Recommendations of the Senate Inquiry into the Insolvency Industry
This week the Australian Senate’s Economic References Committee (the Committee) has tabled a report on its inquiry into the regulation, registration and remuneration of insolvency practitioners in Australia. The report recommends a number of changes for the way the insolvency industry in Australia is regulated and controlled.
The report examines the misconduct of certain insolvency practitioners, in particular Mr Ariff, and the regulatory response to these issues.
The particular concerns noted with the current regulatory regime included its “reactive” approach, which required complaints to be made before any investigation was conducted, and its lack of response to many complaints that were made. The slowness of the complaints handling, investigation and appeal processes was also seen as a major issue.
The Committee also paid heed to the recent report of the Productivity Commission’s draft report on Regulatory Burdens on Business, which referred to concerns expressed by the IPAA about the difficulty of dealing with different regulatory frameworks for personal and corporate insolvency (ITSA and ASIC respectively). The difficulties that this created for practitioners with respect to both registration and compliance were noted.
Overall, the Committee appears to have been swayed by the arguments about the inefficiencies of having separate bodies regulate different aspects of what is, essentially, the same industry. Preferring ITSA’s approach to regulation, the Committee has recommended that the regulation of corporate insolvency be transferred to ITSA, in the form a new body to be called the Australian Insolvency Practitioners Authority (AIPA).
To support this move, the Committee has also recommended a review of Australian personal and corporate insolvency legislation, with a view to further harmonise them.
To improve regulatory oversight of the industry, the Committee has also recommended an end to the total reliance on complaints in favour of a more proactive approach. The recommendation is to create a “flying squad” to investigate practitioners selected either randomly or on the basis of risk profiling or market intelligence.
The Committee has also recommended that disciplinary action before the CALDB be made open to the public and that a register of past matters that would be accessible to the public over the internet be created.
The Committee has recommended replacing the current registration system for insolvency practitioners with a licensing system similar to that used by ITSA.
The system would require practitioners to pass a closed book examination, to be set by an advisory panel. Practitioners would also be required to participate in continuing professional education and development.
A further recommendation is to open the industry up for further competition by opening the industry to experienced commercial lawyers and MBAs.
As part of the registration scheme, the Committee recommended the creation of a fidelity fund to insure creditors against fraud by practitioners.
Amongst the complaints considered by the Committee, many were to do with the remuneration of practitioners. However, the Committee’s report indicates that it saw lack of competition as the primary cause of high fees, which would be alleviated by opening the industry up.
The Committee did recommend tightening some of the rules regarding remuneration including the creation of templates remuneration reports. It also recommended that license suspension be made available as a penalty for overcharging.
The recommendations of the report represent significant changes to the regulatory framework under which insolvency practitioners operate and to the functions of ASIC and ITSA.
It is reported that the Committee was unanimous in its findings, which suggests that there is a level of bipartisan support for changes in the regulatory framework – an important factor.
It remains to be seen, however, whether and to what extent this report results in legislation.