Submission on the Insolvency Law Reform Bill 2014
and Insolvency Practice Rules Proposal Paper 2014
Centre for Commercial and Property Law, 
Queensland University of Technology

1.	Summary
We welcome the opportunity to provide feedback on the proposed Insolvency Law Reform Bill 2014 and Insolvency Practice Rules Proposal Paper November 2014. In particular, we argue that a more comprehensive review of our current insolvency law and practice, both personal and corporate, be carried out by an independent body, such as the Australian Law Reform Commission, to determine if amendment to the current regulatory framework is justified.
In our submission, we also provide feedback on the proposed registration frameworks, the issue of costs and the promotion of market competition on price and quality, and finally improvements to the powers available to the regulators. We recommend that:
•	The proposed entry requirements in relation to completion of formal qualifications be clarified, particularly around whether the foundation degree is accounting, law or a combination of both and the minimum study required in each discipline.
•	There is an additional entry requirement of completion of formal tertiary studies in insolvency administration specific study which should be, at a minimum, the equivalent of four course units or 6 months full time study, such as a Graduate Certificate qualification.
•	Any proposals aimed at costs and market competition should not be made in the absence of meaningful data.
•	Further consideration be given to establishing a merged regulatory architecture and combined personal and corporate insolvency regulator.
2.	The need for a comprehensive review
We commend attention being paid to Australia’s insolvency and restructuring law by The Treasury and the Attorney-General’s Department. 
Nevertheless, the last comprehensive review of the insolvency system was the Australian Law Reform Commission General Inquiry Report (the Harmer Report), which was handed down in 1988. Whilst aspects of our insolvency laws have been reviewed since then, none has been able to provide the clear and comprehensive analysis that is able to come from a more considered review across both corporate and personal insolvency. We argue that, having regard to the current lack of data around the operation of our insolvency regimes; the relatively narrow focus of this bill; the length of time since the Harmer Report; and the impact of the multiple and sometimes unexpected intersections of insolvency laws with other areas of regulation, a way forward would be to institute a broad review of our current insolvency law and practice, both personal and corporate, to determine if an update or change is justified. Such a review ought to be conducted by the Australian Law Reform Commission or similar independent panel set up for the task. We maintain that the proper place to deal with the impact of the insolvency laws on the economy and society is through a more specific, detailed inquiry into their operation similar to that undertaken in the Harmer Report. 
In this context, it is noted that in 2013 Singapore conducted a holistic review of its insolvency regime and on 25 August 2014 the Senior Minister of State for Law, Indranee Rajah, announced that Singapore is enacting major reforms of its insolvency laws as “Singapore tries to position itself as a regional hub for insolvency work and debt restructuring”. 
There is significant multilateral work being undertaken by the United Nations Commission on International Trade Law (UNCITRAL) through its Working Group V on Insolvency. The working group is currently addressing topics that are significant to Australia’s insolvency and restructuring regime, such as:
•	The treatment of enterprise groups in insolvency – in particular consideration of a possible Model Law;
•	Directors’ obligations in the period approaching insolvency;
•	Recognition and enforcement of foreign insolvency-derived judgements; and 
•	Mechanisms suitable for the insolvency of micro, small and medium-sized enterprises. 
It is submitted that given the significance of the insolvency and restructuring laws for Australian businesses which cross borders and for the Australian economy when foreign enterprises carry on business in Australia, Australia should be part of the deliberations that will lead to the drafting of multilateral solutions, in particular Model Laws. 
This would be in keeping with Australia’s leadership and substantial contribution to the evolution of the Model Law on Cross-border Insolvency and indeed to the range of UNCITRAL insolvency initiatives. It is understood that the then Australian Solicitor-General, Dr Gavan Griffiths QC, represented Australia on the UNCITRAL Working Group drafting the Model Law. Following the successful finalisation of the Cross-border Insolvency project in 1997, it was Australia that proposed in 1999 that UNCITRAL should undertake further work on insolvency law to foster and encourage the adoption of effective national corporate insolvency regimes, which resulted in the UNCITRAL Legislative Guide on Insolvency Law. As a common law jurisdiction in the Asia-Pacific region, Australia is well-placed to contribute to multilateral deliberations and to ‘punch above its weight’ given the size of the economy. 
3.	Registration framework
We wish to specifically comment on the Bill’s goal to align and modernise the registration and disciplinary frameworks that apply to registered liquidators and registered trustees; and Improve overall confidence in the professionalism and competence of insolvency practitioners.
Specifically we wish to address the following aspects: 
Insolvency Law Reform Bill 2014 
Schedule 2 Insolvency Practice Schedule (Bankruptcy), Part 2 Registering and Disciplining Practitioners, Division 20 Registering Trustees, Subdivision B Registration, subsection 20-20(4)
Schedule 2 Insolvency Practice Schedule (Corporations), Part 2, Registering and Disciplining Practitioners, Division 20 Registering Liquidators, Subdivision B Registration, subsection 20-20(4):
20-20 (4)		The committee must decide that the applicant should be registered as a trustee [liquidator] if it is satisfied that the applicant:
	(a)	has the qualifications, experience, knowledge and abilities prescribed; and

Insolvency Practice Rules Proposal Paper November 2014 
2.2.3	Applicant’s qualifications, experience, knowledge and abilities
16.	Subsection 20-20(4) sets out the factors the Committee will consider in deciding whether the applicant should be registered. A factor that the Committee is required to consider is whether the applicant satisfies the prescribed qualification, experience, knowledge and abilities (subsection 20-20(4)(a)).
17.	The proposed reforms would provide a harmonised set of entry standards for insolvency practitioners.
18.	Matters which the Committee should take into account will be broadly based on the current personal insolvency regime.
19.	The IPRS will include rules reflecting the policy settings in Regulation 8.02 of the Bankruptcy Regulations with the following changes:
•	The applicant must hold one or more degrees that represent three years of full time study in commercial law and accounting, but with no less than one year of equivalent full time study in either; 
•	The applicant must be engaged in relevant employment on a full-time basis for a total of not less than three years in the preceding five years. The definition of ‘relevant employment’ would be the same as is currently used in Regulation 8.02(1)(b) of the Bankruptcy Regulations.
20.	….
21.	The IPRs will also require that the applicant has completed a prescribed level of formal tertiary study in insolvency administration. The study must be the equivalent of at least two course units or three months study. The prescribed level would be at least equivalent to that currently provided under the ARITA Insolvency Education Program provided by the Queensland of Technology. This study must be in addition to the legal and accounting studies outlined above. 
3.2.1 Corporate insolvency practice rules (corporations)
Applicant’s qualifications, experience, knowledge and abilities
99.	The proposed reforms would provide a harmonised set of entry standards for insolvency practitioners. 
100.	A person applying for registration as a liquidator must satisfy the following prescribed qualification, experience, knowledge and abilities under section 20-20(4)(a).
101.	An applicant must: 
•	hold one or more degrees that represent three years of full time study in commercial law and accounting, but with no less than one year of equivalent full time study in either; 
•	the completion of formal tertiary studies in insolvency administration specific study. The study must be the equivalent of at least two course units or 3 months study. This study must be in addition to the legal and accounting studies outlined above.
•	have been engaged in relevant employment at a full-time basis for a total of not less than three years in the preceding five years; and
•	the applicant must have demonstrated the capacity to perform satisfactorily the duties of a practitioner. 
102.	The ‘experience’ component for purposes of determining relevant employment would differ depending on the registration sought.  For example: … 

In relation to the entry standards, we attach the joint submission made by the author Associate Professor Colin Anderson with Associate Professor David Morrison from the University of Queensland to the 2011 Proposals Paper, 'A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia'. We reiterate the recommendations made in that submission.

On the 2014 Proposals Paper, we find the proposed requirements for the foundation degree confusing and the current drafting unclear. The proposal currently states that to apply for registration, trustees and liquidators must:
… hold one or more degrees that represent three years of full time study in commercial law and accounting, but with no less than one year of equivalent full time study in either. [2014 Proposals Paper, paras 19, 101]
We consider there are two alternatives, depending on whether the proposal was intending to focus on accounting qualifications or a combination of accounting and law.
1.	If the proposal is to maintain the status quo, specifically that an accounting qualification is essential, we suggest that the threshold requirement include more commercial law than currently occurs in accounting degrees (see discussion below). Therefore, this proposal could be drafted as:
An applicant must hold a degree that represents at least three years of full time study and meets the academic requirements to be registered an accountant and includes no less than one semester of equivalent full time study in commercial law. 
2.	If the proposal is that either accounting or law graduates can apply for registration, then we support a requirement of the completion of a significant level of study in accounting. This proposal could, therefore, be drafted as:
An applicant must hold one or more degrees that represent at least three years of full time study in accounting or law, but with no less than one year of equivalent full time study in accounting.
We support an emphasis on accounting knowledge because of the ‘business’ knowledge and the financial skills required to undertake the duties of a registered trustee or registered liquidator. We also support a minimum amount of early introductory studies in law because these roles carry quasi-judicial duties (e.g. adjudication of proofs of debt) and are officers of the court. This is an area of accounting practice, like taxation, where a knowledge of and skills in applying law are essential.  
Admission to practise law in Australia requires both an academic requirement as well as a practical legal training requirement. Thus Australian Bachelor of Laws (or the graduate equivalent of Juris Doctor) degrees are structured to meet the following: 
The academic requirement for admission is successfully completing a tertiary academic course in Australia, whether or not leading to a degree in law, which includes the equivalent of at least 3 years' full-time study of law. 
In order to complete all the prescribed areas of knowledge (Priestley 11 subject areas) and to meet the requirement for three years of full time law study, law graduates will generally not have studied accounting except as required for professional requirements, e.g. in the postgraduate practical legal training course on Trust and Office Accounting. That is, unless the law students have undertaken a double degree in business (accounting)/law or have a second degree in accounting in a business or commerce discipline, we are of the view that students will not have sufficient accounting knowledge to practice in the area of insolvency and restructuring.
Further, regarding the foundation degree, the structure of university degrees is normally based on units or subjects of study rather than years. Given that many universities now offer students the opportunity to accelerate their studies, e.g. by studying over the summer, we suggest that it is necessary to describe the entry standard as “years or equivalent”, for example:  
“one or more degrees that represent a minimum of the equivalent of three years of full time study”
On completion of additional formal qualifications, we note the proposal recommends tertiary qualifications and the prescribed level would be at least equivalent to that currently provided under the ARITA Insolvency Education Program provided by the Queensland University of Technology. We agree that a minimum level of formal tertiary studies in insolvency administration should be required and in fact should be extended.

All the authors currently teach into the Queensland University of Technology program that meets the academic requirements of the ARITA Insolvency Education Program. Two of the authors taught into the previous program offered by the University of Southern Queensland as part of the then IPAA Insolvency Education Program.  Based on the three authors’ combined extensive experience in teaching into undergraduate business/commerce degrees and law degrees at a number of universities, we support the continuation of formal tertiary studies as a qualification for registration as registered trustees and liquidators. 
At the stage when many students are undertaking undergraduate study, they are often not aware of the possibility of a career in insolvency and restructuring practice. Also, few universities have academics who research in this specialist field and few offer an undergraduate insolvency subject. When graduates are considering a career in insolvency and restructuring practice, this is the appropriate time at which to build on existing knowledge and experience and undertake postgraduate advanced specialised studies in insolvency administration. 
Thus we support the additional entry requirement of completion of formal tertiary studies in insolvency administration specific study. Given the growing complexity in insolvency practice resulting from the increased emphasis on restructuring and the salvaging of economic value, we recommend that the study be increased from that currently proposed. That is, that it be at a minimum the equivalent of four course units or 6 months full time study.  This would equate to the minimum post-undergraduate degree qualification, being a Graduate Certificate. This is appropriate given the important role that these officers of the court must undertake.   
4.	Promote market competition on price and quality;
On the issue of costs, we reiterate comments made in our submission to the Financial Systems Inquiry which referred to research undertaken by our colleague Mark Wellard. For small companies in his data set undertaking Deeds of Company Arrangement (DOCA), the median remuneration was $31,500 for both the period of the voluntary administration and the DOCA. As an absolute set of figures it does not suggest outrageous overcharging. This is, however, a relatively small sample and is confined to small companies. As to whether this is excessive or not is a question that cannot be answered as we have no alternative with which we can make a meaningful comparison. The conditions under which these businesses operate are unique and we cannot compare the cost that might have resulted if they had operated under some other legislative regime. If it is desired to make some comparison with overseas jurisdictions then we do need to consider a large number of factors. We might also keep in mind the comment by Lubben that:
The professional fees are the cost of moving to [a] higher recovery. The notion that money paid to professionals belongs to creditors is true only if the creditors could realize that value without the professionals 
Thus the real question is not what the costs are in absolute terms but whether they are value for money in the sense that they add to return achieved. Again it is very difficult to know what the relevant costs vis-à-vis the returns to creditors are because we have no real data.
5.	Improve the powers available to the corporate regulator to regulate the corporate insolvency market and the ability for both regulators to communicate in relation to insolvency practitioners operating in both the personal and corporate insolvency markets;
We argue that Australia should address insolvency and restructuring, not only from the perspective of regulation of insolvency practitioners and small attempts to harmonise the personal and corporate insolvency regimes, but also more broadly. There would be clear benefits in establishing a merged regulatory architecture and combined personal and corporate insolvency regulator. Such a regulator can also provide specialise input across the range of Australian policy frameworks which are impacted by financial distress – for example, on innovation and entrepreneurship. A dedicated regulator can also address the increasing complexity of business failure and rescue, including for cross-border businesses.

Associate Professor Colin Anderson
Ms Cath Brown
Professor Rosalind Mason
Members of the Insolvency & Restructuring Group
Commercial & Property Law Research Centre
Faculty of Law
Queensland University of Technology

19 December 2014

Submission regarding 
Proposals paper: A modernization and harmonization of the regulatory framework applying to insolvency practitioners in Australia, December 2011 
Associate Professor Colin Anderson, School of Law, Queensland University of Technology. 
Associate Professor David Morrison, TC Beirne School of Law, The University of Queensland.
Standards of Entry into the Insolvency Profession

1.	We strongly support the harmonization of entry standards into the profession. It is clear that much of the training undertaken will apply to both personal and corporate insolvency. Whilst we have argued strongly for complete harmonization of the law of insolvency in both corporate and personal areas and the harmonization of the regulatory authority for the profession, we consider that the Government has adopted a second best solution of merely harmonising the law and not the regulatory authorities that administer that law, we support the general thrust here as a step in the right direction; 
2.	We have a particular interest in the area of qualifications. We note the basic qualification of having a degree with 3 years of full time study in commercial law and accounting but no less than one-year fulltime study in either. It may be because this is merely a proposal that the wording is very general however it appears somewhat unsatisfactory given the structure of most law/accounting degrees as they are in Universities now. Courses such as a law degree or an accounting degree, are made up of units of study –generally of one semester or its equivalent (eg accelerated intensive units). When the paper refers to one year of equivalent full time study it is difficult to know what is intended. For a standard business or commerce degree (which is the name usually given to “accounting” degrees) the typical graduate will do 3 semesters of law. This is one semester each in the areas of general introductory law (usually largely contract), corporate law and taxation law. However this is not one year if the meaning is that it is a year of the degree. Thus one year will typically be 8 units. Therefore 3 units is not a “year of commercial law. Sometimes students do have the opportunity to do more elective units in the law area. Although the areas covered might be classed as ‘commercial law’ they do not necessarily involve any insolvency law. It would be much more appropriate therefore for the legislation to be clarified here. Unless the intention is to significantly increase the amount of law to be studied in the accounting degree, we submit that it would be appropriate to state the requirement is 3 semesters of law, which should be stated explicitly rather than a vague term about “years”. Law graduates will generally do no accounting except in so far is required for professional requirements. Again a question as to what is meant by one year of fulltime study is raised. Presumably it is only those who do double degrees who would fit within the category of having done a year of accounting; 
3.	The proposal to allow law graduates to be admitted as insolvency practitioners does provide a potentially larger pool of practitioners. However, in light of the general pattern of study for law and accounting students it would seem that only those law graduates who have undertaken a double degree are suitable. Having regard to the point above about the limited amount of law covered in the accounting degree there would seem to be some imbalance herein that the amount of accounting required of a law graduate would far exceed the amount of law required for an accounting graduate. We submit though that this is as it should be. That it is necessary that insolvency practitioners have the requisite business skills given their obligations and it is difficult to see how this can be obtained without the base study at undergraduate level; 
4.	The recommendation that a prescribed level of formal tertiary studies in the area of insolvency administration is one we support. We note the reference to the course that run at the School of Law at QUT currently (on behalf of the IPA). Clearly we support that requirement. We emphasize that although we believe this should be a necessary condition for registration, we point out that the course is designed as part of the entry requirements for membership of the IPA. It is only two units. It is not designed as a direct test of student’s suitability for registration as an insolvency practitioner. It may not be sufficient to meet what might be expected in that regard if some further formal tertiary study is required. This may of course vary if registration is only as a receiver or receiver manager. We suggest that something beyond the current units might be required and it would require input from the regulators and the profession as well tertiary institutions to determine the type of course required; 
5.	We believe the key to the registration, as an insolvency practitioner is the engagement in the relevant employment. Given the extension of the qualifications to allow for law graduate admission, we submit that it is necessary to specify what would be relevant employment. We do not support the reduction in the requirements from 5 years in respect of corporate insolvency. Rather we suggest that 5 years should be the period in both corporate and personal insolvency. It is correct that suitability for a particular profession is not always determined by years engaged, but we believe given the level of responsibility that falls upon an insolvency practitioner, 3 years is too short; 
6.	We support the ability of the regulators to place conditions upon registration though suggest that issues around consistency would need to be addressed in some way. A particular issue might arise here though given the different regulatory authorities remain in existence. So for example might differences between personal and corporate registration simply re-emerge in a practical sense;