Dec 022016
 

….(UPDATE to post – 1 April 2017: In an email on 24 March 2017, Adrian Brown, leader of ASIC’s Insolvency Practitioners Team, informed practitioners that following a consultation process ASIC has worked with Treasury “to develop an alternative option for the Minister’s consideration”. The alternative option includes halving the fixed annual levy to $2,500.)….

….(SECOND UPDATE to post – 10 May 2017: The proposed fixed annual levy is now $2500 – SEE MY NEW POST.

A refined proposal for a government levy on registered liquidators – intended to recover costs incurred by the ASIC in regulating them – has been released as part of a Treasury consultation paper titled Proposed Industry Funding Model for the Australian Securities and Investments Commission – November 2016.

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The proposal in brief

Each registered liquidator would pay a minimum, fixed annual levy of $5,000. On top of that the liquidator would be required to pay an activity-based levy – estimated to be $550 per appointment – for each external administration appointment in the financial year.

External administration appointments includes appointment as a controller, provisional liquidator, liquidator, voluntary administrator or administrator of a deed of company arrangement.

Special rules and adjustments are to apply where registered liquidators are appointed jointly and where an external administration appointment transitions from one type of external administration to another.

The paper states that there are 710 registered liquidators and the levies are aimed at recovering ASIC regulatory costs of $8.5 million.(Supporting attachment to the Government’s Proposals Paper, Table 8)

(More details of the proposal are supplied below, under the heading Extracts from the Consultation paper.)

What the liquidators’ professional association thinks

The Australian Restructuring Insolvency & Turnaround Association (ARITA) opposes the proposed quantum of the levy. In a statement on its website on 9 November ARITA describes the ASIC user-pays funding model for registered liquidators as “highly controversial”. It says:

“ARITA remains strongly of the view that the quantum per practitioner is excessive in every respect and will cause significant harm to the structure of the profession, regardless of the methodology used” , adding that “the quantum is completely disproportionate to other similar profession’s fees”.

ARITA’s detailed analysis and critique of the proposal will be made in a submission to Treasury, due by December 16.

Passing on cost of the per-appointment part of the levy to clients

Most registered liquidators will want to “charge” the companies under their administration with the cost of the per-appointment part of the levy. ARITA says “It is not immediately clear if this per appointment cost can be ‘passed through’ to the appointment it relates to.” But in response to this question the Treasury consultation paper states that:

“It would be inconsistent with the Australian Cost Recovery Guidelines for Government to mandate legal pass through of the cost of ASIC’s regulation from the entities who generate the need for regulation to those entities’ customers. However, the Government will not be restricting entities ability to pass on these costs through normal commercial practices. Entities will be aware of their indicative levies ahead of each year allowing them to factor this information into their commercial decisions.” (Chapter 6, Table 2)

It appears to me that the consultation paper – viewed as a whole – does not envisage or sanction the practice of registered liquidators billing the per-appointment levy directly to the insolvent companies to which they are appointed and, thus, recovering it from their funds. At best, the paper seems to concede and accept that registered liquidators will probably add the levy as a whole (i.e., both parts of it) to the cost base that they use in arriving at their hourly fee rates; meaning that the levies will be recovered in that way, like an ordinary cost of carrying on the business of a registered liquidator.

True, there was discussion in the first consultation paper (issued in August 2015) about the levy on liquidators being “similar to the asset realisations charge administered by the Australian Financial Security Authority” in personal bankruptcy. In bankruptcies the liability to pay the asset realisations charge is that of the practitioner, but the amount of charge paid is borne by the estate or administration. But these comments in the first consultation paper were made in the context of discussing a levy based on an “assets realised” model. This is not the model proposed in the current consultation paper.

Submissions

The consultation process seeks views on the proposed industry funding model to recover the regulatory costs of the ASIC though annual levies and fees-for-service.

Roundtables will be held during the consultation period to provide stakeholders with the opportunity to share their views collectively. If you, or other representatives of your organisation, would like to be a part of these consultations please send your contact details and sector of interest to ASICfunding@treasury.gov.au.

Written submissions can be made online or by:
Email: asicfunding@treasury.gov.au
Mail: Corporations and Schemes Unit (CSU)
Financial System Division
The Treasury
100 Market Street
Sydney NSW 2000
Enquiries: Enquiries can be directed to Percy Bell (02 6263 2048)

The formal consultation period ends on 16 December 2016.

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Extracts from the Consultation Paper

 

Proposed Industry Funding Model for the Australian Securities and Investments Commission – Proposals Paper – November 2016

Schedule 2: Proposed Definition of Levy Metrics. Table 4. Registered Liquidators.

Number of external administration appointments for the registered liquidator:

1. The total number of external administration appointments accepted by the registered liquidator during the relevant financial year; adjusted so that:
a) where two or more registered liquidators in the firm are jointly/ jointly and severally appointed as external administrator of a company, the external administration is only counted once (refer (2) below);
b) where an external administration appointment transitions from one type of external administration to another with no change to the registered liquidators appointed, this is counted as a single external administration appointment;
c) where the company is under two or more types of external administration, this is counted as two separate external administration appointments;
d) where a registered liquidator is replaced as external administrator by a registered liquidator from another firm, this is counted as an external administration appointment by both firms;
e) the appointment of a registered liquidator from another firm as a special purpose liquidator, is counted as an external administration appointment by both firms;
f) where two or more registered liquidators from different firms are appointed jointly/jointly and severally appointed as external administrator of a company, the external administration is only counted once (refer (2) below).

2. Where two or more registered liquidators are appointed jointly and severally as external administrators of a company, it is proposed that a “Principal Appointee” be nominated at the commencement of the external administration as the appointee responsible for providing information about the external administration to allow the industry levy to be determined.
External administration appointment: includes the appointment of a registered liquidator as a controller, provisional liquidator, liquidator, voluntary administrator or administrator of a deed of company arrangement.


Supporting Attachment – pages 26 and 27

Examples of Proposed Levy for Registered Liquidators


EXAMPLE 1

Registered Liquidator A operates as a sole trader and accepted 10 external administration appointments during the financial year.
The indicative annual levy for Registered Liquidator A would be:
The minimum levy for registered liquidators $5,000
An indicative levy of $550 per ‘principal’ appointment during the financial year ($550 x 10 appointments in total) $5,500
Total indicative levy for Registered Liquidator A $10,500

EXAMPLE 2

Registered Liquidator B is a partner in a medium-sized practice. Registered Liquidator B accepts all appointments jointly and severally with another registered liquidator in the firm.
Registered Liquidator B has been the principal appointee in five court winding up appointments,
45 creditors voluntary winding up appointments and 14 voluntary administration appointments during the financial year (10 of which resulted in creditors accepting a deed of company arrangement and, for the balance, creditors resolved that the company be wound up and Registered Liquidator B and their co-appointee be appointed as liquidators).
The indicative annual levy for Registered Liquidator B would be:
The minimum levy for registered liquidators $5,000
An indicative levy of $550 per ‘principal’ appointment during the financial year ($550 x 64 appointments in total) $35,200
Total indicative levy for Registered Liquidator B $40,200
Note: It is proposed that a levy would not apply to Registered Liquidator B’s co-appointee for these external administrations or the external administration appointments that follow on from the voluntary administration appointments.

 

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