Reform in doubt despite Senate insolvency report


Wayne Swan’s cool initial response to a bipartisan inquiry that identified significant shortcomings in the insolvency regulation and self-regulation has raised fears that reform for the sector might be kicked into the long grass

By Rob McKay | September 15, 2010

Treasurer Wayne Swan’s cool initial response to a bipartisan inquiry that identified significant shortcomings in the insolvency regulation and self-regulation has raised fears that reform for the sector might be kicked into the long grass.

The Senate report, released yesterday, has recommended amongst other things that a ‘flying squad’ be set up by a new regulator to investigate insolvency practitioners.

The Economics References Committee inquiry was set up after high-profile cases of crooked dealing which put the lack of proper regulation into the spotlight and when the global financial crisis saw the number of insolvencies, including in the road transport industry, rise from between 6,000 and 8,000 to 9,113 in 2008 and 9,437 last year.

These cases had "undoubtedly tainted the reputation of the profession" the report tabled yesterday says, not least by the case of Stuart Ariff, a Newcastle liquidator found guilty of 83 charges of gross misconduct. Ariff has been banned as a registered practitioner for life.

At least one peak transport body executive has remarked at the amount of fees taken from trucking firms that have gone into liquidation.

That issue was dealt with extensively in the 168-page report for an inquiry that attracted 95 submissions.

However, the initial response from Swan’s office was neutral at best.

"The Government has no plans to amend the framework for supervision of the insolvency industry, but will of course carefully consider the findings of the Committee’s inquiry in the usual way," was all a spokesman would say.

While the sector argued that distinction should be made between a "single corrupt liquidator" and the somewhat more common breaches of the "high industry standards", others countered that there were "just too many criticisms of liquidators ranging from excessively high fees, over-servicing, protracted settlements, lack of transparency, conflicts of interest, abuses of power and gross misconduct".

Under the proposed reforms, the overburdened Australian Securities and Investments Commission’s corporate insolvency arm would be transferred into the Insolvency and Trustee Service Australia to form the Australian Insolvency Practitioners Authority (AIPA) in the Attorney-General’s portfolio.

The new regulator would set up and be responsible for a licensing system similar to that for financial services.

Its hearings would be held in public unless a Federal Court judge ruled otherwise.

Practitioners would be required to have insurance on pain of a fine and the AIPA would work with the insurance industry to ensure that insurance companies notify the regulator if a practitioner's insurance lapses or expires.

The idea of an Insolvency Ombudsman should also be looked at after the new structure was put in place, the report advised.

Both the Insolvency Practitioners Association of Australia and the Institute of Chartered Accountants in Australia, to which it is affiliated, said they "look forward to working with the government" on the recommendations.

 

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