Creditor rights under the insolvency law reform act
The insolvency space is currently undergoing serious reform with the introduction of the Insolvency Law Reform Act 2016 (ILRA). The ILRA resulted in amendments to the Corporations Act 2001 and Bankruptcy Act 1966 (the Acts) with changes being introduced throughout the year.
The ILRA amendments will introduce a number of changes to the creditor and insolvency practitioner relationship which will come into effect from 1 September 2017. Under Schedule 2 (the Schedule) of the Acts, creditors will have the right to request meetings and information and also the right to take certain actions in external administrations.
In addition to the compulsory reporting obligations of external administrators, creditors will now have the right to request information, reports and documents at any time during an appointment with which the practitioner must comply as long as the request meets the following:
- The request is reasonable;
- The request is relevant; and
- The request would not result in a breach of the practitioner’s duties.
These rights were not previously provided for under the Corporations Act. Prior to the introduction of the ILRA, creditors had to apply to court to be provided access to information and records of an external administration.
The ILRA amendments remove the requirement for compulsory meetings in order to reduce statutory costs and now afford creditors the right to request that a Liquidator convene and hold a meeting of creditors as soon as reasonably practicable.
Creditors as a body by resolution will also have the right to give directions, request a review of the external administration and remove the Liquidator. These resolutions will be required to be raised in advance of the meeting being held by the external administrator.
The objective of the ILRA is to change the relationship between creditor and external administrator by reducing the compulsory reporting and meeting requirements and providing creditors greater powers as discussed.
In addition, under Section 100-5 of the Schedule, an external administrator will have the right to assign any right to sue that is conferred on the administrator under the Corporations Act. This includes voidable transaction claims and claims for insolvent trading against Company Directors. This will essentially mean that creditors have the right to purchase actions from the external administrator. This provision may see an increase in recovery actions taken as creditors may be in a position to bear the risks of such actions where an external administrator cannot.
Where to find further information
The ILRA has come into full affect as of 1 September 2017. To discuss how these changes may affect your rights in insolvency administrations please do not hesitate to contact the PKF BRI team in Newcastle and Sydney.
ARITA has released a number of useful fact sheets on creditor’s rights under Liquidations, Voluntary Administrations and Regulated Debtor Estates (Personal Insolvency Appointments). For copies of these fact sheets or for more information regarding creditor rights and insolvency appointments please refer to the following links: