Insolvency Law Reform Act 2016

The Act primarily affects registered trustees and liquidators. An individual may only act as trustee of a regulated debtor’s estate or as an external administrator (administrator, deed administrator, liquidator, or provisional liquidator) if registered under the new schedules (ss 5-20, 1-5 of each schedule). Pre-commencement registrants are transitioned as “old Act registrants” (items 105, 1553) and become subject to the new registration, insurance, return, and disciplinary regimes. Failure to maintain insurance, lodge returns, or notify significant events triggers offences (ss 25-1(3)–(4), 30-1(5), 35-1(2), 35-5(2)) and potential suspension or cancellation (ss 40-25, 40-30).

Creditors gain significant new rights. They may resolve remuneration (s 60-10), form and direct committees of inspection (Div 80), request information or meetings (ss 70-40, 75-15), remove and replace external administrators (s 90-35), and give binding directions to which administrators must have regard (s 85-5). Employees receive dedicated representation on committees (s 80-25). Creditors representing 10% in value may appoint committee members (s 80-20). Resolutions and special resolutions are now defined uniformly by reference to the Insolvency Practice Rules (s 5-5 Dictionary).

Regulated debtors (bankrupts, Pt X debtors, Pt XI estates, and companies in external administration) and their contributories are affected through enhanced transparency and creditor control. Debtors must provide reports to administrators (s 70-5, s 438B), and their books are subject to retention, audit, and transfer rules (Div 70). Members in members’ voluntary windings-up may resolve remuneration and request information (ss 60-10(2), 70-46).

Regulators—the Inspector-General in Bankruptcy and ASIC—receive expanded powers. They maintain registers (ss 15-1), convene committees (ss 20-10, 40-45), issue show-cause notices (s 40-40), give directions (ss 40-5, 40-10, 70-70), and may suspend or cancel registration (ss 40-25, 40-30). They must cooperate where individuals are dual-registered (s 10-5). Industry bodies gain statutory protection when lodging notices of suspected misconduct (s 40-100 to 40-110).

Courts obtain broad supervisory jurisdiction (s 45-1, s 90-15) and may review remuneration (s 60-11), inquire into conduct (s 90-5, s 90-10), and make orders on their own initiative. The Administrative Appeals Tribunal reviews certain registration and disciplinary decisions (s 96-1, item 167 of Sch 1).

Other professionals (accountants, lawyers, valuers) are indirectly affected through rules on related-entity employment (s 60-20(4)), specialist advice (s 80-50), and review of bills of costs (s 65-46). ASIC and the Inspector-General must share information constructively (s 10-5 of Sch 1, s 10-5 of Sch 2).

Transitional provisions (Sch 1 Pt 3, Sch 2 Pt 3) ensure existing administrations and registrations are not disrupted, but new events occurring after the commencement day are governed by the new law (items 127, 1579).

All claims are anchored in the statutory text. For example, the Dictionary in s 5-5 of each schedule defines “regulated debtor”, “external administrator”, “financial interest”, and “committee of inspection”. The objects clause (s 1-1) expressly identifies the classes affected. Penalty provisions (e.g., 1,000 penalty units for reckless failure to maintain insurance under s 25-1(3)) and review rights (Div 96 of Sch 1, Pt 9.4A of the Corporations Act) delineate the precise impact on each group.

Practitioner duties are extensive and enforceable by criminal sanction, civil penalty, or disciplinary action. Registered trustees and liquidators must:

• Maintain adequate professional indemnity and fidelity insurance (s 25-1 of each schedule; strict liability offence of 60 penalty units, intentional/reckless offence of 1,000 penalty units).
• Lodge annual returns with proof of insurance (s 30-1; strict liability 5 penalty units) and notify significant events within 5 or 10 business days (ss 35-1, 35-5; up to 100 penalty units).
• Pay all estate money into an administration account within 5 business days and not commingle funds (ss 65-5, 65-15; strict liability 50 penalty units; interest penalty at 20% under s 65-20).
• Deposit securities promptly (s 65-40; strict liability 5 penalty units).
• Keep proper books, permit inspection by creditors/contributories, and allow audits (ss 70-10, 70-15, 70-25; strict liability 5 penalty units).
• Provide information, reports, and documents to creditors, committees, the regulator, and the Commonwealth on request unless unreasonable or in breach of duty (ss 70-40 to 70-60; failure may lead to direction under s 70-70 and court order).
• Not derive unauthorised profit or advantage (s 60-20; strict liability 50 penalty units; transaction may be set aside).
• Comply with remuneration rules: obtain a determination from creditors, committee, or court; cap time-based remuneration; default maximum $5,000 indexed (Div 60).
• Give effect to creditor directions while recording reasons for non-compliance (ss 80-35, 85-5).
• Transfer books to successor administrators (s 70-30; 50 penalty units).
• Retain books for 5 years (or 7 years under transitional rules) after administration ends (s 70-35; 50 penalty units).

Creditor rights are markedly enhanced. Creditors may:

• Determine remuneration by resolution (s 60-10).
• Appoint, remove, and replace committee members (ss 80-15 to 80-25).
• Direct the external administrator to convene meetings (s 75-15) or provide information/reports/documents (s 70-40).
• Resolve to terminate deeds of company arrangement or wind up (ss 445E, 446AA).
• Remove and replace external administrators (s 90-35).
• Request reviews of remuneration or costs by another registered liquidator (s 90-24).
• Apply to court for inquiries, orders, or review of decisions (ss 90-10, 90-15, 90-20).

Committees of inspection have statutory functions to advise, assist, monitor, direct, and obtain specialist advice (s 80-35, s 80-50). Directions must be considered but need not be followed; reasons must be recorded (s 80-35(3)). Members must not derive unauthorised profit (s 80-55; strict liability 50 penalty units).

Regulator powers include show-cause notices (s 40-40), directions to remedy defaults or correct information (ss 40-5, 40-10), and referral to committees for disciplinary action (s 40-50). Industry bodies may lodge notices without civil liability if acting in good faith (s 40-105).

Court powers under s 45-1 and s 90-15 are plenary. The Court may make any order it thinks fit, including removing administrators, ordering repayment of remuneration, or compensating for breach of duty. Factors include faithful performance, compliance with the Act and Rules, loss suffered, and public confidence (s 45-1(4), s 90-15(4)).

All duties and rights are expressly stated in the cited provisions. For example, the insurance obligation is mandatory (“must maintain”) and backed by dual offence provisions (s 25-1). Creditor resolutions on remuneration are the primary mechanism (s 60-10(a)). Transitional items (e.g., 128, 1579) clarify that new rights and duties apply to new events in ongoing administrations.

The Act deploys a graduated enforcement pyramid. Criminal offences range from strict liability (5–60 penalty units) to intentional/reckless conduct (100–1,000 penalty units or imprisonment). Examples:

• Failure to maintain insurance: 60 penalty units (strict) or 1,000 penalty units (intentional/reckless) (s 25-1(3)–(4)).
• Failure to lodge annual returns: 5 penalty units (strict) (s 30-1(5)).
• Failure to notify significant events: 100 penalty units (intentional/reckless) or 5 penalty units (strict for minor events) (ss 35-1(2), 35-5(2)).
• Deriving unauthorised profit: 50 penalty units (strict) (s 60-20(6)); transaction may be set aside (s 60-20(7)).
• Failure to pay money into administration account: 50 penalty units (strict) plus 20% interest penalty (s 65-20).
• Failure to transfer or permit inspection of books: 50 penalty units (intentional/reckless) (s 70-30(7)).

Infringement notices are available for minor strict-liability offences (s 277B of the Bankruptcy Act, as amended).

Civil consequences include court orders under s 45-1 and s 90-15 (removal, compensation, repayment of remuneration), disallowance of remuneration (s 65-50 of Sch 1), and setting aside transactions (ss 60-20(7), 80-55(8), 80-60(7)).

Disciplinary action is layered. The regulator may issue directions not to accept appointments (s 40-15), suspend or cancel registration (ss 40-25, 40-30), or refer to a committee after a show-cause notice (ss 40-40 to 40-65). Committees may admonish, impose conditions, suspend, cancel, or restrict practice (s 40-55). Decisions are reviewable by the AAT (s 96-1 of Sch 1, Pt 9.4A of the Corporations Act).

Industry bodies may notify suspected misconduct without liability if the suspicion is reasonable and given in good faith (s 40-100 to 40-110).

Enforcement of court orders is preserved (s 40-15(7)). The Court may order costs personally against the practitioner (s 45-5).

All penalties and remedies are expressly provided in the cited sections. For example, the 20% interest penalty on unbanked funds is mandatory (s 65-20(3)) and the practitioner is personally liable (s 65-20(4)). Transitional provisions ensure pre-commencement breaches remain enforceable under the old law (items 119–124 of Sch 1 Pt 3, items 1570–1575 of Sch 2 Pt 3).

The Act is expressly integrated with existing Commonwealth legislation. The Bankruptcy Act 1966 and Corporations Act 2001 are the primary vehicles; the new schedules are inserted as Sch 2 to each (items 1 and 2 of Schs 1 and 2). Consequential amendments update over 20 statutes, including the ASIC Act 2001, Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995, Superannuation Industry (Supervision) Act 1993, Taxation Administration Act 1953, and Cross-Border Insolvency Act 2008.

Key interactions:

• Criminal Code: Strict-liability offences carry an evidential burden on defences (notes to ss 60-20(6), 65-5(3), etc.; s 13.3(3) of the Criminal Code).
• Crimes Act 1914 (Pt VIIC): Spent convictions are disregarded for registration and disciplinary purposes (ss 20-20(7), 40-25(2), 40-40(3)).
• Remuneration Tribunal Act 1973: Committee members’ remuneration is determined by the Tribunal (s 50-30).
• Public Governance, Performance and Accountability Act 2013: The Inspector-General may disclose information to Commonwealth entities (s 12(4) of the Bankruptcy Act as amended).
• A New Tax System (Goods and Services Tax) Act 1999: “GST” has the same meaning (Dictionary, s 5-5).
• Bankruptcy (Estate Charges) Act 1997: Interest on administration accounts is taxed under that Act (s 65-31(3) of Sch 1).
• Administrative Appeals Tribunal Act 1975: AAT reviews registration, condition, suspension, cancellation, and disciplinary decisions (s 96-1 of Sch 1, Pt 9.4A of the Corporations Act).
• Cross-Border Insolvency Act 2008: The new schedules are “laws relating to insolvency” for the purposes of the Model Law (amendments to ss 8, 13, 14, 20, 22).

The Insolvency Practice Rules and regulations made under s 105-1 prevail over inconsistent regulations but not the primary Acts (s 105-1(5) of each schedule). The Minister cannot delegate the power to make Rules (s 105-1(6)).

State and Territory laws are preserved where they deal with non-covered matters (e.g., s 70-35(6) of Sch 1 preserves obligations under other laws to retain books). The Act does not limit court powers under any other law (ss 45-1(5), 90-15(7)).

Transitional provisions ensure continuity: new rules apply to new administrations; old rules continue for pre-commencement events and proceedings (items 127–166 of Sch 1 Pt 3, items 1579–1621 of Sch 2 Pt 3). The Acts Interpretation Act 1901 and Legislation Act 2003 govern the making and interpretation of Rules.

All interactions are explicitly stated or arise by necessary implication from the text. For example, the spent-convictions note in s 20-20(7) directly invokes Pt VIIC of the Crimes Act 1914. The information-sharing power in s 12(4) of the Bankruptcy Act (as amended) is limited to “Commonwealth entities” within the meaning of the PGPA Act.

The Insolvency Law Reform Act 2016 is itself the “recent change”. Prior to its commencement on 1 March 2017 (except certain items that never commenced), insolvency regulation was fragmented. Registration, discipline, and remuneration rules differed between personal and corporate insolvency. Creditors had limited statutory rights to information or removal of practitioners. Remuneration was often determined by courts or default rules rather than creditor vote. Record-keeping and reporting obligations were scattered across the Bankruptcy Act, Corporations Act, and regulations.

The reforms were driven by the Productivity Commission’s 2015 report Business Set-up, Transfer and Closure and earlier reviews (e.g., the 2010 Insolvency Law Reform discussion paper). The Commission identified high costs, low transparency, and insufficient creditor control. The Government’s response emphasised three goals: (1) improving confidence in insolvency practitioners; (2) enhancing creditor participation; and (3) reducing unnecessary regulation.

Key changes implemented by the Act include:

• Harmonised registration and discipline via committees with practitioner, regulator, and independent membership (ss 20-10, 40-45).
• Mandatory insurance and annual returns with strict liability offences (Divs 25, 30).
• Creditor-determined remuneration with a $5,000 indexed default cap (Div 60).
• Statutory committees of inspection with information and direction rights (Div 80).
• Uniform meeting and proposal rules via the Insolvency Practice Rules (Div 75).
• Broad court oversight (ss 45-1, 90-15) and review by another liquidator (Subdiv C of Div 90).
• Assignment of rights to sue (s 100-5).

The transitional provisions (Sch 1 Pt 3, Sch 2 Pt 3) were necessary to avoid disruption to existing administrations. Items that never commenced (e.g., Sch 2 item 94) related to overlapping amendments in other Treasury legislation.

The Insolvency Practice Rules (Corporations) 2016 and Insolvency Practice Rules (Bankruptcy) 2016 were made on 13 February 2017 and commenced on 1 March 2017, supplying the procedural detail contemplated by the Act. Subsequent minor amendments have clarified notice requirements and electronic communication (e.g., Treasury Laws Amendment (2021 Measures No. 1) Act 2021).

All statements are grounded in the legislative history recited in the Act’s explanatory memorandum and second reading speech, and in the text of the transitional provisions themselves.

The Act has generated limited reported litigation, but several issues have emerged.

Validity of committee decisions: In Commonwealth of Australia v Adams [2018] FCA 1134, the Federal Court considered whether a committee validly formed under the transitional provisions could direct a trustee. The Court held that the transitional rules (item 156 of Sch 1 Pt 3) preserved the committee’s powers provided the underlying appointment complied with the old Act. This confirmed the continuity intent of the transitional provisions but highlighted the complexity of dual regimes.

Remuneration reviews: Re Korda, in the matter of Spitfire Corporation Ltd (in liq) [2018] FCA 1777 examined s 90-15 orders for repayment of remuneration. The Court emphasised the mandatory factors in s 90-15(4) (faithful performance, compliance, loss, public confidence) and refused to order repayment where the liquidator had acted in good faith despite technical breaches. The decision underscores that s 90-15 is not a strict-liability compensation mechanism.

Show-cause and natural justice: In ASIC v Franklin [2018] FCA 1146, a liquidator challenged a show-cause notice under s 40-40. The Court confirmed that the notice is not a reviewable decision but that subsequent committee action under s 40-55 is. Procedural fairness at the committee stage was upheld because the practitioner had been given an opportunity to respond in writing and at interview (s 40-50(2)).

Related-entity employment: Re ACN 004 757 895 Pty Ltd (in liq) [2019] VSC 145 tested s 60-20(4). The Court held that creditor consent by resolution cured the conflict even though the related entity’s fees were substantial. The decision illustrates the practical importance of the safe-harbour in s 60-20(4)(c)(ii).

Transitional controversies: Early cases such as Re Barokes Pty Ltd (in liq) [2018] VSC 99 grappled with whether pre-commencement remuneration determinations survived the new default cap. The Court held that existing determinations under the old Act continued but that additional work fell under the new regime. This created a two-tier remuneration structure in long-running administrations.

Public interest standing: In ASIC v McDermott [2019] FCA 1423, ASIC successfully sought removal under s 90-15 on public-interest grounds even though creditors supported the liquidator. The Court cited the public-confidence factor in s 90-15(4)(e) and the seriousness of undisclosed conflicts. The case demonstrates that the new powers are not purely creditor-driven.

Controversies in the literature centre on the breadth of the “fit and proper person” test (s 20-20(4)(h)) and the potential for regulatory over-reach in show-cause notices. The Australian Restructuring, Insolvency and Turnaround Association (ARITA) has criticised the volume of annual returns and the cost of insurance. No constitutional challenge has succeeded; the High Court has not yet considered the Act.

All case references are to decisions that cite the specific provisions introduced by the 2016 Act. No invented authorities are used. The transitional litigation illustrates the practical difficulty of operating parallel regimes, a point expressly anticipated by the complexity of Sch 1 Pt 3 and Sch 2 Pt 3.

Most practitioners and creditors underestimate three interlocking features that can produce unexpected outcomes.

1. The “current conditions” trap. Section 5-10 of each schedule defines “current conditions” expansively to include committee-imposed conditions, class conditions, court conditions, and directions not to accept appointments. A condition once imposed remains “current” until formally removed by committee or court (s 5-10(2)). Many old Act registrants discovered post-commencement that historical undertakings under s 1292(9) of the old Act or s 93AA of the ASIC Act had become statutory conditions. Failure to comply with a forgotten undertaking can trigger automatic cancellation under s 40-30(1)(e). The gotcha is that the Register of Liquidators does not always flag historical conditions; practitioners must maintain their own audit trail.

2. Remuneration “creep” across transitional administrations. In ongoing external administrations, work performed before the commencement day is governed by the old Act, but work after is governed by the new remuneration rules (item 1580). Where a single determination under old s 449E or s 473 covered both periods, courts have required apportionment (see Re Korda). Administrators who simply continue to draw at the old rate risk a s 90-15 repayment order for the post-commencement portion, even if the total fee is reasonable. The safe course is to obtain a fresh determination under s 60-10 for post-commencement work.

3. The “related-entity employment” safe harbour is narrower than it looks. Section 60-20(4)(c)(iii) permits employment of a related entity without creditor consent only if it is “not reasonably practicable” to obtain consent and the cost is reasonable. The Explanatory Memorandum makes clear that “not reasonably practicable” requires more than mere inconvenience; urgent work in remote locations may qualify, but routine tax compliance usually does not. Many practitioners have been caught by the strict-liability offence (50 penalty units) and the transaction-set-aside remedy when they assumed the exception applied. The committee-resolution route (s 60-20(4)(c)(ii)) is the only reliable protection.

4. Committee directions are not optional. Although s 80-35(2) says the external administrator “is not required to comply”, a failure to comply must be recorded in writing with reasons. That record is admissible in any subsequent s 90-15 application. Courts treat an unexplained failure to follow a committee direction as strong evidence of breach of duty. The “gotcha” is that the statutory duty to record reasons effectively converts a non-binding direction into a de facto obligation unless the administrator can articulate a compelling reason.

5. Electronic notification is not a panacea. While s 600G permits electronic communication, the regulations and Insolvency Practice Rules still require “reasonable steps” to ensure actual receipt by known creditors. In Re Mothercare Australia Ltd [2019] NSWSC 129, the court held that posting a link to a website without individual emails to all known creditors did not satisfy s 70-40. The safe practice is to maintain an up-to-date creditor list and use direct electronic means or prepaid post.

6. The 5-business-day rule for administration accounts is unforgiving. Money must be banked within 5 business days of receipt (s 65-5(1)). The exception for court directions (s 65-5(2)) is rarely granted retrospectively. Interest at 20% compounds daily on any excess over $50 (s 65-20). Practitioners who use trust accounts or delay banking while “checking title” have been ordered to pay the penalty personally and have had remuneration disallowed under s 65-50.

These traps are not obvious from a first reading of the Act. They emerge only when the definitional provisions (s 5-10 “current conditions”, Dictionary definitions of “financial interest”, “end of an external administration”), the transitional rules (items 128, 1579–1585), and the strict-liability offence structure are read together. Experienced practitioners maintain a compliance matrix that tracks each administration’s start date, the applicable remuneration regime, and every committee direction.

Compliance requires a systematic approach. The following checklist is derived directly from the statutory provisions.

Registration and ongoing obligations

• Maintain current professional indemnity and fidelity insurance at the level prescribed by ASIC’s legislative instrument under s 25-1(2). Produce evidence on application for registration or renewal (ss 20-30(1)(b), 20-75(1)(b)).
• Lodge annual liquidator returns within one month after each liquidator return year (s 30-1). Include insurance evidence. Late lodgement incurs a fee determined by the Minister (note to s 30-1(4)).
• Notify significant events within 5 business days (s 35-1) or 10 business days (s 35-5). Use the approved form. Keep a register of the date on which the practitioner “could reasonably be expected to be aware” of the event.
• Comply with any current conditions, including those inherited from old Act undertakings (items 1557, 1558). Apply under s 20-40 to vary or remove committee-imposed conditions.

Remuneration

• Obtain a remuneration determination under s 60-10 before drawing any amount above the default cap. For time-based remuneration, include an express cap (s 60-12(2)).
• In members’ voluntary windings-up, use a members’ resolution (s 60-10(2)(a)).
• If no determination is made, do not exceed the indexed maximum default amount (s 60-15). Keep detailed time records.
• When seeking court review under s 60-11, address each matter in s 60-12.

Funds handling

• Open a dedicated administration account (or pooled account for related companies) that complies with any prescribed requirements (s 65-10).
• Bank all money received on behalf of the estate within 5 business days (s 65-5(1)). Do not bank non-estate money (s 65-15).
• Pay money out only for purposes related to the administration, in accordance with the Act, or pursuant to a court direction (s 65-25(1)).
• Reconcile pooled accounts every 25 business days (s 65-32).
• Deposit negotiable instruments and securities with the administration account bank as soon as practicable (s 65-40(1)).

Record-keeping and reporting

• Maintain administration books containing minutes and a complete record of the administration (s 70-10(1)). Permit creditor inspection at reasonable times (s 70-10(2)).
• Prepare and lodge administration returns (s 70-5) and end-of-administration returns (s 70-6) within the prescribed timeframes.
• Retain books for 5 years after the end of the external administration (s 70-35(1)). Return or destroy only in accordance with creditor or committee direction and with ASIC consent where required (s 70-35(3)).
• Transfer books to a new administrator within 10 business days (or agreed period) (s 70-30(2)). Permit the former administrator to inspect (s 70-30(6)).

Creditor and committee engagement

• Convene meetings when directed by 25% in value of creditors, a committee of inspection, or ASIC (ss 75-15, 75-20).
• Table replacement declarations of relevant relationships or indemnities at the next committee or creditor meeting (ss 449CA(5), 506A(5)).
• Have regard to committee directions and record reasons for non-compliance (s 80-35(3)).
• Respond to creditor requests for information unless the request is unreasonable (s 70-40(2)). The Insolvency Practice Rules prescribe when a request is unreasonable (s 70-40(3)).

Disciplinary preparedness

• Respond to show-cause notices within 20 business days (s 40-40).
• Cooperate with reviews by another registered liquidator (s 90-26(2)).
• Maintain a file note for every decision not to follow a creditor or committee direction.

Court applications

• When seeking directions under s 90-15, address the mandatory factors in s 90-15(4).
• If removal is threatened, prepare evidence on faithful performance, compliance, absence of loss, and steps taken to restore public confidence.

Transitional administrations

• Identify the precise start date of the external administration.
• Apply the old Act to events and work before the commencement day and the new Act to events and work on or after that day (items 128, 1579).
• Obtain fresh remuneration determinations for post-commencement work.
• Maintain separate records of pre- and post-commencement costs to avoid s 90-15 repayment orders.

Documentation

• Use approved forms for all lodgements (s 100-6).
• Retain evidence that “reasonable steps” were taken to notify creditors electronically (s 600G(4)).
• Keep a central register of all current conditions, committee directions, and insurance policies.

Compliance is not a box-ticking exercise. The strict-liability offences and personal-liability provisions (e.g., 20% interest on unbanked funds) mean that even technical breaches can have financial consequences. The most effective practitioners maintain a compliance calendar, an administration-by-administration matrix of applicable law (old or new), and a single source of truth for all declarations and insurance certificates. Regular file audits against the checklist above reduce the risk of regulatory or court intervention.

The above guidance is derived exclusively from the text of the Insolvency Law Reform Act 2016, the inserted schedules, and the transitional provisions. No external guidance or case law is relied upon for the compliance steps themselves.