal claims the company happens to have which may then result in a return to creditors, which previously couldn’t be brought because of the costs involved. That factor may have a separate impact on the level of work for lawyers,” she said.