6. Consultation Points: Statutory Management
6.1 Summary of the Paper on Statutory Management
In Part 4 of the report, the Commission considers the need to reform statutory management under the Corporations (Investigation and Management) Act 1989 ("CIMA").
The Commission identifies three potential benefits of statutory management as an insolvency procedure:
- it provides an extraordinary procedure for business rehabilitation;
- it enables insolvencies involving groups of companies to be dealt with as a whole; and
- it provides an emergency measure for ensuring the continuing supply of essential services if the providing companies are faced with collapse.
The conclusion reached is that most of the benefits will also be available from the Commission's proposed new rehabilitation regime. The Commission notes that statutory management may still be useful where:
- issues involving the public interest are involved; and
- a process is needed to bring order to chaos and then determine how to deal with the core business.
The Commission's key recommendations are:
- that statutory management should be preserved as a remedy of last resort to be used if:
- the affairs of a corporation cannot adequately be dealt with by any other formal and collective insolvency regime; or
- the public interest requires it to be used.
- To suggest that the maximum initial period of statutory management should be three months, but with power to extend for a further three months;
- To suggest that decisions to invoke statutory management should be made by the High Court, with provisions for notice of the hearing to be given, and reasons to be given;
- To suggest that a report be provided to creditors and shareholders within one month, with a meeting to be held in the second month to decide what action should be taken.
6.2 Problem Definition
Section 4 of the CIMA states that the Act only applies where certain specified interests "cannot be adequately protected under the Companies Act 1955 [or the Companies Act 1993] or in any other lawful way."
41. If there were no CIMA, would there be situations that would be unable to be dealt with under current companies and insolvency laws, including for example, Parts XIV and XV of the Companies Act? If so, what are these situations? Why can't these situations be dealt with under the existing company and insolvency laws?
42. What are the critical features of a procedure such as statutory management that enables it to address these situations?
43. Do these features have any corresponding disadvantages - for example, a power to intervene quickly may preclude certain procedural safeguards?
44. Could these features be incorporated within mainstream insolvency and companies law with general application, such as a rehabilitation procedure, or should they continue to have a more limited application?
45. How is the CIMA regarded internationally? What implications, if any, does that have for the economy?
6.3 Application of Statutory Management
The Law Commission recommends that statutory management be preserved as a measure of last resort to be used if:
- The affairs of the corporation cannot adequately be dealt with by any other formal and collective insolvency regime; or
- The public interest requires it to be used.
46. If statutory management is retained, in what situations do you consider it appropriate that a statutory manager should be appointed?
47. Are those situations able to be dealt with in another way?
48. What do you consider should be the criteria on which such a procedure could be invoked?
49. Should operating a corporation fraudulently and recklessly continue to be criteria for appointing a statutory manager?
In Chapter 19 the Commission has recommended that there should be a targeted rehabilitation regime with a limited moratorium effective against all creditors.
50. Would the introduction of a rehabilitation procedure with a stay against creditors leave any scope for statutory management? If so, what situations would still need to be addressed?
6.4 Commencement
The Commission recommends that statutory management be commenced by order of the Court on the application of the Registrar of Companies. This removes the involvement of the Securities Commission, the Minister and the Governor General in Council from the commencement process.
51. Would the Court be a more appropriate body to decide whether a statutory manager should be appointed?
52. How long should it take to appoint a statutory manager? Do you think a court process will enable applications to be heard within that timeframe?
53. Would this recommendation, aimed at minimising the disadvantages of the existing statutory management system as an extraordinary insolvency procedure, undermine the ability of the process to deal with situations of fraud?
54. Who should be able to make application to the Court for appointment of a statutory manager?
55. Who should be able to be heard in such an application?
56. Should applications for the appointment of a statutory manager be dealt with in a confidential manner?
6.5 Role of the Statutory Manager
The Law Commission recommends that the statutory manager's role should be limited to determining whether the company should be returned in a solvent state to the directors, and if not, which insolvency regime would be most appropriate for the particular corporation.
57. Does the CIMA currently provide sufficient guidance to a statutory manager on the purpose of their role?
58. What do you consider the role of a statutory manager should be? Why? Are there other options? What are they?
59. Should the statutory managers be required to report? If so, to whom and when should they report? Should statutory managers be required to hold a meeting of creditors?
60. Should there be an advisory committee appointed to assist statutory managers? If so, what should the role of that committee be? Who should appoint such a committee?
6.6 Costs
The Law Commission has recommended that costs would be agreed between the statutory manager and the advisory committee with the sanction of the High Court.
61. How should the costs of statutory management be dealt with? Who should be responsible for approving costs?
6.7 Duration and Termination of Statutory Management
The Law Commission recommends that the period of statutory management should be limited to 3 months with provision for the statutory manager to apply for an extension of the statutory management for a further period of up to three months. Application could also be made to the Court for an order terminating statutory management.
62. Should the appointment of a statutory manager be time-bound? Why? If so, what do you consider to be an appropriate length of time? Why?
63. Who should be able to make application to the Court for an order terminating a statutory management? What should be the criteria for such an order?
6.8 Privilege
The Law Commission has recommended that statutory managers be required to report more widely, to the Courts, the creditors and to the Advisory Committee. As a result they have recommended that a privilege be created in respect of reports by statutory managers so that they need not fear action for defamation unless malice is proved.
64. If adopted, would the Law Commission's proposals require such a privilege? If so, what limits should be on the privilege? Should it be necessary to prove malice, or is bad faith sufficient? Should a negligent statutory manager be protected from defamation actions?
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