The Australian Financial Security Authority (AFSA) on Wednesday released a new report, Practitioner independence in the personal insolvency system, to clarify what practitioner independence means in practice and to address the misconceptions surrounding it.
The report outlines the regulator’s expectations, explains common conflicts of interest, and provides examples of situations where practitioners have lost their registration by failing to act with independence.
“Using examples from case law and industry guidance, our report will help all stakeholders to better understand our expectations of independence, highlighting the importance of transparency in maintaining confidence in the system overall,” said AFSA deputy chief executive Gavin McCosker.
“The report provides clarity for practitioners, while also helping other parties involved understand the importance of integrity and fairness.
“Put simply, practitioner independence is fundamental to the insolvency system in Australia.”
Common examples of conflicts of interest detailed by AFSA include dual appointments where the trustee of a director’s bankrupt estate also acts as the liquidator of the company.
Referral relationships with accountants and lawyers acting for debtors have also been flagged as a potential situation that may lead to actual or perceived conflicts of interest.
“Like most professionals working in a competitive environment, personal insolvency practitioners rely on referral networks for new business,” said the report.
“In these situations, there may be a tension between the practitioner’s desire to maintain a flow of referrals and the practitioner properly performing their duties.
“Sometimes, even if not explicitly stated, a practitioner will be aware that a referrer’s expectations will not align with the best resolution of the insolvency matter if the practitioner properly performs their duties.”
In addition to discussing the importance of independence and the expectations AFSA has of practitioners, the report also outlined the regulator’s expectations of debtors and creditors.
“While much of the responsibility for independence lies with practitioners, it is also important that debtors and creditors engage with the system,” Mr McCosker said.
“For creditors, engaging with the system is the best defence against unfair activity. Carefully reviewing the Insolvency Practitioner declaration and raising any concerns is vital.
“For debtors in financial difficulty, it is important to be wary of untrustworthy pre-insolvency advisers who are unregulated and may seek to influence the proper work of insolvency practitioners. Reporting untrustworthy behaviour can help protect your interests in the long term.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.