$550 per appointment: new ASIC funding model

What the liquidators' lobby thinks of the corporate regulator's latest user pays proposals.
ARITA president Michael McCann cannot be happy about new liquidator fees.

ARITA president Michael McCann cannot be happy about new liquidator fees.

Electronic communications are like confetti – uncontrollable once released – and it didn’t take long before details from yesterday’s meeting between ASIC, Treasury and ARITA to began appearing in SiN’s inbox.

The meeting was arranged to discuss the controversial liquidators’ levy. To recoup the $9 million per annum ASIC says it spends regulating registered liquidators, the regulator has proposed that practitioners pay a fee of $5,000 per annum plus $550 per appointment taken in that period.

The ARITA contingent – which included chief executive John Winter, President Michael McCann from Grant Thornton, Vice President Scott Atkins from Henry Davis York and ARITA Technical Director Kim Arnold, must’ve been stunned.

In an email obtained by SiN that was sent to the ARITA board and every state committee yesterday afternoon Winter said: “Following the meeting, we also noted that the original proposal paper includes increasing the application for registration fee from $366 to $8,800.”

Under the new Insolvency Law Reform Act (ILRA) liquidators will need to reapply for registration every three years. Winter said the proposals outlined yesterday could mean RLs will be paying $8800 every three years on top of the proposed annual fee and external administration levy.

“We are uncertain if this will require a payment of that scale each three years as well. These matters are subject to guidance in the forthcoming IPRs and the version we’ve seen of those IPRs isn’t clear on this,” Winter said.

Not content to let ASIC do all the shocking, Treasury’s Financial Systems Division head Meghan Quinn told the ARITA contingent that the costs: “can’t be ‘passed through’ and must be overhead costs, something Winter and his ARITA colleagues rejected.

“We strongly put the case that this is inappropriate, pointing out that the AFSA funding model is directly comparable in its goals and is based on a pass through of those costs,” he said. “We aren’t confident that this has been resolved.

“ARITA raised new concerns over this model, given the potential situation that a no-fund appointment will now incur a direct $550 fee while still requiring work to be done and other ASIC fees to be paid such as public notices advertising, etc.

“Given that the ILRA removes the position of Official Liquidator, we contend that there is no longer an obligation for a practitioner to take a job post 1 September 2017 and that this situation will lead to zombie companies that RLs will (rightly) not accept an appointment for the immediate loss it would incur.

“This may lead to a proliferation of pre-insolvency asset stripping leveraging this situation in the knowledge that a formal appointment won’t be taken. We’d also contend that it will place very significant costs on the ATO for its winding up work, where practitioners will require an upfront/fixed/guaranteed fee before accepting this type of work.”

Just when the ATO has been increasing efforts to shut down illegal phoenix operators and make a dent in Australia’s $20 billion plus tax debt.

“There is no doubt that this model has significant unintended consequences which result in poor public policy outcomes,” Winter said. “It will certainly lead to many good practitioners questioning their business model, especially if they are small practitioners or deal with high volume/low cost insolvencies.”

The ARITA contingent also received more detail on the costs to ASIC of regulating the insolvency profession. This was information ARITA had been chasing for some time and it was only last week that Winter had told state committee members in West Australia that he might be forced to lodge a Freedom of Information request to get answers. See: ARITA and ASIC to meet over levy proposal

ASIC commissioners John Price and Greg Tanzer revealed yesterday that the original $9 million per annum figure posited as the cost it incurred regulating the insolvency profession was a tad high. Apparently it’s $8.65 million.

$4.65 million is the cost of 13 full-time equivalent (FTE) staff plus overheads focussed solely on regulation of insolvency practitioners. (As opposed to the remaining 37 per cent of FTE insolvency-related staff focussing on directors and corporations). Remember that this is the division which saw some very senior staff let go in the last 12 to eighteen months and an almost 20 per cent reduction in staffing levels since 2011.

Another $4 million is apparently spent on enforcement actions against practitioners. It seems a lot of money for very few disqualifications but it does buy a swag of voluntary and enforceable undertakings.

The question is, if the fee model proposed yesterday comes into force in the second half of 2017 in line with the now delayed introduction of the ILRA, how many registered liquidators will be still around and willing to be subject to it?

About the Author

Peter Gosnell
Insolvency News Online illuminates the practice of insolvency Australia-wide, highlighting the triumphs and travails of the nation’s registered practitioners and the accounting and legal professionals who work with them. INO is produced by Peter Gosnell, former business editor and senior business reporter at The Daily Telegraph newspaper. During a decade-long career, your correspondent reported on such notable corporate collapses as HIH, One.Tel, Westpoint and Fincorp as well as some of the nation's highest profile bankruptcies and the investigations and prosecutions arising from Australia's most notorious instances of white-collar crime.

9 Comments on "$550 per appointment: new ASIC funding model"

  1. The fact that the public purse cannot fund $9m per annum for regulation is an absolute joke.

    what next? tax agents paying a levy to fund ATO audits?

    The $550 per annum should be a priority expense from the insolvent entity. No funds, no fee.

  2. It seems strange that a regulator would want to charge such large fees and not in reality give anything back. It could be suggested that it is an attempt to reduce the number of free range liquidators. I wonder if AFSA will adopt a similar model.

  3. As I read this, the government expects Liquidators to work on no-fund liquidations and to pay $550 per job, a $5,000 annual fee + $8,800 each 3 years for registration. The government says these costs cannot be passed on and must be part of the overhead of a firm.

    Is there another profession that must work on files for nothing?

    Liquidators do vital work for the community. At some stage, many registered companies will find themselves as creditors of a company in liquidation. At that time, they expect a liquidator will investigate the failure and report the performance of the directors, and more.

    Why then should a liquidator who is without funds (or an interest in the creditors\’ issues) be forced to pay these fees? This is a community problem.

    In 2014 there were over 2 million registered companies in Australia. ASIC needs $9million. A $5 levy on all registered companies would more than cover the cost and the community will continue to receive a tangible benefit.

    Faced with having to provide free professional services and new government fees, most liquidators will no longer agree to take on no-fund liquidations.

    The result, as the article says, will be that assets will be stripped away by untrustworthy pre-insolvency traders and the ATO or creditors will be asked to pay the liquidator\’s fee (not to mention the legal/court fees). If they don\’t pay, nothing will happen.

    At this point, the community will be outraged. If their screams are heard in Canberra, the question then becomes how many tens of millions will need to be spent in setting up the Corporate equivalent of AFSA?

    Once it is faced with having to perform no-fund liquidations because the community expects it, then the valuable contribution that liquidators make might be appreciated by government.

  4. Thank you Peter for letting us all know about this.
    I suggest a meeting of liquidators be called to consider ASIC’s appointment as their regulator, including its fee offer. The meeting would require ASIC to provide a remuneration report, and some explanation of the proportionality of the fee with the financial outcomes. ASIC should also address other relevant criteria along the lines of those in s 473(10) of the Corporations Act.
    The meeting would be attended by an alternative insolvency regulator, whose fee estimates are being obtained, expected to be much lower, and who may consent to act. The meeting will have a couple of options – to vote to remove ASIC as regulator and replace it with the other regulator; or, to refer the fees to the NSW Supreme Court for determination, with ASIC providing an affidavit explaining its claim.

  5. “$4.65 million is the cost of 13 full-time equivalent (FTE) staff plus overheads focussed solely on regulation of insolvency practitioners.”

    Each staff member and overhead is $357,692 – no profit element included.

    Can this be correct??

    • Steve, according to the electronic confetti I obtained ASIC told ARITA that it apportions 63 per cent of FTE staff in its insolvency team to practitioner regulation “which equates to 13 staff FTE and overheads costing $4.65 million per annum.”

  6. About time ASIC started licensing directors

  7. The Spanish One | 14 October 2016 at 10:31 am | Reply

    This is an outrageous example of a Government body going well beyond its brief. It is symptomatic of a Federal bureaucracy bullying a captive group who, because of unique circumstances, cannot be seen to publically complain, lest they be accused by the common media as merely wanting to feather their own nests.
    You could equate it to charging shopping centre security guards a levy to pay for the cost of shoplifting theft. It fails a basic economics test by targeting the wrong group – those doing the work – rather than the entire community the work is being done for (ie the whole of the corporate community or shopping centre patrons, if we stick with that analogy).
    Maybe the RMS should levy victims of car accidents for the cost their accidents cause? Ridiculous, and imagine the community outrage.
    The charge should be levied on either all companies are part of their annual fee, or all directors. If you choose the latter, that would enable a simple means of keeping track of their current address and other key details, which are currently easily circumvented by a director incorrectly recording their corporate details.
    This is not hard, ASIC. $10 a year would do it. Anybody running a company who can’t afford 10 bucks a year? Piffle.
    An ancillary benefit would be that, at $10 per annum for 2 million companies (that’s $20M pa for those of you who came in late), much of the Assetless Administration Fund would be paid for by the community it is set up to police (the companies), if you ignore the bureaucracy bit in the middle. $10 a year would also be very transparent and spread the cost of corporate regulation across the entire corporate community.
    The core function and obligation of a Government is to look after its people. This attempt by the ASIC is a clear indication that it does not see its obligation in this way. Pardon the cynicism, but it looks like their idea of their job is to protect their own job. If the ASIC really wanted to make our corporate system better, they should start with themselves.:
    • Why aren’t the liquidators’ notices and advertisements databases interconnected?
    • Why aren’t directors required to have a unique registration number so their involvement in any corporation can be cross-matched seamlessly?
    • Why does the ASIC never promote the idea that a director should have at least a basic competency to be able to run a corporation? Currently, they need blood in their veins, be over 18 and not living on Mars. The defence to insolvent trading essentially starts with “I had no idea. I’m just a brickie/concreter/financial planner (insert as applicable)”.
    • Why do liquidators have to lodge more than 1 form to start or end a liquidation?
    • Why have notice periods and processes for meetings and dividends never been standardised?
    • Why do liquidators have to pay for a search on the company they are appointed to?
    • Why does the ASIC never provide template documents (eg authorised remuneration reports for starters), to proactively work to a desired service level and minimum standard?
    • Why does it take an interest in liquidators only when they have erred (in reality, or allegedly)?
    • Why are ASIC so stingy with the AAF? A transparent, cheaply managed and transparent solution to its funding constraint is right in front of it. Instead, an ideological attack on liquidators?
    • Why is ASIC so flat-footed in working on a reasonable solution to the trust liquidation problem? An extra 5 lines in the Corporations Act would fix that.
    As Mr Kugel observes, there is no other profession where such draconian costs are charged or contemplated. Doctors have Medicare as a safety net, so they NEVER need to do any work for no payment. A dentist would push you straight back out the door. Everybody else? They can choose if they wish to perform any work or not, whether they be lawyers, teachers or even undertakers(!).
    Oh, and why don’t liquidators speak up? We’re scared of being bullied by ASIC, so, no, I’m not publishing my name.
    Rant over. You can all go back to what you were doing. I need a Bex and a lie down.

  8. The Spanish One has only covered a small part of the issues Liquidators face in dealing with ASIC. The regulator’s mind set rivals the Spanish Inquisition for its tactics against practitioners, with resources that cannot be matched privately by Liquidators to challenge and examine assertions and allegations leveled at the profession. Perceptions are given more weight than substance and commercial practice and sense. It is easy to claim this is an over reaction by ASIC and the legislature to the conduct of a few practitioners from the past. The expectation sought from the profession by the regulator is high. The costs and time of meeting these expectations and new provisions is also high. In addition to the mounting pressure over the issues about the the costs of the work , practitioners are being placed in the position of raising costs to cover the additional compliance burdens, and then to justify ,in elaborate processes, the costs of the work carried out, with the hope that creditors, or a Court, will endorse a fee claim. The purported objective : “transparency”. So when any complaints are raised by creditors or ASIC about the time taken to do work, or the volume of documentation and procedures involved and the costs raised, the appropriate response from a practitioner is ” I am being transparent for the benefit of creditors.”

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