Queensland Law Society

Amendments to Legal Profession Act

Directors of ILPs under administration

On 5 June 2017 assent was given to the Court and Civil Legislation Amendment Act 2017, a piece of omnibus legislation. Among the Acts amended was the Legal Profession Act 2007. Among those amendments is the addition of a new suitability matter and a new show cause event relating to external administration of incorporated legal practices (ILPs) under the Corporations Act 2001. This will require immediate action by some practitioners and is a matter that, for the future, all legal practitioner directors of ILPs must keep in mind.

The amendments apply to legal practitioner directors of ILPs that are or have been subject to external administration under the Corporations Act 2001 and who:

  • are applying for the grant or renewal of a practising certificate
  • have applied for the grant or renewal of a practising certificate as at 5 June 2017 and who have not received a decision about that practising certificate, and
  • who were legal practitioner directors of such corporations prior to 5 June 2017.

Suitability matters can be considered by the Society in determining whether a person is fit and proper to hold a practising certificate. Suitability issues are to be declared upon application for a grant or renewal of a practising certificate unless they have been dealt with previously as show cause events.

A show cause event is an occurrence which immediately requires the subject practitioner (that is, the holder of a practising certificate or a locally registered foreign lawyer) to show cause as to why, in light of the occurrence, they continue to be a fit and proper person to hold a practising certificate or be a locally registered foreign lawyer. Prior to this recent amendment show cause events were bankruptcy, a conviction of a tax offence or a conviction of a serious (indictable) offence.

The new suitability issue and new show cause event created by the amendment is:

“the person is or has been a Legal Practitioner Director of an Incorporated Legal Practice while the practice is or was an externally administered body corporate under the Corporations Act.

It is not possible for a person to be a legal practitioner director of an ILP unless they hold a principal practising certificate. An externally administered body corporate is defined in section 9 of the Corporations Act to be a body corporate:

(a) that is being wound up, or

(b) in respect of property of which a receiver, or a receiver and manager, has been appointed (whether or not by a court) and is acting, or

(c) that is under administration, or

(d) that has executed a deed of company arrangement that has not yet terminated, or

(e) that has entered into a compromise or arrangement with another person the administration of which has not been concluded.

This is not a reference to external intervention under the Act but rather the appointment of external administrators under the Corporations Act.

Of course, on the appointment of the liquidator the powers of the directors cease except so far as the committee of inspection or, if there is no committee, the creditors approve the continuance of any of those powers. See: section 499(4) of the Corporations Act 2001.

The procedure on a show cause event is set out at ss68 and 69 of the Act. Therefore if, after 5 June 2017 a practitioner is a legal practitioner director of an ILP while it is an externally administered body corporate under the Corporations Act then that practitioner is the subject of a show cause event.

The practitioner must provide to the Society notice of that show cause event within seven days of it occurring and within 28 days of the occurrence give to the Society a statement setting out as to why they remain a fit and proper person to hold a practising certificate. Having followed this procedure there is no further obligation to disclose that event as a suitability issue.

There may be a number of show cause events in respect of the same incorporated practice. It is possible for the one corporation to be consecutively under, for example, receivership, voluntary administration and liquidation. Each would be a separate show cause event requiring individual attention.

There are provisions which extend the reach of these provisions prior to 5 June 2017. New section 784 of the Act provides that:

(1) if before the commencement of the section (5 June 2017) a practitioner has applied for the grant or renewal of a practising certificate

(2) that grant or renewal decision has not been made, and

(3) the practitioner is or has been a legal practitioner director of an incorporated legal practice that is or was under external administration under the Corporations Act.

(4) that person must, within seven days after the date of commencement (5 June 2017), give the regulatory authority a notice about that fact.

This means if at any time after the commencement of incorporated legal practices (in Queensland 1 July 2007) the practitioner had fallen within the suitability issue it must be declared when applying for the grant or renewal of a practising certificate.

Section 785 applies as follows:

(1) On commencement (5 June 2017) a practitioner is a local legal practitioner (that is, holds a QLS practising certificate of any kind) or is a locally registered foreign lawyer.

(2) The practitioner is or was a legal practitioner director of an ILP that is or was under external administration under the Corporations Act.

(3) Then the practitioner is the subject of a show cause event and must follow the procedure at s68, s69 and s193 of the Act.

(4) In that situation, the section provides that these are declared to be show cause events and the person must provide the requisite notices to the Society as the show cause event is taken to have occurred on commencement (5 June 2017).

Thus the obligations created by the amendments are:

  • If at any time on or after 5 June 2017 you are the legal practitioner director of an incorporated legal practice while it is an externally administered body corporate under the Corporations Act you have suffered a show cause event and s68, s69 and s193 of the Act apply.
  • If at any time on or after 5 June 2017 you apply for the grant of a practising certificate and at any time you were the legal practitioner director of an ILP while it was an externally administered body corporate under the Corporations Act you must declare that as a suitability issue on the application for grant of a certificate.
  • If you hold a current practising certificate (of any ilk) or are a locally registered foreign lawyer and at any time on or before 5 June 2017 you were the legal practitioner director of an ILP while it was an externally administered body corporate under the Corporations Act you have suffered a show cause event and s68, s69 and s193 of the Act apply.
  • If you have applied for renewal of a practising certificate (of any ilk) for 2017/18 and at any time past you were the legal practitioner director of an ILP while it was an externally administered body corporate under the Corporations Act you must, if you have not yet received your practising certificate for that year, immediately advise the Society of the suitability issue. If that certificate has issued you are caught by 1 or 3 immediately above.

The Society will contact practitioners it believes are caught by the new provisions. The Society does not claim to know all practitioners who may be caught. If you are caught you must follow your obligations. Notification can be made in the first instance by letter to the general manager, Professional Standards. Inquiries should also be made to him.