The Federal Court of Australia has recently handed down an important decision which clarifies that insolvency practitioners must, subject to limited exceptions, maintain separate bank accounts for each insolvency appointment.
Worrell, in the matter of regulation 5.6.06 of the Corporations Regulations 2001 [2010] FCA 934 dealt with the way in which insolvency practitioners should open/maintain bank accounts in a liquidation and a receivership.
The court held that:
- the proper construction of regulation 5.6.06(1) is that separate accounts are contemplated for each corporate liquidation;
- regulation 5.6.06(2) provides an exception to the above where the corporation is part of a group, in which case one account can be opened and maintained for the group;
- the court can make an order, or the committee of creditors may approve, the liquidator in a particular liquidation not opening such an account. However, neither the court nor the committee of creditors can approve the establishment of a compound account or special account in respect of appointments yet to be made;
- insolvency practitioners cannot maintain a single compound account for all appointments;
- in the case of receivers and managers, s421(1)(a) of the Corporations Act 2001 (Cth) plainly requires receivers and managers to open and maintain a separate bank account and to ensure that no such account contains money other than money of the corporation in question; and
- the requirements of s421(1)(a) do not apply to 'mere receivers', that is controllers not exercising powers in connection with the management of the corporation.
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While the blog post refers to insolvency practitioners, it is important to recall that the decision does not apply to personal insolvency administration (as to which refer to the Bankruptcy Act and Regulations, which require the banking of receipts to an interest-bearing account in the name of the trustee, but not necessarily the a separate estate account), nor strictly to voluntary administration.
ReplyDeleteThe latter omission appears to reflect oversight in amendment of the relevant Regulations on the introduction of voluntary administration; there seems no reason in principle for distinguishing between voluntary administration and receivership, the more so since the introduction in 2007 of a scheme of reporting receipts and payments in voluntary administration.
In practical terms, the maintenance of separate accounts both imposes discipline on the practitioner in the management of administration funds, and, should error or defalcation result in a loss to an administration, ensures that there is clear evidence as to which administration has sufferred the loss. The position can readily be contrasted with the factual complexities that have arisen in the case of solicitors' trust accounts which are normally held on a consolidated or "compound" basis. The administration of the the Magarey Farlam trust account fraud has occupied the South Australian profession for some time, at considerable expense to both the account beneficiaries and the reputation of the legal profession.
Peter Sheppard, BRI Ferrier