Director offences: ASIC’s 2014-15 insolvency statistics

Amongst the huge number of statistics published by the Australian Securities and Investments Commission (ASIC) in its latest report on corporate insolvency is the finding that in 2014/15 liquidators, receivers and voluntary administrators (external administrators) reported 16,279 apparent or possible breaches by directors and others of the laws in relation to companies. (Notes 1 & 2)

The statistics are in ASIC Report 456, Insolvency Statistics: External Administrators’ Reports (July 2014 to June 2015), released on 17 November 2015.

Background

During each year external administrators lodge reports with ASIC as required under the Corporations Act 2001. The main purpose of the reports (in ASIC Form EX01) is to provide a means by which external administrators can fulfil their statutory obligation to report corporate offences that appear to have been committed by directors of the company, and misappropriations, negligence, breaches of duty, breaches of trust, etc., that appear to have been committed by persons who have taken part in the formation, promotion, administration, management or winding up of the company. (Note 3)

Table of breaches reported

Of the 16,279 reported breaches in 2014/15, ASIC has decided to categorise and specify 12,275.  This is the number of breaches in respect of which external administrators have stated that they have supporting documentary evidence. (Note 4)

I have compiled the following special table of details of these 12,275 alleged breaches. (Note 5)  As can be seen, the three most common offences are insolvent trading (29.6%), failure to keep financial records (16.6%) and failure to exercise care and diligence (15.5%).

 

BREACHES REPORTED BY EXTERNAL ADMINISTRATORS 1 JULY 2014 to 30 JUNE 2015 Source: ASIC REPORT NUMBER 456 – INSOLVENCY STATISTICS FROM EXTERNAL ADMINISTRATORS SCHEDULE B REPORTS LODGED © Peter J Keenan

ASIC MISCONDUCT CATEGORY	ALLEGED DIRECTOR BREACHES OF LAW (mainly Corporations Act 2001)	NUMBER OF REPORTED BREACHES: External Administrator has documentary evidence
Alleged breaches of civil obligations	Section 180 Care and diligence—Directors’ and officers’ duties	1,908
	Section 181 Good faith—Directors’ and officers’ duties	987
	Section 182 Use of position—Directors’, officers’ and employees’ duties	727
	Section 183 Use of information—Directors’, officers’ and employees’ duties	195
	Sections 286 and 344(1) Obligation to keep financial records	2,035
	Section 588G(1)–(2) Insolvent trading	3,631
	Total number for this category		9,483
Alleged criminal conduct – post appointment	Sections 429, 438B, 446C and 475 Report as to company’s affairs	673
	Section 530A Officers to help liquidator	734
	Section 530B Requirement to provide liquidator with company’s books	682
	Total for this category		2,089
Alleged criminal conduct – pre appointment	Section 184 Good faith, use of position and use of information—Directors’, officers’ and employees’ duties	128
	Section 206A Disqualified persons not to manage corporations	27
	Sections 286 and 344(2) Obligation to keep financial records	125
	Section 471A Powers of other officers suspended during winding up	23
	Section 588G(3) Insolvent trading	107
	Section 590 Offences by officers or employees	85
	Section 596AB Agreements to avoid employee entitlements	7
	Other criminal offences under the Corporations Act	30
	Total number for this category		532
Other possible misconduct	May have misapplied or retained, or may have become liable or accountable for, money or property of the company	55
	May have been guilty of negligence, default, breach of duty or breach of trust in relation to the company	60
	Total number for this category		115
Other possible criminal offences	Criminal offence under the Corporations Act (if a member or contributory)	6
	Criminal offence under another Commonwealth statute	23
	Criminal offence under a state or territory law	27
	Total number for this category		56
Grand Total			12,275

Enforcement

ASIC Report 456 is principally an analysis of information supplied by external administrators in their Schedule B reports. Therefore it does not supply details of follow-up enforcement or disciplinary action taken by ASIC. It does, however, supply some data about the number of Supplementary Reports (Schedule C Reports) ASIC has requested from those external administrators who have made allegations of law-breaking and misconduct. (A Supplementary Report is requested when ASIC considers it should take a closer look at a situation with a view to taking action.) In 2014/15 there were 6,561 reports containing allegations of law-breaking and misconduct, and out of these ASIC selected 699 (10.7%) as suitable for further inquiry.

As a separate exercise ASIC publishes a six-monthly report titled “ASIC Enforcement Outcomes”. Logically, one might expect that the cases selected from Schedule B reports and supplementary reports would be carried over into  these enforcement reports, and details of the outcomes provided. But unfortunately they are not. The Enforcement Outcomes report seems designed to impress, by providing details of successful results, rather than show what happens to the thousands of referrals (inputs) ASIC receives. (Note 2)

However, ASIC’s 2014-15 Annual Report to Parliament contains a section (2.5.3) headed “Statutory reports from  liquidators, administrators and receivers”. An accompanying chart reveals that of all the Schedule B reports dealt with by ASIC in 2014-15 (8,688), 10% were assessed as warranting a Supplementary Report from the external administrator; and that of the Supplementary Reports received (762), 83% were assessed as not giving rise to the need for further action, and 17% were “referred for compliance, investigation or surveillance”.  In other words, approximately 1.5% of the Schedule B reports lodged were “referred for compliance, investigation or surveillance”. (Note 6)

Notes

Note 1:   The figure of 16,279 apparent or possible breaches is down on the previous year (18,195). However, the fall appears to be due to fewer reports being lodged in 2014/15 (8,354 in 2014/15 compared with 9,459 in 2013/14). This fall in reports is probably due to fewer insolvency appointments in 2014/15 (12,726 in 2014/15 compared with 13,985 in 2013/14 and 15,815 in 2012/13).

Note 2:   In an earlier publication of mine I referred to statutory reports by external administrators as “referrals”, because ASIC is a law enforcement agency and the reports are in effect “complaints”: see “Convictions for summary insolvency offences committed by company directors” http://www.aic.gov.au/publications/current%20series/rip/21-40/rip30.html

Note 3:  The ASIC Form EX01 report is also designed for ASIC to collect information for statistical purposes – such as, the reasons for the company’s failure, the size of the company, the industry in which it is/was engaged, the estimated values of its assets and liabilities, unpaid employee entitlements, etc.

Note 4:   The ASIC report does not provide details of the other 4,004 (24.6%) of alleged breaches.

Note 5:   This information contained in my table is not in one place in ASIC Report 456, but most of it can be found in paragraphs 51 to 56 of that document.

Note 6:   There appears to be some disparity between figures in ASIC’s Annual Report and figures in ASIC Report 456.

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