The Australian Securities and Investment Commission’s (ASIC) annual report for 2015 – 2016 was released yesterday and the data contained within demonstrates no lessening in the scrutiny the regulator applies to Australia’s current population of 707 registered liquidators.
In the last financial year 24 liquidators and auditors were subject to enforcement action brought by ASIC. The preceding year the number was six. During the period the regulator completed 27 “high intensity” surveillances of insolvency practitioners, detecting conduct failures in 20 of these cases.
Conduct failures however were eclipsed by lapses elsewhere, with ASIC completing 216 surveillances of liquidator compliance with reporting and publishing obligations. The disparity in ASIC’s focus is justified by reference to the idea that if liquidators are diligently dotting i’s and crossing t’s then they are unlikely to be dudding creditors or facilitating phoenix activity.
“The key objective of this work is to further build confidence in the insolvency market and our regulation of it through compliance,” ASIC said. “Non-compliance with simple obligations can reflect more serious problems with insolvency practices.”
All very laudable, and on one level the approach appears to be working. “Reports of alleged misconduct about registered liquidators decreased from 446 in 2013 and 384 in 2014 to 364 in the 2015 calendar year,” ASIC said.
“ASIC’s ongoing educational work with registered liquidators to improve their communication with creditors contributed to the decrease. The overall downward trend in reports of alleged misconduct about registered liquidators is encouraging.”
Much of this decline can of course be attributed to the general population of creditors becoming better informed about the insolvency process. But the arguments in favour of ASIC’s intense focus on liquidators are undermined when not applied equally, which brings us to company directors.
ASIC prosecuted more than 400 directors for failing to assist liquidators. How many prosecutions were successful was not divulged. But to put it into perspective ASIC received 8,258 initial reports from liquidators, administrators and receivers alleging some form of misconduct by directors and/or company officers as opposed to just 1,693 reports containing no such allegations.
Of the initial reports alleging misconduct, ASIC requested a supplementary report be prepared in 11 per cent of cases. 679 of these also contained allegations of misconduct by directors and/or company officers. 80 per cent of these were assessed as either not warranting further action or not being actionable. “As per previous years, half of the cases identified as ‘analysed and assessed for no further action’ were due to insufficient evidence to warrant commencing a formal investigation,” ASIC said.
The question has to be asked: Is ASIC expecting registered liquidators to gather the evidence the regulator requires to satisfy itself that a formal investigation is warranted?
If ASIC is expecting registered liquidators to undertake investigations with an eye to ensuring that information gathered satisfies ASIC’s internal evidentiary hurdles, is it also intending to indemnify those same liquidators in the event creditors who believe an investigation was undertaken in a manner favouring the regulator’s interests ahead of their own seek relief or damages through the courts? SiN doubts it. But that leaves a situation where resources appear to be inequitably deployed.
ASIC has 21 staff working for Senior Executive Leader Adrian Brown in its insolvency practitioner enforcement and compliance division. By contract, the division tasked with overseeing 4,483 registered auditors has 30 staff under Doug Niven. Are we to believe that insolvency practitioners are a generally more nefarious lot than auditors?
Meanwhile the Markets division dealing with the conduct and compliance of directors and officers operating 23,047 public companies has 30 staff and two senior executive leaders, Kate O’Rourke and Jane Eccleston. If the scrutiny applied to liquidators is legitimate then it is surely time to require that directors be licensed. Just think of the fees.