Conduct of Insolvency Practitioners in Australia !?
What restrains are there on the administrators that have absolute power in the administration process to determine the fates of all the stakeholders while arguably they are themselves involved in the process as fees earning party?
How can the law justify this absolute power without independent scrutiny to ensure no conflict of interest is violated?
We believe that the Arrium Administrators have a common law duty of care to the shareholders being the current owners of the business to protect them from financial loss by the exercise of reasonable care in discharging their statutory powers. The Administrators also bear a heavy responsibility to ensure proportionality and public benefit in the conduct of voluntary administration.
We also believe that given the substantial surge in iron ore and steel prices and profitable trading of the company, the assessment of the recapitalisation proposals instigated by the shareholders group and the survival of the company as an independent entity undertaken by the Administrators were inadequate and thus denied the opportunity for the stakeholders to achieve a better outcome from the administration.
The Administrators’ decision to proceed with the sale of Arrium Australia (in particular sale to foreign trade buyer) despite numerous recapitalisation proposals are seen to be in breach of the statutory duty of care to the Arrium stakeholders and against the public interests but instead serves for the financial interest of their own and their advisors through a prolong period of administration. The lack of communications by the Administrators with and disclosure to the committee of creditors of these proposals also raises significant concerns towards their professional conduct in proportionality and public interests.
It was an interesting reading in the civil proceeding of the case Viscariello v Macks [2014] SASC 189 per Kourakis CJ as it describes the view of the Chief Justice in Supreme Court of South Australia in relation to the conduct of the insolvency practitioner:
Liquidators bear a heavy responsibility to ensure proportionality and public benefit in the conduct of liquidation.
In the absence of proportionality, a liquidator may generate litigation which is not in the company’s interests but serves instead the financial interests of the company’s professional advisers. That is contrary to the interest of the company’s creditors and the public more generally. It was difficult in the present case to see any public benefit in the litigation generated by the company’s liquidation.
Arguably allowing the creditors to retain the payments would have had greater public benefit than requiring them to disgorge the preference payments made to them only to meet the legal costs of the liquidator and his solicitors. This very unsatisfactory outcome was plainly foreseeable but neither the defendant nor his legal representatives squarely addressed the issue.
In addition, the cost effectiveness and strategy of the litigation was not given close consideration by either the defendant, or his legal representatives.
The above case raises significant issues regarding the standard of conduct required of insolvency administrators in Australia.
Some of the legal considerations in relation to the statutory duty of care by the Administrators are whether the sale which may incur fees in advisors and administrators to prolong the process will be in the best interest of all the stakeholders, and whether the effectiveness of the alternative proposals should have been properly analysed and given closer consideration. If the potential breach of statutory duty of care by the Administrators are upheld, remedy shall be sought by the stakeholders including trade creditors, workers and shareholders who suffer losses caused in the administration process.
[Attached in this post is an image we borrowed from a primary school in United Kingdom used to educate school kids the code of conduct.]
