Directors need “a questioning mind” concerning financial statements

 ASIC, Offences, Regulation, Standards, White collar crime  Comments Off on Directors need “a questioning mind” concerning financial statements
Jun 292011
 

The Federal Court judge who decided in favour of the Australian Security and Investments Commission (ASIC) in its case against 8 directors and officers of Centro Properties Limited, Centro Property Trust and Centro Retail Trust regarding the 2006/07 consolidated financial statements, has provided an important summary of the law about a director’s duty in relation to the content of financial statements.

 The following are extracts from the judgement of Middleton, J on 27 June 2011 in Australian Securities and Investments Commission v Healey [2011] FCA 717:

 “The central question in the proceeding has been whether directors of substantial publicly listed entities are required to apply their own minds to, and carry out a careful review of, the proposed financial statements and the proposed directors’ report, to determine that the information they contain is consistent with the director’s knowledge of the company’s affairs, and that they do not omit material matters known to them or material matters that should be known to them.

A director is an essential component of corporate governance.  Each director is placed at the apex of the structure of direction and management of a company.  The higher the office that is held by a person, the greater the responsibility that falls upon him or her.  The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.

This proceeding involves taking responsibility for documents effectively signed-off by, approved, or adopted by the directors.  What is required is that such documents, before they are adopted by the directors, be read, understood and focussed upon by each director with the knowledge each director has or should have by virtue of his or her position as a director.  I do not consider this requirement overburdens a director, or as argued before me, would cause the boardrooms of Australia to empty overnight.  Directors are generally well remunerated and hold positions of prestige, and the office of director will continue to attract competent, diligence and intelligent people. 

The case law indicates that there is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor.  There is a responsibility to read, understand and focus upon the contents of those reports which the law imposes a responsibility upon each director to approve or adopt.

All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by s 295(4).  Such a reading and understanding would require the director to consider whether the financial statements were consistent with his or her own knowledge of the company’s financial position.  This accumulated knowledge arises from a number of responsibilities a director has in carrying out the role and function of a director.  These include the following: a director should acquire at least a rudimentary understanding of the business of the corporation and become familiar with the fundamentals of the business in which the corporation is engaged; a director should keep informed about the activities of the corporation; whilst not required to have a detailed awareness of day-to-day activities, a director should monitor the corporate affairs and policies; a director should maintain familiarity with the financial status of the corporation by a regular review and understanding of financial statements; a director, whilst not an auditor, should still have a questioning mind.

A board should be established which enjoys the varied wisdom, experience and expertise of persons drawn from different commercial backgrounds.  Even so, a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience or expertise.  A director is not relieved of the duty to pay attention to the company’s affairs which might reasonably be expected to attract inquiry, even outside the area of the director’s expertise.

The words of Pollock J in the case of Francis v United Jersey Bank (1981) 432 A 2d 814, quoted with approval by Clarke and Sheller JJA in Daniels v Anderson (1995) 37 NSWLR 438, make it clear that more than a mere ‘going through the paces’ is required for directors.  As Pollock J noted, a director is not an ornament, but an essential component of corporate governance. 

Nothing I decide in this case should indicate that directors are required to have infinite knowledge or ability.  Directors are entitled to delegate to others the preparation of books and accounts and the carrying on of the day-to-day affairs of the company.  What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her.  Such a responsibility arises in this proceeding in adopting and approving the financial statements.  Because of their nature and importance, the directors must understand and focus upon the content of financial statements, and if necessary, make further enquiries if matters revealed in these financial statements call for such enquiries. 

No less is required by the objective duty of skill, competence and diligence in the understanding of the financial statements that are to be disclosed to the public as adopted and approved by the directors.

No one suggests that a director should not personally read and consider the financial statements before that director approves or adopts such financial statements.  A reading of the financial statements by the directors is not merely undertaken for the purposes of correcting typographical or grammatical errors or even immaterial errors of arithmetic.  The reading of financial statements by a director is for a higher and more important purpose: to ensure, as far as possible and reasonable, that the information included therein is accurate.  The scrutiny by the directors of the financial statements involves understanding their content.  The director should then bring the information known or available to him or her in the normal discharge of the director’s responsibilities to the task of focussing upon the financial statements.  These are the minimal steps a person in the position of any director would and should take before participating in the approval or adoption of the financial statements and their own directors’ reports.

The omissions in the financial statements the subject of this proceeding were matters that could have been seen as apparent without difficulty upon a focussing by each director, and upon a careful and diligent consideration of the financial statements.  As I have said, the directors were intelligent and experienced men in the corporate world.  Despite the efforts of the legal representatives for the directors in contending otherwise, the basic concepts and financial literacy required by the directors to be in a position to properly question the apparent errors in the financial statements were not complicated.”

The full judgement in Australian Securities and Investments Commission v Healey [2011] FCA 717 may be accessed HERE.

(In Liquidation) not yet on Colourscan website

 Insolvency Laws, Insolvency practices, Regulation, Standards  Comments Off on (In Liquidation) not yet on Colourscan website
Jun 232011
 

Further to my comments at the end of my  blog  “ACCC thinks (administrator appointed) is important ” ……..

A  liquidator was appointed to Colourscan Pty Ltd (In Liquidation) (ACN 010 569 838) on 15 June 2011, but that fact is not  yet mentioned on the website http://www.colourscan.com.au/, and nor is (In Liquidation) shown as part of its name.  

On 16 December 2010 a Receiver and Manager was appointed.  There is no (Receiver and Manager Appointed) attached to its name.  But it appears the Receiver and Manager may no longer be acting.

Here’s a suggestion for a logo change:

ACCC thinks (Administrator Appointed) is important

 ASIC, Forms, Insolvency practices, Regulation, Standards  Comments Off on ACCC thinks (Administrator Appointed) is important
Jun 212011
 

The Advanced Medical Institute Pty Ltd [ACN 117 372 915] and AMI Australia Holdings Pty Ltd [ACN 095 238 645] are under external administration.  Trent Hancock and Michael Hird, of accounting firm, BDO, Sydney, were appointed Joint Voluntary Administrators by Life Science Group Pty Ltd, a secured creditor of both companies, in December 2010.

The Australian Competition and Consumer Commission (ACCC) issued a media release on 15 June 2011 stating:

“Today, the Australian Competition and Consumer Commission obtained interim orders by consent against Advanced Medical Institute Pty Limited (administrators appointed) and AMI Australia Holdings Pty Ltd (administrators appointed) – collectively referred to as AMI.  In proceedings filed on Wednesday, the ACCC alleged that AMI failed to advise existing and potential clients that it is in administration, is insolvent and may not be able to provide goods and services after determination of the administration period.  The ACCC also claimed that AMI had wrongly accepted payments in advance for treatments when there is a real risk that AMI will not be able to continue to supply its treatments, and that clients will not receive refunds claimed by them, after the conclusion of its administration.

Today the ACCC obtained orders by consent that AMI will disclose to clients that: 

  • AMI is in administration;
  • AMI is, in the opinion of its administrators, insolvent; and,
  • there is a real risk that AMI will not be able to continue to supply its treatments to patients and that patients may not receive refunds claimed by them, after the conclusion of its Administration.”   ….

“In these circumstances, the ACCC considered it vital to ensure that potential customers of AMI were clearly informed about the situation the company is in before they bought into any agreements,” ACCC chairman Graeme Samuel said.”

“This case underlines the fact that companies under administration are not exempt from their obligations under the Competition and Consumer Act.” 

__________________________

Speaking of statutory duties, section 450E(1) of the Corporations Act 2001 (“the Act”) stipulates that:

 “a company under administration must set out, in every public document, and in every negotiable instrument, of the company, after the company’s name where it first appears, the expression (“administrator appointed”)”. 

[There are virtually identical requirements in the Act that apply to companies where a receiver or controller has been appointed (section 428), or the company is in liquidation (section 541), or the company is subject to a deed of company arrangement (section 450E(2).]

Section 88A of the Act gives the meaning of the phrase “public document” of a corporation.  It appears to me to be wide enough to include an advertisement published on the internet by the corporation; and a website or blog published by the corporation.

Breaches of sections 450E(1), 428 or 541  are strict liability offences, meaning there is no requirement that the prosecution prove intention, knowledge, recklessness, negligence or any other variety of fault.

So it would be prudent for insolvency practitioners to ensure that the internet advertisements, websites and blogs of companies they control carry the required notice.

Large majority of insolvency administrators comply

 ASIC, Forms, Insolvency Laws, Insolvency practices, Insolvency Statistics, Practitioners Association (IPAA), Regulation  Comments Off on Large majority of insolvency administrators comply
Jun 162011
 

The Australian Securities and Investments Commission (ASIC) has found that “the large majority” of registered liquidators are complying with their statutory duty to lodge six-monthly accounts of receipts and payments (Companies Form 524) (“financial statements”) in respect of external administrations they are conducting.

In a special compliance program the ASIC analysed its database of approximately 24,800 companies in external administration at March 2010.   It  identified 517 external administrations where a Form 524/financial statement  had been outstanding for a period of more than six  months; and 171 registered liquidators who appeared to be at fault.

Preliminary results of  the program were published  in the December 2010 issue of  “ASIC Insolvency Update – an update for registered liquidators”.  

Final results have just been published in an article by the ASIC  in the June 2011  edition of  “Australian Insolvency Journal”, the journal for members of the Insolvency Practitioners Association of Australia (IPA).  The  article and the chart accompanying it show that:

  • In only 2.1% of external administrations were financial statements by the administrator overdue (517 out of 24,800).
  • In  the 517 identified external administrations:
    •  there were an estimated 2,472 financial statements outstanding;
    • one registered liquidator had more than 800 outstanding financial statements;
    • another registered liquidator had 135 outstanding financial statements;
    • 612 financial statements were lodged as a result of the ASIC  project; and
    • 469 financial statements would be lodged as a result of the project because the external administrators had acknowledged that they had not been lodged.
  • The ASIC wrote to 171 registered liquidators regarding outstanding financial statements. 63% of the liquidators were from small to medium size firms (of 1 to 9 practitioners). 7 registered liquidators  “did not respond (to the ASIC) within the project timeframe”. 
  • The most common reasons for not lodging financial statements were:
    • “inadequate monitoring of internal control systems (including lack of staff supervision);
    • inadequate internal control systems;
    • staff turnover combined with heavy workloads; and
    • incorrect use or delayed implementation of insolvency-based software.”

There are some other findings and explanations reported in the article.  ASIC Commissioner, Michael Dwyer, says: “It was pleasing to see that the large majority of practitioners complied with their obligation to lodge accounts”.

[Undoubtedly the ASIC’s final report will appear in a form available to non-members of the IPA shortly. As soon as a link becomes available I will insert it in this blog.]

Treasury reviewing GST on asset sales by mortgagees

 Insolvency practices, Tax debts, Tax liabilities, Taxation Issues  4 Responses »
Jun 092011
 

 The Government has just issued a consulation paper headed “GST treatment of property in possession of a mortgagee”. 

It is asking for views on whether “there an alternative way to better achieve the Government’s policy objective of a representative of an incapacitated entity being liable for GST for supplies of property in their possession or control belonging to a corporation”.

 The Government claims that amendments made to GST legislation in December 2009 had “unintended consequences” for the business mortgage lending sector.  It announced in May 2011 that it would amend the GST law “to ensure that the provisions dealing with the GST treatment of property in possession or control of a mortgagee operate as intended and reduce compliance costs, particularly for entities in the mortgage lending sector”.

Closing date for submissions: 6 July 2011.

For a copy of the paper CLICK HERE.

Email: gstpolicyconsultations@treasury.gov.au
Mail: The General Manager, Indirect Tax Division, The Treasury, Langton Crescent, PARKES  ACT  2600
Enquiries: Enquiries can be initially directed to Ms Joanne Kennedy
Phone: 02 6263 2079

 

NOTE:

If the proposed amendment goes ahead, it will take effect from 1 July 2012.  However, the amendment has, in reality, been made already, as a result of the ATO Interpretive Decision (ATO ID 2010/224) issued in December 2010.

Options paper questions insolvency regulation and practises

 ASIC, Insolvency Laws, Insolvency practices, Personal Bankruptcy, Regulation, Standards  Comments Off on Options paper questions insolvency regulation and practises
Jun 062011
 

Over 130 questions about insolvency regulation and practises have been raised for discussion by the Attorney-General’s Department and the Departments of Treasury in their “Options paper: a modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”, released at the 2011 Gala Dinner of the Insolvency Practitioners Association of Australia on 2 June.

The questions, extracted from the 120 page paper, are shown below.  The final date for submissions is 29 July 2011.

Standards for entry into the insolvency profession

Discussion questions

  • Are there any concerns with changing the academic requirements to remove the greater emphasis placed upon accounting skills over legal skills, while retaining a minimum level of study in each?
  • Should the gaining of a Masters in Business Administration meet the qualification requirements for registration, if it did not otherwise meet legal and accounting study requirements?
  • Should a minimum level of actual experience in insolvency administration remain a mandatory requirement for registration as a practitioner?
  • Should the experience requirements for registered liquidators be reduced to two years of full‑time experience in five years?
  • Should new market entrants be required to complete some form of insolvency specific education before practicing as registered liquidators or registered trustees?
  • Should ASIC be empowered to impose requirements on a registered liquidator as a condition of the registration? What types of conditions should a regulator be empowered to impose upon a new registered liquidator’s registration?
  • Should a registered trustee face more streamlined entry requirements than those that exist for a standard applicant for registration as a registered liquidator, and vice versa?
  • Is further formal training necessary to ensure that practitioners that wish to transition between the two professions are able to fulfil their statutory obligations?

Registration process for insolvency practitioners

Discussion questions

  • Should an applicant seeking registration as a registered liquidator or registered trustee be required to be interviewed as part of the registration process?
  • Should an applicant seeking registration as a registered liquidator or registered trustee be required to sit an exam as part of the registration process?
  • Should a general ‘fit and proper’ person requirement be imposed for the registration of both personal and corporate insolvency practitioners?
  • If the process for the registration of liquidators is aligned with the process for the registration of registered trustees, what differences should be maintained between the two registration processes?
  • Is it appropriate that the current fee for registration of liquidators be increased to reflect the amendments to registration processes?
  • Should the official liquidator role be maintained?
  • What other aspects of the current Bankruptcy Act committee system might be amended?
  • If registration of a registered liquidator is for a defined period, what conditions should be required to be met for renewal of the registration to occur?
  • Should the renewal process include a fee? Should the fee be commensurate merely with the administrative cost for completing the renewal or should the revenue raised by the fee be used to fund additional oversight of the insolvency market? Should the renewal fee be determined with reference to the numbers and nature of the administrations to which the practitioner is appointed?

Remuneration framework for insolvency practitioners

Discussion questions

  • Should the Corporations Act be amended to include a provision that aligns with the Bankruptcy Act prohibition upon practitioners making any arrangement whereby a benefit is received, either directly or indirectly, in addition to the remuneration to which he or she is entitled?  Should such a prohibition be clarified to provide that this extends to charging disbursements with a profit component that may benefit, directly or indirectly, the practitioner?
  • Are the current requirements for the provision of information to creditors to assist them in assessing costs appropriate? Should this information be provided in a standard form? Should these requirements be aligned between corporate and personal insolvency?
  • What could be done to address concerns about cross subsidisation?
  • What could be done to address concerns about inappropriate use of disbursements?
  • Should all fee approval be required to be subject to a cap set by creditors in an external administration or bankruptcy? Is it unreasonable to expect that an insolvency practitioner go back to the creditors in order to seek an increase on the initial remuneration cap?
  • Should a group of creditors (or a single creditor) that successfully challenge an insolvency practitioners’ remuneration, receive an increased priority in relation to the savings that may result?
  • Should a registered liquidator, under any circumstances, be able to exercise a casting vote on a motion regarding his or her remuneration or removal?

Communication and monitoring

Discussion questions

  • What amendments should be made to provide creditors with more information or power to monitor the progress of a winding up, administration or bankruptcy?
  • Should creditors have largely the same rights to information and tools to monitor a liquidation, administration, bankruptcy or controlling trusteeship?
  • Are there any impediments to insolvency practitioners communicating with creditors electronically?
  • If the statutory frameworks are aligned, are there any modifications necessary to account for the practical differences between the bankruptcy and corporate insolvency frameworks?
  • Would support from at least 25 per cent of creditors be an appropriate threshold in corporate insolvency for requiring a creditors meeting to be held? Given the larger numbers and quantum of claims, would a lower threshold (for example, 10 per cent) be more appropriate? What rules should apply in relation to who bears the costs of holding a meeting of creditors?
  • If liquidators are required to provide all information reasonably requested by a creditor regarding a liquidation or administration and creditors have improved powers to require the calling of meetings, is there any need for default annual meetings, written updates or creditors’ meetings at the completion of a winding‑up? Could these requirements be amended to a requirement for the practitioner to raise the option of having such updates and meetings with creditors (for consideration and voting) as a default reporting arrangement?
  • Should the role of the COI be given greater prominence in the corporate and personal insolvency systems? If so, how might this occur?
  • Should the rules governing COIs be aligned between corporate and personal insolvency? Are there any specific aspects of COI law that should be otherwise reformed?
  • Should creditors be able to make a binding resolution on a liquidator? If yes, should there be any role for the Court to overrule that resolution (for example, where the Court believes that the resolution is not in the best interests of the creditors as a whole)? Should there be any limit on the type of areas that creditors are able to pass a binding resolution?

Funds handling and record keeping

Discussion questions

  • Should the rules governing record keeping, accounting, audits and funds handling in corporate and personal insolvency be aligned? If so, how should this occur?
  • If aligned rules on accounts reporting are introduced, what should be the content, form and frequency of the accounts required?
  • Are there other record keeping, accounting, audits and funds handling rules that should be mandated for personal and corporate insolvency, in addition to those that currently exist?
  • If amendments are made to the personal and corporate law to align the powers of the regulators (in certain circumstances) to freeze the accounts of insolvency practitioners, in what circumstances should the regulators be able to issue an account freezing notice to a bank?
  • Should the issuing of an account freezing notice require an application to the Courts? For how long should a freezing notice have effect?
  • At what level should the penalties that apply to breaches of the funds handling, record keeping, retention of books, and audit provisions in the Corporations Act and the Bankruptcy Act be set to provide a greater deterrent to potential offenders?
  • Will increasing the penalties make practitioners more likely to pay greater attention to these requirements?
  • Are there additional civil obligations and criminal offences that should be provided for in respect of these areas?
  • If civil or criminal penalties are applied for the lodgement of inaccurate annual reports, under what circumstances should those penalties apply?
  • Should late lodgement, non‑lodgement or false lodgement of accounts be a statutory basis for removal? If so, by what process might removal take place?

Insurance requirements for insolvency practitioners

Discussion questions

  • Is there a benefit for insolvency practitioners, creditors or other stakeholders in aligning the insurance requirements for liquidators and registered trustees?
  • If the criminal penalty for not complying with insurance requirements is increased, at what level should the penalty be set to provide a sufficient deterrence against breach?
  • Should a fidelity fund be established? If so, how should such a fund be operated and funded?
  • What other reforms might be put in place regarding insurance requirements? 

Discipline and deregistration of insolvency practitioners

Discussion questions

  • Are there any reforms that should be made to either the Committee’s or the CALDB’s systems of disciplining practitioners to improve their operation? 
  • Do you think that aligning the disciplinary frameworks will provide for more consistent and improved outcomes for practitioners and other stakeholders between personal and corporate insolvency?
  • If a Committee structure is adopted for registered liquidators:
    • Should there be any amendments to the framework that underpins the current personal insolvency committee system?
    • Should the statutory framework for the committee system currently in the Bankruptcy Act be replicated in the Corporations legislation?
    • Should ASIC be statutorily required to provide a show‑cause notice to the practitioner before establishing a committee?
    • Should the committee consist of a member of ASIC, a member of the IPA, and an appointee of the Minister?
    • Should there be a time limit for decisions by the committee? Should it be aligned with the current time limit for bankruptcy?
  • If a Committee structure is not adopted for registered liquidators, what specific reform options should be adopted under either the CALDB or Committee regimes? In particular:
  • Should a statutory timeframe be introduced for decisions by the CALDB?
  • Are there any powers that the CALDB currently has that should equally be conferred upon a Committee under the Bankruptcy Act or vice versa?
  • What, if any, other reforms should be made in respect of the transparency of Board and Committee hearings and decisions?
  • Should a committee constituted under the Bankruptcy Act be empowered to summon a third party to appear at a hearing to give evidence and be cross examined?
  • Should mechanisms be put in place to impose sanctions on practitioners or witnesses who fail to attend or provide books to a Committee or Board?
  • Should the Bankruptcy Act be amended to provide ITSA with the express power to seek to deregister a registered trustee where the trustee is no longer ‘fit and proper’?
  • If the regulatory frameworks are amended to expand the powers of ASIC and ITSA to discipline insolvency practitioners directly, what minor breaches should those powers extend to?
  • Would the suggested amendments to enhance the powers of the court breach considerations of natural justice?
  • Should the nature of the role of registered liquidators and registered trustees as officers of the court, as well as their inherent fiduciary duties, mean that it is reasonable to empower the Court to direct them to stand aside where there are serious allegations that have yet to be resolved?

Removal and replacement of insolvency practitioners

Discussion questions

  • Should an initial creditors’ meeting in a compulsory winding up at which creditors would have the right to replace or appoint a new liquidator be mandated?
  • If an initial creditors’ meeting were mandated for court‑ordered windings up:
  • Should there be an exception for assetless administrations?
  • Should approval of the appointed registered liquidator be able to be obtained through a mail out? If confirmation/replacement of registered liquidations occurred by postal vote in court ordered liquidations, should this mechanism also replace the opportunity to replace a practitioner provided via initial meetings in other kinds of corporate insolvency?
  • Should creditors in corporate insolvencies be generally empowered to remove a registered liquidator by resolution in the same way as under personal insolvency law?
  • What effect, if any, would the potential for removal be expected to have on remuneration arrangements?
  • Does the current scheme for the removal of a registered trustee provided sufficient and clear protections against abuses of process?
  • If creditors are empowered to remove a liquidator in a creditors’ voluntary winding up (subsequent to the first meeting), should members have any corresponding right in a members’ voluntary winding up?
  • Is there a need to facilitate the transfer of the books of the administration from an outgoing insolvency practitioner to his or her replacement? What barriers, if any, are there to the implementation of such a reform?
  • Are any other amendments necessary to assist creditors to use any new power to remove a registered liquidator? What other administrative arrangements would be required to ensure a smooth transition from one registered liquidator to another?

Regulator powers

Discussion questions

  • Are there unjustified divergences between the powers and roles of the insolvency regulators?
  • Should a creditor in a corporate insolvency have any right to request that ASIC undertake a review of specified kinds of decision by a liquidator?
  • If ASIC was to be empowered, what types of decisions should ASIC be able to review?
  • The expansion of ASIC’s current functions to include such a review power would have some cost. Given the Government’s cost recovery policy how should any expansion of powers be funded?
  • Should ASIC and ITSA be given more flexibility to communicate to a complainant (or creditors generally) information obtained by it in relation to the conduct of an external administration?
  • Should regulators be able to require a practitioner to sit an examination to test ongoing compliance with the knowledge or skills requirements for registration? Should such a power be extended to enabling regulators to require persons acting under delegation from practitioners to sit an examination?
  • What powers might be appropriate to provide to regulators to facilitate (if necessary) the rights of creditors to call meetings and to ensure such meetings are held in a transparent manner — in particular in relation to the assessment of votes for and against the retention of the current insolvency practitioner?
  • Does section 536 of the Corporations Act, as currently applied by the Court, provide for the appropriate supervision of registered liquidators by ASIC?
  • Should ASIC be able to share information with the IPA for disciplinary purposes?
  • Should ITSA and ASIC be empowered to impose conditions across the market? If so, what types of conditions should the regulator be empowered to impose?
  • If a new Ombudsman or external dispute resolution scheme were established:
  • Should the new body be a statutory body (for example, the Superannuation Complaints Tribunal) or a private body (for example, the Financial Ombudsman Service)?
  • Should any new body have the ability to hear disputes in both corporate and personal insolvency? Should the new entity be independent of the two regulators?
  • If the body is a statutory entity, what functions of ITSA or ASIC should be given to the new body? Should the body have power to obtain information or to inspect the records of an organisation relevant to the complaint? If the new body is privately run, what protections would need to be put in place to achieve this?
  • How should the new body be funded? Should there be any charge to the complainant to investigate a complaint or should it be funded through an industry levy?
  • Should the body have an explicit educative role?
  • Should the body have the right to deal with systemic issues or commence its own investigation? If the body is a private entity, what powers should it be given to achieve those objectives?
  • What types of disputes should the body be able to hear and deal with? Should the body be able to review remuneration? Should this be done through independent cost assessors?

Specific issues for small business

Discussion questions

  • Are any statutory reforms required to assist regulators to provide improved regulation in relation to interconnected personal and corporate insolvencies? Are improvements needed in relation to their capacity to share information and cooperate?
  • If the scope of the AA Fund is broadened to allow for the funding of registered trustees to investigate and report on corporate law breaches, which Corporations Act breaches in particular should be provided for?
  • Should the scope of the AA Fund be broadened to allow for loans to registered liquidators to properly carry out their fiduciary and statutory duties?
  • Should section 305 of the Bankruptcy Act also be expanded to provide for the funding of investigations into corporate law breaches?
  • What steps might be taken to improve efficiency in relation to related personal and corporate insolvencies while appropriately addressing conflicts of interest?
  • What other amendments can be made to assist creditors and directors of small corporates to better engage with the corporate insolvency system?
  • Is there a case for automatic disqualification of directors after a company failure? If so, how many repeated failures should trigger disqualification? Should there be a threshold for failures to trigger disqualification (for example, where less than 50 cents in a dollar are returned to creditors)? Over what period must the failures occur?
  • Should a registered liquidator be able to assign actions which vest personally in the liquidator? If so, should a registered trustee be likewise able to assign rights of action?
  • Should ASIC be able to automatically disqualify a director of an insolvent company who has not taken reasonable steps to ensure that the company has maintained its financial records?

_________________________________________________________

Proposed merger of Australian insolvency regulators is formally rejected

 Australian Senate 2009-2010, Insolvency practices, Official Inquiries, Regulation  Comments Off on Proposed merger of Australian insolvency regulators is formally rejected
Jun 062011
 

The Government has just announced another inquiry into the conduct of insolvency practitioners. This inquiry will consider “reforms with a view to address possible misconduct in the insolvency profession and to improve the value for money for recipients of insolvency services.”

The release of an “options paper” titled “A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”,  follows the often feverish 2010 Senate Economics References Committee inquiry into the role of liquidators and administrators, their fees and their practices, and the involvement and activities of the Australian Securities and Investments Commission.

In issuing the options paper the Government says that the Senate Committee’s recommended that the corporate insolvency arm of ASIC be transferred to ITSA to form a new personal and corporate insolvency regulator will not be accepted.

The paper calls for comment and suggestions aimed at ensuring that the framework for insolvency practitioners: 

•  promotes a high level of professionalism and competence by practitioners; 

•  promotes market competition on price and quality; 

•  promotes increased efficiency in insolvency administration; and 

•  enhances communication and transparency between stakeholders.

To obtain a copy of the paper CLICK HERE.

Interested parties are invited to comment on the paper. Closing date for submissions: Friday, 29 July 2011.  Address written submissions to:
The Manager
Governance and Insolvency Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
Email: insolvency@treasury.gov.au

Enquiries:  Timothy Beale on (02) 6263 2870.

________________________________________________

Is Bureau of Statistics missing insolvency crimes?

 Insolvency Statistics, Offences, Standards, White collar crime  Comments Off on Is Bureau of Statistics missing insolvency crimes?
Jun 022011
 

The Australian Bureau of Statistics (ABS) has just published the latest edition of Australian and New Zealand Standard Offence Classification (ANZSOC) with the aim of improving crime and justice statistics.  It is a detailed document , comprising 108 pages plus 66 pages of appendices and indexes. 

Crimes listed in the huge alphabetical and numerical indexes of categories of crimes include “Killing, unlawful, with intent” (0111),  “Tram fare evasion” (0829),  “Skateboard riding under the influence of alcohol” (0411) and “Fail to sound audible warning of intended blasting” (1629).

 I have searched in vain for any mention of bankruptcy offences or corporate insolvency offences.  The nearest categories I could find that might apply to corporate insolvency offences were “Breach of company code legislation (e.g. falsification of register, false advertising)” and “Fraudulent trade or commercial practices”.  Both are listed under Division 09 “Fraud, Deception and Related Offences”, in sub-division 093 “Deceptive business/government practices”.

It’s interesting to see the number of offences that warrant special mention, when none is given to, for example, a director’s breach of the law in failing to assist his or her company’s liquidator – which carries a maximum penalty of a fine of $2,750 and imprisonment for 6 months.  What does this say about society’s view of what is a crime, and the thoroughness of the way in which we collect and publish crime statistics?

To see the ANZSOC  document click here.