ASIC’s insolvency enforcer and former Ferrier Hodgson partner Adrian Brown.
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.
really good article
True it is that ASIC wants \”i\’s\” dotted and \”t\’s\” crossed…but is curiously nowhere to be seen when it comes to appropriate commercial rates of remuneration for liquidators etc. Its solution seems to be a \’user pays\’ model that simply inflates costs!!
In the face of increasing scrutiny of both liquidator conduct and liquidator fees, with no relaxation around the burdensome administrative regime that currently exists, the matrix is stretched to bursting point. Is it surprising that some firms are starting to cut corners to make ends meet? Not a justification, just an observation.
I wonder how soon it will be before a defence to ASIC/ARITA inquiry becomes a retreat (albeit it ineffective) to section 545 of the Corps Act…
Perhaps we could apply as an industry for \’Critically Endangered Species\’ recognition…if we are to be accused of being all kinds of wildlife, why not resort to its safeharbours…
It may come from the fact that ASIC is sees itself as a “law enforcement agency”, as it says in its report, not quite the necessary fit for insolvency practitioners, or accountants or lawyers and other comparable professions.
The AFSA annual report 2015-2016 has a different tone – proactive and prompt regulation of bankruptcy trustees, assisted by computerised and risk based approaches to reduce the regulatory burden. The use of data analytics, the development of on-line reporting and payments, a focus on statistics, and cloud and computer based systems are discussed in the report. Offence reporting has been streamlined, and ultimate prosecutions recorded.
Like liquidators, complaints are steadily reducing but with AFSA we can see that the minimal complaints substantiated occurred in the context of over $330 million in assets realised. Trustee remuneration is also recorded [at just over 25%].
And AFSA operates on a full costs recovery model.
Oddly, while AFSA refers to ASIC in its annual report, ASIC does not refer to AFSA.
This may change once the Insolvency Law Reform Act 2016 commences. It requires ASIC and AFSA to “co-operate” which should lead to a common or at least consistent regulatory approach between them. ASIC might also like to consider AFSA’s funding model.
Insolvency practitioners in my experience are generally regarded as “fair game” quite unjustifiably. The very nature of their role which seems to change depending upon regulatory attitudes, puts them in a position at odds with just about everyone. On the one hand they are expected to fulfil a job and in the case of regulators fulfil a public policy reporting role sometimes mandatory: e.g. s. 533 reports, in circumstances where anecdotally little flows from these reports and little feedback is given by the regulator. Most prosecutions in bankruptcy appear to be for relatively minor activities such as non-lodgement of a Statement of Affairs – the statutory consequence of which is apart from a minor penalty which can be converted into a monetary amount the suspension of the commencement of the period within which the person remains a bankrupt. What I think people need to realise is that it costs money to undertake any form of investigation and unless proper funding arrangements are put in place, such as the anticipated Assetless Administration Fund from ASIC, unless someone comes in to properly fund an investigation non-government external insolvency practitioners will not be prepared to nor will they be able to do proper investigations. In many respects this is the fundamental difference between the Official Trustee in Bankruptcy (acting via the Official Receiver) where public policy can be the subject of proper investigation – or at least in the past it was, and the position in relation to corporate failures. There is little or no information available as to the outcome of the administrative appointment of liquidators conferred upon the ASIC which has been introduced into the Corporations Act. Unless and until the regulators get their act together the abuses will not be brought under control – it must be accepted that there will always be abuses, the task being at all times to minimise them