Framework of new Report as to Affairs (RATA) drafted by ASIC

On 1 October 2018 the Australian Securities and Investments Commission (ASIC) released a draft of a new Report as to Affairs (commonly known as a RATA). A copy of this form, which includes detailed instructions, may be downloaded from my website or from this ASIC journal.

The new name of the report is to be Report On Company Activities and Property (ROCAP). ASIC intends releasing it in November 2018.

Analysis

The following comments outline my preliminary analysis of the draft.

• The draft report is 50 pages long and comprises four parts:
  • Part A (also referred to as Form 507) (5 pages);
  • Statement veryfying Report under s475(1) (1 page);
  • Part B (8 pages); and
  • Instructions for Part A and Part B (36 pages).
• Part A (Form 507):
  • This Part goes on “the public record” maintained by ASIC.
  • Requires general information from the external administrator and a declaration by the external administrator.
  • Requires general information from the company dirctor (questions A1 to A8) and a declaration.
  • Questions to the director are about debts owing by the company, debts owing to the company and assets owned by the company. None of the questions ask for the amounts involved, but they do ask that details be supplied as attachments.
  • For each question to the director there is a corresponding instruction in the final part of the form (i.e., the instructions).
  • With most questions there is a requirement to read the instruction and provide an attachment.
  • The instructions set out the requirements for each attachment.
  • The instructions have examples/precedents of/for many of the required attachments.
  • The attachments to Part A (and hence the detailed information shown therein) will be go “on the public record”. The instructions state: “The information you provide on PAGES 3 to 5 of PART A (FORM 507) will be available on the public record maintained by ASIC”.
  • There is no requirement that directors produce a summary financial statement showing the company’s net position in figures, i.e., showing the company’s net assets, net liabilities and the resulting deficiency or surplus. This is a significant departure from the existing RATA Form 507, which requires, and is centred around, such a financial statement at pages 3 and 4. ***
• Part B:
  • Part B begins with a note: “Do not lodge Part B with ASIC”.
  • This part is similar to the questionnaires that most external administrators have, for many years, been sending to directors as a “good practice” and as an enforceable requirement of directors.
  • Each page of this part begins with this statement: “Your answers to questions on this page will be available only to the external administrator”.
  • Questions cover matters such as company management, payments to directors, preferential payments, records maintained, location of records and financial statements, company history, real property leases, disposals of assets, transactions with related entities, and payment arrangements.
  • For each question there is a corresponding instruction in the final part of the form.
  • The instructions have examples/precedents of how to answer certain questions and how to prepare certain attachments. They also explain/define some unfamiliar terms.
  • Pro formas exist for reporting voidable payments to creditors and for listing the company’s external advisers.
• Instructions for Part A (Form 507) and Part B:
  • This part of the form should really be named a GUIDE, rather than instructions.
  • It comprise general guides (“Read these before you start”), guides to Part A (the Form 507) and guides to Part B (the questionnaire).
  • This is the first time the ASIC has issued a substantial guide for the RATA/Form 507. However, its contents are muddled. I would describe it as no more than a reasonable first attempt.

*** The removal of the director’s financial statement is a change that I support, having made the case for it when I was consulted by ASIC. In my submission I suggested: “We should do away with the requirement that the RATA imposes, in summary pages 3 and 4,  to estimate the amount that may be available to creditors. This information/estimate is best left to the liquidator to calculate once he or she has examined the RATA . It can be conveyed to creditors in a report by the liquidator….“

Note: I was interviewed at length in February 2015 by Professor David Sless of the Communication Research Institute regarding ideas for a new or amended RATA. Professor Sless was carrying out this research for the ASIC. In May 2017 the ASIC invited me to attend a meeting to discuss a new draft RATA and instructions that had just been prepared. I decided not to participate in a meeting and informed the ASIC accordingly, pointing out that I had already put many hours of research into the subject, including my 2012 research paper, “An Appraisal of the Report As To Affairs”, published by ARITA and the Melbourne University. I also sent the ASIC a copy of my email to Professor Sless in 2015, in which I advocated that we base our new RATA on the American model, explained why, and made a number of comments about changes that I thought were important. My recommendation that the summary financial statement be removed was made in the 2015 email.

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For more on this subject see my post of 22 June 2019: “Creators of ASIC’s ROCAP documents describe their process”.