Submission on Insolvency Law Reform Bill 2013

  • Date:08 Mar 2013
  • Type:Policy Submission

On 8 March 2013, the Australian Institute of Company Directors provided a submission to Federal Treasury in relation to the Insolvency Law Reform Bill 2013.

The Australian Institute of Company Directors comments were confined to the proposal in the Bill to insert a new provision, section 206BB, into the Corporations Act 2001 (Cth)(the Act). Proposed section 206BB sets out a procedure for automatically disqualifying directors who fail to:

  • Provide a report to administrators, liquidators or controllers.
  • Deliver books to administrators or liquidators.

Our submission noted that the current law has been careful to limit the circumstances within which directors can be disqualified from managing corporations and recognises the serious nature of disqualification as a penalty by incorporating procedural checks and balances to promote due process and fairness to the individual. However, in our view, the proposed provision, section 206BB:

  • Does not impose a penalty that is proportionate to the misconduct.
  • Extends ASIC’s power to disqualify directors without the need to seek a court order.
  • Is not supported by evidence which identifies a systemic failure in the current requirements to regulate the misconduct.
  • Does not sufficiently consider procedural fairness.
  • Does not appropriately balance the power of ASIC with the rights of the individual directors.

Further, section 206BB only allows directors to apply to a Court for an order overturning the disqualification before the disqualification period commences. If directors first learn of their disqualification after it has occurred (for example, by not receiving the relevant notices) a director would not have a right to apply to a Court after the period of disqualification commences. We are of the view that this mechanism lacks procedural fairness.

Although we recommended that the disqualification provision be removed from the Bill, if  the government continues with the proposal to insert section 206BB into the Corporations Act, we strongly recommend that:

  • An earlier opportunity be provided, including at the warning notice stage and the compliance notice stage for a person to write to ASIC, setting out why they have a reasonable excuse. This mechanism should be expressly provided for in the legislation.
  • ASIC should be required to apply to Court for a disqualification order, rather than requiring individual directors to apply to Court for an order overturning the disqualification.
  • A disqualification period should not be able to commence when an application has been made to a Court seeking that the disqualification be overturned.

Download a copy of our submission on the Insolvency Law Reform Bill 2013 (PDF 3.4MB).