Insolvency Reform: Some good ideas and one clanger!

Last night, the Government released its Options Paper on Insolvency Regulation.  The main thrust of the reforms is to weed out rogue operators and reign in liquidators’ fees.  The Paper has a number of good proposals and one clanger of a bad one.  Firstly, the good ideas:

• Creditors being given the power to remove a liquidator by way of a vote rather than a Court application – seems reasonable to me;
• Measures to constrain liquidator’s fees including creditors being able to set a cap on fees and easier methods for creditors to object to fees – all reasonable and already largely applicable for liquidators that are members of the professional body, the IPA;
• Harmonisation of company and personal insolvency provisions – again, seems reasonable;
• Measures to encourage more price (fee) competition – At Dissolve we saw this one coming a long time ago, so we already conduct the majority of our new jobs on a Fixed Fee basis.

And the “Clanger”?  At present to become a Registered Liquidator an applicant must meet educational standards and have at least 5 years professional insolvency experience.  A proposed option to “expand the scope for insolvency entrants” is that a person be eligible for registration as a liquidator if the person is an Australian Lawyer or if they have an MBA and 5 years commercial experience – but this requirement would “also not require any minimum level of experience in performing insolvency administration tasks”.  So read that carefully…. if you are an accountant you need 5 years insolvency experience to apply to be a Registered Liquidator … but if you are a Lawyer or an MBA you can apply if you have 5 years commercial experience (read that as no insolvency experience!!).

If that option is accepted you can expect a rush of MBAs and Lawyers into the insolvency profession who have no insolvency experience.  That will certainly expand dramatically the competition amongst Liquidators and drive fees down  – unfortunately it will also lower professional standards dramatically and give the regulator a bundle more work in supervising, and disciplining, at least hundreds and perhaps thousands of new Liquidators.  If the objective is to improve standards and weed out rogue operators I am struggling to think of a worse option.

Cliff Sanderson
Registered Liquidator
Dissolve