What is Insolvency?
Insolvency is when a company or person can't pay debts when they are due. The most common options available to an insolvent company are liquidation, voluntary administration, and receivership; and to an individual are bankruptcy and Personal Insolvency Agreement (PIA).
Insolvency services in Australia is regulated by the Australian Securities and Investments Commission (ASIC) and the Australian Financial Security Authority (AFSA). It is legislated by the Bankruptcy Act 1966 (Cwlth), Corporations Act 2001 (Cwlth), Insolvency Law Reform Act 2016 (Cwlth) and the Insolvency Practice Rules (Bankruptcy) 2016 (Cwlth). The relevant professional standard that regulates this service is the APES 330 Insolvency Services.
APES 330 Insolvency Services sets out mandatory requirements and guidance for members in public practice engaged in the provision of insolvency services.
Scope and application
Accounting Professional & Ethical Standards Board Limited (APESB) issues APES 330 Insolvency Services (the Standard), which is effective for Insolvency Services commencing on or after 1 April 2022 and supersedes APES 330 Insolvency Services issued in January 2020. It requires members in Australia to adhere to its mandatory requirements when providing insolvency services. For members in public practice outside of Australia the scope of APES 330 must be followed to the extent local laws and regulations are not contravened.
Fundamental responsibilities of members
APES 330 reminds members of their professional obligations established in accordance with APES 110 the Code of Ethics for Professional Accountants (including Independence Standards) in respect of Section 100 – Complying with the Code and Section 110 - The Fundamental Principles.
A practitioner must be registered as a liquidator with ASIC to be appointed to any type of insolvent external administration. A registered liquidator is a natural person who is registered as a liquidator under the Corporations Act 2001. They are allocated a Registered Liquidator Number and their name and number appear on ASIC's Register of Liquidators. A practitioner must be registered as a registered trustee with AFSA. A trustee in personal bankruptcy is a registered trustee appointed by either AFSA or nominated by an individual who has become bankrupt.
APES 330 requires members to observe and comply with their public interest obligations when they provide an insolvency service. APES 330 prohibits the member from providing advice on how to avoid the consequences of insolvency or cause assets to be unavailable in an administration. This does not, however, prevent the member from providing services in relation to the structuring of the financial affairs of a solvent entity.
APES 330 stipulates that members must maintain independence when accepting or conducting an administration. In order to maintain independence members must:
- identify, evaluate and address threats to the independence of the member prior to accepting an appointment
- identify and evaluate any threats the member has reason to believe are created by the firm's or network firms' interests and relationships with the insolvent entity or its related entities
- not accept an appointment, other than to act as a controller, where the member (or the member's firm, network firm, partners or managerial employees) have, or have had, any personal or material business relationship.
APES 330 provides examples of circumstances that are not considered threats to independence. One such example is the transition of an administrator to voluntary liquidator under the Corporations Act 2011.
A member is not permitted to accept an appointment or perform an administration that involves referral or other commissions or monetary or non-monetary benefits; spotter's fees; understandings or requirements that work in the administration will be given to a referrer; any other such arrangements that restrict the proper exercise of the member's judgement and duties.
A member is required to provide a Declaration of Independence, Relevant Relationships and Indemnities in respect to an insolvency service.
Expert witness obligations
In certain circumstances the member may act as an expert witness. The member must clearly communicate in a Witness Report information such as the scope of the work performed, limitations on the scope of work and other key details of the engagement. The member has a paramount duty to the court that overrides any other duties, the duty to assist the court in relevant matters in an objective manner and the duty to inform the court when issues fall outside the member's expertise.
Restructuring practitioner means a member in public practice appointed as a small business restructuring practitioner in relation to a company or a restructuring plan under Part 5.3B of the Corporations Act 2001. Section 10 of APES 330 Insolvency Services specify the requirements of the standard when members in public practice are appointed as restructuring practitioner.
Refer to the standard for information concerning
- capacity and resources
- professional competence and due care
- professional engagement matters
- dealings with property and other assets
- professional fees and expenses
- documentation and quality control.
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