Finance & Markets Update - December

Further AML/CTF Obligations

CAMAC Report into External Administration

• The “assumed solvency” defence should remain for transactions  entered into by officers of a company, while the company is under a Deed of Company Arrangement (DOCA). 
  
  The defence (no reasonable grounds to suspect insolvency) is available pursuant to section 588FG of the Corporations Act 2001 (Act). In making this recommendation, CAMAC asserted that the removal of   the defence would make transactions entered into by directors and/or other officers of a company that is  subject to a DOCA, too uncertain for parties involved in transactions with such companies. Further, its  removal could undermine the purpose of the administration scheme itself.
• The Act should not be amended to give the remuneration of the administrator (or deed administrator) priority over that of any replacement liquidator, where a company is put into liquidation, after an administration (or DOCA). 
  
  Initially, CAMAC had proposed amendments establishing a statutory priority for the administrator’s remuneration. However, during submissions, the majority view was that the current provisions for the remuneration of all insolvency practitioners work equitably. As such, CAMAC decided to reverse its   initial proposal, asserting that administrators already have some level of assurance that they will be paid   for their work, through their lien and priority rights and, that CAMAC was no longer convinced that a   statutory priority was appropriate. 
• The Australian Securities and Investments Commission (ASIC) should have a statutory power to replace a liquidator, in the event of a vacancy in that office. 
  
  CAMAC made this recommendation on the back of ASIC’s submission that it should be entitled to a   statutory administrative power to make the replacement. The recommendation was a slightly modified  version of the original proposal. ASIC had suggested that this would better serve the interests of creditors in that it would be an inexpensive, quicker and more convenient solution compared to a costly   and drawn out court application. It does not, however, place any obligation on ASIC to take such steps. 
• There should be no exemption from the voidable transaction provisions introduced for transactions conducted under the authority of a receiver or other controller.  
  
  In making this recommendation, CAMAC asserted that whilst the proposed exemption could provide   greater certainty in transactions between receivers or controllers and third parties, the obligation of   receivers and controllers is to act in the interests of their appointing secured creditor, rather than creditors generally.  As such, any exemption from voidable transaction provisions would give an unwarranted protection to transactions entered into between a receiver or controller and a third party and   it would also undermine the interests of unsecured creditors. 
• All deed administrators should be required to give notification to creditors of any information known to them, regarding a breach, a combination of breaches or likely future breaches, that could reasonably be expected to have a material effect on the purpose or outcome of the DOCA.  
  
  If the company subject to the DOCA is under the control of directors, then the directors must inform the deed administrator of any beach or likely future breach known to them, as soon as it is practicable to do so. CAMAC asserted that creditors are entitled   to the protection that such notification may provide and further, that  by placing the obligation to notify creditors on the deed administrator, it could ensure that the administrators’ professional  skills and judgment are brought to bear on whether the breach would have a material effect on the purpose or outcome of the DOCA. 

Service by Facebook