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Amends to the Insolvency Law Reform Act

Walter MacCallum

On 1 March 2017 the Insolvency Law Reform Act 2016 (ILRA), came into effect, significantly changing the rights of creditors to access information from Trustees and Liquidators.

The Insolvency Law Reform Act amended the Bankruptcy Act 1996 (Cth) and the Corporations Act 2001 (Cth) by adding what have been called the “Insolvency Practice Schedules” (IPS).


Creditor’s rights to request information

Pursuant to the IPS, creditors of a company are able to request the external administrator provide information, produce a document or provide a report in respect of a matter relating to the external administration.  This power can be exercised by an individual creditor or by creditors as a whole.  Generally speaking the external administrator will be required to comply with such a request unless:

  1. The information, document or report is not relevant to the external administration;
  2. In complying with the request the administrator would breach his or her duties in the external administration; or
  3. It would be otherwise unreasonable for the external administrator to comply with the requests.

The Insolvency Practice Rules (Corporations) 2016 also provide further guidelines as to what constitutes an unreasonable request for information, the provision of a report or the production of a document.  These include where the external administrator is acting in good faith and is of the opinion that:

  • complying would substantially prejudice the interest of one or more creditors or a third party and that prejudice would outweigh the benefits of complying with the request;
  • the information, report or document would be privileged from production in legal proceedings on the grounds of legal professional privilege;
  • disclosure of the information, report or document would found an action by a person for a breach of confidence; and
  • the request is vexatious.

What happens if the administrator does not comply?

If an external administrator refuses a request made pursuant to the IPS, and ASIC is satisfied that the request ought to have been complied with, ASIC may make a direction that the external administrator provide the relevant material within 5 business days of notice.  If the external administrator does not comply with the direction made by ASIC, the person making the request may apply to the court for an order that the external administrator provide the information, or alternatively ASIC may apply to the court for an order in response to non-compliance with it directions.  The new legislation places a formal obligation on external administrators to promptly respond to reasonable requests for information by creditors. Of course, while what is reasonable remains subjective, administrators should be mindful that when they receive a request from a creditor or creditors for information, that failure to act and respond promptly may see them breach their obligations and risk being tapped on the shoulder by ASIC or dragged off to court by those creditors to ensure their compliance.

If you have any questions about the Insolvency Law Reform Act, or any general insolvency concerns, contact Russell Kennedy's Corporate and Commercial Advisory team

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