Many will have seen the 12th ASIC Corporate Insolvency Update land in their email inboxes yesterday but iNO wonders how many clicked on the first case study, which details, without naming names, a curious story about a wedding to illustrate the extent of the precautions ASIC expects liquidators to take when assessing potential threats to their independence.
Independence is always a hot topic and this anecdote illustrates in ASIC’s regulatory view why registered liquidators need to look back further than the standard two years when considering whether any relevant relationship might impede the acceptance of an appointment.
“Two RLs accepted a voluntary administration appointment in circumstances where, with respect to one of the RLs:
“… about five years before the external administration appointment, the director of the company attended the RL’s wedding, and about 10 years before the external administration appointment, the RL and the director worked together for several years at two insolvency firms.
“These relationships were not disclosed in the initial declaration of relevant relationships; however were raised by a creditor at a creditors’ meeting.
“The RLs subsequently issued an amended declaration of relevant relationships and stated that between the wedding and the appointment there was no meaningful contact with the director and that these relationships were considered to be ‘trivial’ and did not require disclosure.
“ASIC corresponded with the RLs about their disclosure.
“ASIC also attended a re-convened meeting of creditors, where creditors resolved to appoint other RLs from a different insolvency firm,” ASIC said.
It’s not explained why the meeting had been adjourned or whether it was in relation to the perceived apprehension of a lack of independence.
If however anyone is still wondering why so many RLs are leaving the profession, consider ASIC’s conclusion: “In the example above, a fair-minded observer ‘might’ have considered the RL ‘might’ not have discharged their duties impartially because of the pre-existing relationship, even though the relationship existed more than two years before the appointment.”
There’s that dreaded Double Might Test, woven into a justification for regulatory correspondence and attendance by representatives of the regulator at a reconvened meeting. But perhaps there’s method in this micro-managing madness?
The smaller the regulated population, the more pressure can be exerted on each member individually.
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Love the “Double Might” test, although a more apt test when considering ASIC’s discharge of the insolvency regulator role is the “Vegemite Test”. If comparing the skills of the two, a vege might have more ability and connection to reality than an ASIC Delegate might.
Consider this.Discussions between a liquidators office and directors of a company asking advice,lets say February of a year, correspondence goes backwards and forwards numerous times over numerous months, then stops, lets say June of the same year. In Nov of yes the same year the Company goes into liquidation.Would you or any of your readers think that it was appropriate for the same Liquidators office to take the VA?
Well first of all, if we’re to be Logical about it, not only would that obviously fall within the 2 year period that the case summary concerned does not fall within, but it would also entirely depend on what you mean by the rather ambiguously worded ‘advice’.
Do you mean ‘advice’ as in a formal engagement providing a service to the insolvent? Or do you mean ‘advice’ in the same sense as the general discussions about how the insolvency process works and the company’s general background that ocurrs before literally every appointment and is regarded by all authorities as being entirely necessary?
If the latter, then what are you talking about? If the former, then no IP would be taking on such an appointment anyway, so it’s a moot point.
Unless of course we’re talking about the big non-independents, since they’re apparently allowed to take appointments irrespective of pre-appointment engagements…
Logical – there are precedent by the largest independent firm in Australia, on Arrium and Channel 10. Disclosure to the Court can apparently clear any form of conflict.
Looks like the two year rule does not apply to other relationships in particular personal relationships under the ARITA Code s. 6.12. In fact, I appears that the longer a personal relationship has existed, the more doubt it gives to independence.