Aug 132017
 

In a recent judgment in the Federal Court the judge, the Honourable David John O’Callaghan, discusses the part that ARITA’s code of professional conduct plays in determining questions concerning the independence and impartiality of an external administrator’s conduct.

What His Honour said – extracts:

There is no doubt that the code is a useful document in assisting practitioners; …. it is “a useful guide to the common practice in such matters, and to the profession’s own view of proper professional standards”; …. it is “… permissible for the Court to take [it] into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner’s conduct in the case before it”; …. On the other hand, the code “has no legal status”; …. Any question relating to the appearance of impartiality must be determined according to law. It is not the Court’s function in a case such as this to either apply or interpret the code.

For more, see his complete comments below.


 

Judge OCallaghan

The Hon David John O’Callaghan

Judgment published 11 August 2017 … In Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 914

….

The code of professional practice

92. I should also say something briefly about the Code of Professional Practice of The Australian Restructuring Insolvency and Turnaround Association (ARITA) (the code), because the administrators sought to rely on the code as providing an independent basis upon which they might be permitted to continue to act as administrators. In particular, submissions were made on behalf of the administrators about those parts of the code which define “exceptions” to the “rule” that, relevantly, practitioners must not take an appointment if they have had a professional relationship with the insolvent company during the previous two years: see section 6.8 of the third edition of the code.

93.  There is no doubt that the code is a useful document in assisting practitioners, including with respect to questions of whether, in accepting or retaining an appointment as an administrator, the practitioner is, and is seen to be, independent: see chapter 6 of the third edition of the code. The code is intended to provide guidance on standards of practice and professional conduct expected of ARITA members.

94.  In Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; 45 ACSR 612, Austin J described (at [163]) the Code of Professional Conduct published by the Insolvency Practitioners Association of Australia (as ARITA was previously known) as “a useful guide to the common practice in such matters, and to the profession’s own view of proper professional standards”. Accordingly, his Honour held that “[i]t is permissible for the Court to take [it] into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner’s conduct in the case before it”: see Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; 45 ACSR 612 at [163]; comparing National Roads and Motorists’ Association Ltd v Geeson [2001] NSWSC 832; 39 ACSR 401 at 403 and Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735 at 738.

95.  On the other hand, the code “has no legal status”, as Sanderson M stated in Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201. Relevantly, Sanderson M observed in that case, “a failure to comply with the terms of the code would not render a practitioner liable for prosecution under the Corporations Act or any other statute … Nor does a failure to comply with the provisions of the code mean that there has been a failure to comply with what is required in the DIRRI”: see Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201 at [37].

96.  Any question relating to the appearance of impartiality must be determined according to law. It is not the Court’s function in a case such as this to either apply or interpret the code.


 

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Jun 292017
 

In reporting on the results of an investigation into the conduct of a Victorian registered liquidator operating as a sole practitioner, the Australian Securities and Investments Commission (ASIC) has provided a list of procedures which the liquidator failed to carry out.  

The catalogue serves both as a guide to some of the duties that ASIC regards as important, and as a reminder to liquidators.

ASIC logo

Extract from ASIC Media Release 28 June 2017

ASIC’s concerns centred on alleged failures to:

  • conduct pre-appointment independence reviews;
  • send to third parties adequate ‘Day One’ correspondence;
  • properly investigate company affairs;
  • take steps to protect and secure assets in a timely manner;
  • adequately investigate potential illegal phoenix activities and taxation offences of directors and their advisors;
  • make sufficient requests of company officers for books and records;
  • seek prompt assistance from ASIC under the Liquidator Assistance program where the company director or accountant failed to provide adequate books and records;
  • undertake adequate review of voidable transactions, including unfair preferences and uncommercial transactions;
  • lodge complete reports with ASIC;
  • provide creditors with adequate reporting to enable informed assessment of remuneration requests and may have drawn remuneration he was not entitled to; and
  • comply with legal requirements to document work undertaken.

Not each and every one of ASIC’s concerns were found in all of the external administrations reviewed.

ASIC Commissioner John Price said, ‘ASIC continues its focus on registered liquidators who fail to carry out their legal obligations to carry out adequate investigations and report fully to creditors, including in circumstances suggesting pre-appointment illegal activity.

‘Creditors have every right to expect registered liquidators to act independently and competently – especially given their role as a fiduciary. The community needs to have trust and confidence in the administration of insolvent companies.

‘ASIC will continue to review and take action against liquidators whom ASIC believes fall short of meeting legal and professional standards.’

Continue reading »

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Penalties for White Collar Crime: Senate Report of March 2017

 ASIC, Offences, Regulation, White collar crime  Comments Off on Penalties for White Collar Crime: Senate Report of March 2017
May 292017
 

crime-cloud

Inquiries by Parliamentary committees can be a waste of everyone’s time. The Senate’s Inquiry into criminal, civil and administrative penalties for white collar crimes is a good example.

It began in November 2015 and ended in March 2017 (after pausing for 5 months because of the  election). It received 139 submissions, 2 lots of “additional information”, and had a public hearing at which 23 witnesses appeared. It’s report, which carries the grandiose title “Lifting the fear and suppressing the greed” (23 March 2017), runs to 108 pages. The committee said:

“A clear message to the committee from inquiry participants was that white-
collar crime and misconduct can cause serious harms, both at the individual level and
in the community as a whole.”

But despite this statement and the enormous amount of work that went into making submissions, conducting the inquiry and writing the report, media coverage has been almost non-existent. Perhaps news editors thought the subject matter was fairly dry, and/or that the report’s  recommendations were not particularly noteworthy or inspiring or controversial.  Such a conclusion would be understandable. To which I would add, that the report is unlikely to have much of an impact on how we deal with white collar crime.

 THE COMMITTEE’S RECOMMENDATIONS
Recommendation 1 That the government consider reforms to provide greater clarity regarding the evidentiary standards and rules of procedure that apply in civil penalty proceedings involving white-collar offences. paragraph 3.52
Recommendation 2 That the Australian Securities and Investments Commission (ASIC) consider ways in which the accessibility and usability of the banned and disqualified register might be enhanced, in order to create greater transparency regarding banning and disqualification orders. paragraph 5.24
Recommendation 3 That the government consider making infringement notices available to the ASIC to respond to breaches of the financial services and managed investments provisions of the Corporations Act. paragraph 5.34
Recommendation 4 That the government amend the Corporations Act 2001 to increase the current level of civil penalties, both for individuals and bodies corporate, and that in doing so it should have regard to non-criminal penalty settings for similar offences in other jurisdictions. paragraph 6.55
Recommendation 5 That the government provide for civil penalties in respect of white-collar offences to be set as a multiple of the benefit gained or loss avoided. paragraph 6.56
Recommendation 6 That the government introduce disgorgement powers for the ASIC in relation to non-criminal matters. paragraph 6.57

The committee’s full report is available for viewing and download at the committee’s Parliament of Australia website.

Incidentally, insolvency practitioners will be disappointed that there are so few references in the report to insolvency and liquidation, although potentially recommendation 4 could have an impact in corporate insolvency.

The next part of this blog post contains extracts which reveal “The Committee’s Views”  and the “Table of Contents of Report”.

Continue reading »

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New insolvency practitioners association emerging

 Corporate Insolvency, Industry People, Personal Bankruptcy, Regulation  Comments Off on New insolvency practitioners association emerging
May 182017
 

professional-associationA new professional association for Australian insolvency practitioners  – named the Association of Independent Insolvency Practitioners (AIIP) – has been formed and is currently endeavouring to recruit as members those registered liquidators and trustees in bankruptcy who work as sole practitioners or in small firms.

In an email circular on 4 May 2017 (see below), Nicholas Crouch, a Sydney liquidator and registered trustee in bankruptcy, acting for the AIIP, stated that “80 of the 350 small firm liquidators and trustees in Australia have joined AIIP”. The annual membership fee has been set at just $20.

Also, the AIIP plans to create – for use in company liquidations, voluntary administrations and receiverships and in personal bankruptcy – sets of  precedent or pro forma letters, forms, checklists, etc.,  that fulfil the requirements of the new insolvency legislation. It estimates that the price per practitioner will be about $2,000.  This is far less than amounts charged by existing suppliers (CORE IPS and CCH).

It is not clear whether the AIIP sees itself as an alternative or an adjunct to the Australian Restructuring Insolvency and Turnaround Association (ARITA), which is the peak body representing insolvency practitioners.  ARITA describes itself as “Australia’s leading organisation for restructuring, insolvency and turnaround professionals.”  Recently ARITA has greatly enhanced its power and prestige as a result of insolvency legislation classing it as an “industry body” and giving it an important role in the official registration  of  liquidators and bankruptcy trustees.

But it seems a significant number of insolvency practitioners are not happy with the direction that ARITA has taken. Dissatisfaction with the association  relates to  a perception that it is dominated by large insolvency firms  (supposedly leading to a focus on issues that are of interest to them),  its decision to admit lawyers, bankers and academics as members, and its high membership fee.

Text of AIIP email to liquidators and trustees in bankruptcy

Dear Fellow Liquidator/Trustee in Bankruptcy

A new liquidator’s club has been established. The objective of the Association of Independent Insolvency Practitioners (“AIIP”) is to encourage small insolvency firms to collaborate and develop best practice procedures and precedents for its members.

To date, 80 of the 350 small firm liquidators and trustees in Australia have joined AIIP.

AIIP is a not for profit association.

Membership of AIIP is limited to registered liquidators and bankruptcy trustees.

I invite you to join AIIP by contacting Stephen Hathway or Ginette Muller as follows:
[deleted]

The annual membership is $20 and an application form is attached.

Discussion groups have been established in Sydney & Brisbane and AIIP hopes to roll out new discussion groups in each capital city as soon as practicable.

New Precedents For Your Firm

AIIP has a committee that is developing a set of liquidation, VA, receivership & bankruptcy precedents that will be compliant with the new laws.

AFSA & ASIC have agreed to consider, but not endorse, the AIIP precedents when they are finalised.

AIIP members will be able to purchase and immediately use the new precedents or use the AIIP precedents as a guide when amending their own existing precedents.

The projected cost of the precedents is uncertain, but my preliminary estimate is about $2k per member.

I am hopeful the costs can be reduced through increasing the AIIP’s membership. I encourage you to invite other small firm insolvency practitioners to join AIIP.

If you wish to offer assistance to this project please advise me.

ASIC & AFSA Review Of AIIP Precedents

On 25 November 2016, Senator Williams assisted the AIIP by asking the ASIC Chairman and 3 ASIC Commissioners who were present at the Federal Government’s Joint Parliamentary Committee on Corporations and Financial Services, if ASIC would assist AIIP with our precedents project.

Senator WILLIAMS:  I have a couple of questions, Mr Price, on insolvency. With the new insolvency laws, every insolvency firm must update its precedents and templates. This is a massive and costly task. I know of a group of 40 independents, a small firm of liquidators. Small firms are creating one set of documents that they will all use as templates. It is an industry first. This will save ASIC work. Is ASIC prepared to work with this group to develop these templates?

ASIC Commissioner Price responded as follows:

Mr Price:  Certainly. We would be happy to discuss with groups that are thinking about that.
….
AIIP is very grateful for the assistance of Senator Williams, ASIC & AFSA.

AIIP recognises this is a historic opportunity for all small firm Insolvency practitioners to work with the regulators to produce best practice documents which will assist both the regulators and the small firm insolvency practitioners by raising the standard of practice and reducing the cost of compliance.

ARITA has declined to work with AIIP on this project.

CCH is in preliminary discussions with AIIP and they may offer their assistance with the precedent project.

Expressions of Interest

Kindly advise me by return email if you are interested in purchasing the AIIP precedents ….

 


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Those regulated by ASIC are to pay ASIC for the privilege

 ASIC, Corporate Insolvency, External administration, Insolvency Law, Regulation  Comments Off on Those regulated by ASIC are to pay ASIC for the privilege
May 102017
 

An idea put forward by the Australian Government about a year ago has almost become a reality with the introduction into Parliament on 30 March 2017 of the ASIC Supervisory Cost Recovery Levy Act 2017 to establish an industry funding model for the Australian Securities and Investments Commission (ASIC) and with the release on 4 May 2017 of draft regulations for consultation.

The idea –  to enable the recovery of the regulatory costs of ASIC by imposing a levy on persons regulated by ASIC – was described in Parliament by the Assistant Minister to the Treasurer (Mr Sukkar) as follows:

Industry funding of ASIC will mean that … those entities that create the need for that regulation will be the ones who pay for it—as opposed to Australian taxpayers—who too often bear the cost of financial sector misconduct.  Further, because each regulated subsector will only ever pay an amount equal to its costs of supervision, industry funding will promote equity between different regulated entities. This is because certain industry subsectors will no longer cross-subsidise the costs of the regulation of other sectors.

The laws are due to take effect on 1 July 2017.  General news article: “Companies face levy in ASIC funding overhaul”.

ASIC Supervisory Cost Recovery Levy Regulations 2017

The closing date for submissions regarding the proposed Regulations is 26 May 2017.

In releasing its consultation paper for the Regulations the Treasury department said:

The Government is seeking stakeholder views on the draft regulations necessary to support the industry funding model, which will recover (the Australian Securities and Investments Commission’s)  regulatory costs though annual levies and fees-for-service. The proposed regulations are to establish the mechanisms that will be used to calculate the levies payable by each class of regulated entity, each financial year.

There are 6 industry sectors covered by the Regulations. Each sector has several industry subsectors.  In all there are 48 industry subsectors. Each subsector  describes the “leviable entity” that is included in the industry subsector.

Registered liquidators levy

Registered liquidators are in the industry sector named Corporate, and are leviable entities in a subsector named, not surprisingly, registered liquidators.

The levy to be imposed on each registered liquidator in a financial year is the sum of:

(a)  the minimum levy component (which is proposed to be $2,500); and

(b)  the graduated levy component.  The graduated levy component is a variable amount depending on each entity’s share of the total number of notifiable events for the subsector.  The Regulations define what constitutes a notifiable event (see below).  ASIC will prescribe its regulatory costs and the total number of these notifiable events for the subsector as part of its annual legislative instrument. Continue reading »

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May 082017
 

Before it is due to come into effect on 1 September 2017, section 60-20 of the Insolvency Practice Schedule (Corporations) (Australia) is to be amended.

Under the heading “Refining the Insolvency Law Reform Act 2016”, the Minister for Revenue and Financial Services has released draft legislation of amendments to the Corporations Act 2001 and Bankruptcy Act 1966.

The professional association representing insolvency practitioners has welcomed the amendments. The Australian Restructuring Insolvency & Turnaround Association (ARITA) says (on its website 5/5/2017):

The section would (have) require(d) external administrators and trustees to obtain consent from creditors prior to related entities obtaining any profit or advantage from any administration or estate – effectively requiring Insolvency Practitioners to seek creditor approval for their own firms to work on an appointment. We are delighted that Treasury have announced draft legislation specifically to resolve this issue. It is now clear that once remuneration is approved, further approval to share that remuneration with related parties (e.g. an Insolvency Practitioner’s firm or partners) is not required …. ARITA has been working very hard behind the scenes on this under strict confidentiality. The draft legislation is on The Treasury’s website for consultation. This is a significant win for the profession, achieved by ARITA.


Illustration of Change to Corporate Insolvency Law

I have set out below an illustration of the changes that are being made to section 60-20 of the Insolvency Practice Schedule (Corporations). Although “interested parties” have been invited to make a submission regarding the draft legislation by 17 May 2017, it is doubtful whether there will be any change to the draft. Continue reading »

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Index to Schedule 2—Insolvency Practice Schedule (Corporations)

 Corporate Insolvency, External administrators, Insolvency Law, Regulation  Comments Off on Index to Schedule 2—Insolvency Practice Schedule (Corporations)
Apr 282017
 

Issues impacted upon by this new legislation

Schedule 2 is now part of the Corporations Act 2001. The Act is available for viewing/download from www.legislation.gov.au. Schedule 2 is in Volume 6, and follows section 1637 of the Act. To see Schedule 2 only, go to this page at austlii.ed.au

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New Corporate Insolvency Laws commencing 1 March 2017

 ASIC, Corporate Insolvency, Insolvency practices, Regulation, Standards  Comments Off on New Corporate Insolvency Laws commencing 1 March 2017
Mar 072017
 

Commencing on 1 March 2017 are some of the changes to Australia’s corporate insolvency legislation that were approved when the Insolvency Law Reform Act was passed in 2016. The Australian Securities and Investments Commission (ASIC), the regulator of the Corporations Act, has issued a table listing and summarizing what it says are the key changes. Set out below is a copy of that table. (The original is available to view at ASIC).

For a convenient list of NEW ASIC FORMS and AMENDED ASIC FORMS go to this EMAIL extract from ASIC to registered liquidators on 6 March 2017. NOTE: Some of the new and amended forms have not yet been released by ASIC (7/3/2017).

………………………………….

Corporate Insolvency Law Reform – key changes effective from 1 March 2017

Subjects

  1. Registration Process
  2. Industry wide conditions
  3. Applying to vary or remove a condition or to lift or shorten a suspension
  4. Renewal of registration
  5. The Liquidator Register
  6. Insurance
  7. Annual liquidator return
  8. Notice of significant, and other, events
  9. ASIC power to direct registered liquidator to lodge documents or give information or correct inaccuracies
  10. ASIC power to cancel or suspend a person’s registration
  11. Disciplinary action by a committee
  12. Notice by industry body of possible grounds for disciplinary action
  13. Court oversight of registered liquidators
  14. Registration and disciplinary committees
  15. Administrator’s notice to owner or lessor of property
  16. Notice – material contravention of deed of company arrangement
  17. Company’s former name
  18. Relation back day
  19. Lodging declarations of relevant relationships and indemnities
  20. Lodgement requirements relating to pooled groups


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New ASIC guide on how to become, and behave as, a registered liquidator

 ASIC, Corporate Insolvency, External administration, Insolvency practices, Regulation  Comments Off on New ASIC guide on how to become, and behave as, a registered liquidator
Mar 022017
 

Registered Liquidators: Registration, disciplinary actions and insurance requirements.

ASIC Regulatory Guide RG258, Issued: 1 March 2017

Australian Securities and Investments Commission:

This guide is for individuals who are or wish to become registered liquidators under … the Corporations Act 2001 …. This guide explains how to apply for registration as a liquidator, including the requirements that must be met to become a registered liquidator. This guide also explains the renewal of registration process, the disciplinary and other actions a registered liquidator may be subject to and our policy on adequate and appropriate insurance.

CLICK HERE to read or download a copy of ASIC’s Regulatory Guide RG 258.

——————————————————

Contents of RG 258

Continue reading »

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Feb 252017
 

Melb Uni
Researchers at Melbourne University have issued their third and final report on investigations into insolvency fraud committed through the use of phoenix companies.

The 162 page report, issued on 24 February 2017, is titled Phoenix Activity: Recommendations On Detection, Disruption And Enforcement.

In the Executive Summary the authors state:

Harmful phoenix activity, left unchecked, has the capacity to undermine Australia’s revenue base and the competitive ‘level playing field’. It is wrong that legitimate business operators, paying taxes, wages and other debts, might be driven out of business by those engaging in harmful phoenix activity. Minimising business distrust caused by harmful phoenix activity can lower the cost of finance and make it more widely available. If less tax revenue is fraudulently avoided, the economy and society as a whole benefit. If fewer employee entitlements are lost as a result of harmful phoenix activity, there is likely to be less reliance on the Fair Entitlements Guarantee, freeing up government resources for other purposes.

What was described in earlier reports as “fraudulent phoenix activity” is described in the final report as “harmful phoenix activity”.

CLICK HERE to read and/or download a copy of the report.

The authors are Professor Helen Anderson, Professor Ian Ramsay, Professor Michelle Welsh and research fellow Mr Jasper Hedges.

Their Phoenix Project (“Phoenix Activity: Regulating Fraudulent Use of the Corporate Form”) “seeks to enhance Australia’s economic stability by determining the best methods of addressing fraudulent use of the corporate form without unduly inhibiting its proper use”. The project was launched in 3 years ago.

Analysis and highlights of the report will be posted here in due course.


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