Peter Keenan

Resident of Australia. Former Chartered Accountant. Fellow CPA. Former Registered Liquidator (25 years). Experienced in corporate and personal insolvency law and practice; forensic accounting; writing; research; taxation law and practice; accounting and bookeeping.

New Corporate Insolvency Laws commencing 1 March 2017

ASIC, Corporate Insolvency, Insolvency practices, Regulation, Standards Comments Off

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).

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

Subjects

Registration Process

Industry wide conditions

Applying to vary or remove a condition or to lift or shorten a suspension

Renewal of registration

The Liquidator Register

Insurance

Annual liquidator return

Notice of significant, and other, events

ASIC power to direct registered liquidator to lodge documents or give information or correct inaccuracies

ASIC power to cancel or suspend a person’s registration

Disciplinary action by a committee

Notice by industry body of possible grounds for disciplinary action

Court oversight of registered liquidators

Registration and disciplinary committees

Administrator’s notice to owner or lessor of property

Notice – material contravention of deed of company arrangement

Company’s former name

Relation back day

Lodging declarations of relevant relationships and indemnities

Lodgement requirements relating to pooled groups

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

ASIC, Corporate Insolvency, External administration, Insolvency practices, Regulation Comments Off

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.

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Contents of RG 258

Final report on university research into fraudulent phoenix companies

ASIC, Corporate Insolvency, Insolvency Law, Phoenix company activity, Regulation, White collar crime Comments Off

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.

Australian Bankruptcy Laws commencing 1 March 2017

Insolvency Law, Insolvency practices, Personal Bankruptcy, Regulation Comments Off

Feb 172017

Some of the changes to the Australia’s bankruptcy legislation approved when the Insolvency Law Reform Act was passed in 2016 will commence on 1 March 2017. The Australian Financial Security Authority (AFSA), the regulator of the Bankruptcy Act, has issued a table listing those changes and comparing them with the existing provisions. Set out below is a copy of that table. (The original is available for download from AFSA.)

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Comparative Table (Bankruptcy tranche 1 – commencement date 1 March 2017) re Insolvency Law Reform Act.

Table comparing the provisions of the Insolvency Practice Schedule (Bankruptcy) that are to commence on 1 March 2017 with existing provisions of the Bankruptcy Act

Schedule provision	Current Bankruptcy Act provision	Comment
10-5: Inspector-General (IG) must work cooperatively with Australian Securities and Investment Commission (ASIC) in performing functions and exercising powers	No equivalent	Requirement for the IG to work cooperatively with ASIC applies in relation to persons who are, have been or may become both registered trustees under the Bankruptcy Act and registered liquidators under the Corporations Act.
15-1: IG must establish a register of trustees	No direct equivalent – some trustee information is currently entered on the National Personal Insolvency Index (NPII)	The register will contain information relating to the trustee’s registration, as well as contact details and certain disciplinary action taken against trustees. The information on the register will be publicly available.
20-5: Application to IG for registration as a trustee	154A	An application must be in the approved form and accompanied by the application fee.
20-10: IG may convene committee to consider registration application	155	The committee to consist of the IG; a registered trustee chosen by a prescribed body; and a person appointed by the Minister. The ‘prescribed body’ is the Australian Restructuring Insolvency & Turnaround Association (ARITA).
20-15: IG must refer applications to the committee	No equivalent – 155 assumes referral of applications	The IG must refer an application within two months of receiving it.
20-20: Committee to consider applications	155A	The committee must decide within 45 business days of interviewing an applicant whether he/she should be registered.
20-25: Committee to report	155A(6)	A report must be given to the applicant and the IG.
20-30: Registration as a trustee	155B and 155C	The IG must register an applicant if the committee recommends it and if the applicant has produced evidence in writing that he/she has taken out adequate and appropriate professional indemnity and fidelity insurance, and has paid the registration fee. Registration has effect for three years, and the IG must give the trustee a certificate of registration (may be given electronically).
20-35: Insolvency Practice Rules (IPRs)4 may impose conditions on all registered trustees or on specified class of trustee	No equivalent	Provides for imposition of industry-wide conditions, or conditions limiting the kinds of activity in which a trustee may engage. Conditions include undertaking at least 40 hours of continuing professional education each year (10 hours of which must be capable of being objectively verified by an competent source) and maintaining adequate professional indemnity and fidelity insurance during any period of suspension of registration in relation to work carried out prior to the suspension taking effect. (see IPR 20-5)
20-40: Application to IG to vary or remove condition on registration	155E(1) to (3)	An application must be made in the approved form, but cannot be made if the trustee’s registration is suspended; if the condition is of a prescribed kind; or in prescribed circumstances.
20-45: IG may convene committee to consider application to vary or remove condition	155E(4) & (5)	The committee to consist of the IG; a registered trustee chosen by a prescribed body, and a person appointed by the Minister. The ‘prescribed body’ is ARITA.
20-50: IG must refer application to the committee	No equivalent – 155E assumes referral of applications	The IG must refer an application within two months of receiving it.
20-55: Committee to consider application	155E(6) & 155F(1)	The committee must interview an applicant unless the applicant agrees otherwise, and within 20 business days thereafter decide whether the condition should be varied or removed.
20-60: Committee to report	155F(2)	A report is to be given to the applicant and the IG.
20-65: Committee’s decision given effect	155F(4)	If the committee recommends removal or variation of condition, the condition is removed or varied in accordance with the decision.
20-70: Application for renewal of registration	155D(2) & (3)	Applications for renewal under 20-70 must be made in the approved form.
20-75: Renewal	155D(1)	The IG shall give a trustee a certificate of registration upon renewal.
20-80: False representation that a person is a registered trustee	No equivalent	A new offence that carries a maximum penalty of 30 penalty units (1 penalty unit = $180).
25-1: Registered trustees to maintain adequate insurance	No equivalent, however undertaking to maintain adequate insurance is a requirement for registration and failure to do so can be grounds for the IG to issue a ‘show cause’ notice	New offences introduced for failing to maintain adequate professional indemnity and fidelity insurance. Maximum penalty of 1,000 penalty units (for false or reckless failure); or 60 penalty units (for failure in other circumstances – e.g. inadvertent failure). The IG may, by legislative instrument, determine what constitutes adequate insurance. • No legislative instrument is currently proposed. Requirements relating to insurance will be outlined in Inspector-General Practice Statement (IGPS) 13
30-1: Annual trustee return	No equivalent	A new requirement for trustees to lodge annual return in the approved form, including evidence that adequate insurance has been maintained. The return must be lodged annually within one month of the anniversary of the date of a trustee’s registration. Maximum penalty for failure to lodge, 5 penalty units.
35-1: Notice of significant events to IG	161A	Introduction of new notifiable events that include: • being issued with a bankruptcy notice • disqualification from managing a corporation • ceasing to have adequate insurance • being issued a ‘show cause’ notice in relation to registration as a liquidator, or having registration as a liquidator suspended or cancelled. The notice must be filed in the approved form within five business days after the trustee could reasonably be expected to be aware that the event has occurred. Maximum penalty for failure to notify is 100 penalty units.
35-5: Notification of other events to IG	No equivalent	Introduction of an obligation to notify in the approved form if information in the annual trustee return or annual administration return is, or becomes, inaccurate in a material particular, and any other events prescribed (in the IPRs). The notice must be lodged within 10 business days after the trustee could reasonably be expected to be aware that the event has occurred. Maximum penalty for failure to notify is 5 penalty units.
40-5: Registered trustee to remedy failure to lodge documents or give information or documents	No equivalent	The IG may direct a trustee in writing to comply with the requirement to lodge any document or give any information or document required to be given to a person under the Act or to be lodged with the IG. If a trustee fails to comply, the IG can direct the trustee not to accept further appointments and/or apply to the court for an order for compliance.
40-10: Registered trustee to correct inaccuracies etc.	No equivalent	If the IG suspects information provided by a trustee is incomplete or incorrect, the IG can direct the trustee in writing to confirm information is complete or correct, or to provide complete or correct information and/or notify persons of the addition or correction. If a trustee fails to comply, the IG can direct the trustee not to accept further appointments and/or apply to the court for an order for compliance.
40-15: Direction not to accept further appointments	No equivalent	The IG may direct a trustee in writing not to accept further appointments if: • the trustee has failed to comply with a direction under 40-5 or 40-10 • a committee convened to consider the trustee’s ongoing registration decides the IG should give the direction • the trustee has failed to comply with a direction under 7070 (to give information to debtor or creditors) or • the trustee has failed to comply with a direction under 75-20(1) or (2) to convene a meeting of creditors – note 70-70 and 75-20 commence on 1 September 2017. When given, a direction not to accept further appointments becomes a condition on the trustee’s registration.
40-20: Automatic cancellation of registration	182	Cancellation of registration occurs on the death of a trustee or if he/she becomes an insolvent under administration.
40-25: IG may suspend registration	No equivalent	The IG may suspend a registration where the trustee: • is disqualified from managing a corporation • ceases to have adequate insurance • has had his/her registration as a liquidator suspended or cancelled (other than on request) • owes more than the prescribed amount of estate charges • fails to comply with a court order to repay remuneration to an estate • has been convicted of an offence involving fraud or dishonesty or • requests the IG to suspend the registration.
40-30: IG may cancel registration	No direct equivalent (155G provides a trustee may request the IG that registration cease)	The IG may cancel a registration where a trustee requests it, or in circumstances equivalent to those mentioned in relation to the suspension of a registration under 40-25 (except registration as a liquidator must be cancelled, not merely suspended).
40-35: Notice of suspension or cancellation	No equivalent	If the IG decides to suspend (under 40-25) or cancel (under 40-30) a trustee’s registration, the IG must give notice of the decision, along with reasons, to the trustee within 10 business days. The decision comes into effect the day after the notice is given. Failure to give the notice within 10 business days does not affect the validity of the decision.
40-40: IG may give a show- cause notice	155H(1)	A show-cause notice may be issued by the IG where the trustee: • no longer has the requisite qualifications, experience, knowledge and abilities • has committed an act of bankruptcy • is disqualified from managing a corporation • ceases to have adequate insurance • has breached a condition of registration • has breached a provision of the Bankruptcy Act • has had his/her registration as a liquidator cancelled or suspended (other than on request) • owes more than the prescribed amount of estate charges • fails to comply with a court order to repay remuneration to an estate • has been convicted of an offence involving fraud or dishonesty • is permanently or temporarily unable to perform the functions of a trustee due to physical or mental incapacity • fails to carry out adequately and properly the duties of a trustee • fails to carry out adequately and properly the duties of the administrator of a debt agreement • is not a fit and proper person • is not resident in Australia or • has failed to comply with a standard prescribed in the IPRs.
40-45: IG may convene a committee	155H(2) & (3)	The committee is to consist of the IG; a registered trustee chosen by a prescribed body, and a person appointed by the Minister. The ‘prescribed body’ is ARITA.
40-50: IG may refer matter to a committee	155H(2)	The IG may refer a matter to the committee if no explanation is received within 20 business days after a show-cause notice is given; or if not satisfied by the explanation.
40-55: Decision of the committee	155I(1), (2) & (3)	The committee can decide one or more of the following: • the trustee continue to be registered • the trustee’s registration be suspended or cancelled • the IG direct the trustee not to accept further appointments • the trustee be publicly admonished or reprimanded • a condition be imposed on the trustee’s registration • a condition be imposed on the registration of all other trustees that they not allow the trustee in question to exercise powers or perform functions on their behalf • the IG publish specified information in relation to the committee’s decision.
40-60: Committee to report	155I(4)	A report must be given to the registered trustee and the IG.
40-65: IG must give effect to committee’s decision	155I(6)	The IG must give effect to the decision made by the committee.
40-70: Application to lift or shorten suspension	No equivalent	A trustee may lodge an application with the IG in the approved form to lift, or shorten the period of a suspension.
40-75: IG may convene a committee to consider applications	No equivalent	The committee is to consist of the IG; a registered trustee chosen by a prescribed body; and a person appointed by the Minister. The ‘prescribed body’ is ARITA.
40-80: IG must refer applications to a committee	No equivalent	The IG must refer an application within two months of receiving it.
40-85: Committee to consider applications	No equivalent	The committee must interview an applicant unless the applicant agrees otherwise, and within 10 business days thereafter, decide whether the suspension should be lifted or shortened.
40-90: Committee to report	No equivalent	A report must be given to the applicant and the IG.
40-95: Committee’s decision given effect	No equivalent	If the committee decides to lift or shorten the suspension, the suspension is lifted or shortened in accordance with that decision.
40-100: Notice by industry bodies of possible grounds for disciplinary action	No equivalent	An industry body may lodge with the IG a notice in the approved form stating that it reasonably suspects there are grounds for the IG to impose a condition on, or suspend or cancel the registration of, a trustee, or issue a show-cause notice to the trustee. The IG must consider the information but is not bound to act on it.
40-105: No liability for notice given in good faith etc.	No equivalent	An industry body is not liable civilly, criminally or under any administrative process for a notice given in good faith and where the suspicion that is the subject of the notice is a reasonable suspicion. That protection extends to persons who give information to the industry body that is contained in a notice to the IG and to persons who make a decision as a result of which the industry body gives a notice.
40-110: Meaning of industry body	No equivalent	The IPRs may prescribe industry bodies–ARITA and the peak accounting and legal professional bodies are prescribed (see IPR 40-1).
45-1: Court oversight of registered trustees	No direct equivalent (some of the same subject matter is contained in 176 and 179. Other provisions of the ILRA also partially replicate 179 – e.g. 9015)	A Court may make such orders as it thinks fit in relation to a registered trustee, either on its own initiative, or on application by the IG or the trustee. In making orders the court may take into account: • whether the trustee has faithfully performed his/her duties • whether an action or failure to act by the trustee complies with the Act or IPRs, or the order of the court • whether any person has suffered, or is likely to suffer, loss or damage as a result of the trustee’s act or failure to act • the seriousness of the consequences of any act or failure to act by the trustee, including the effect on public confidence in registered trustees as a group.
45-5: Court may make orders about costs	No direct equivalent, but some overlap with 176	Without limiting 45-1, the Court may make orders in relation to a registered trustee that deal with the costs of a matter considered by the Court.
50-5: Prescribed body appointing a person to a committee	No equivalent	The IPRs may prescribe knowledge and experience requirements for members of a committee chosen by a prescribed body (at least 5 years’ experience as a registered trustee is prescribed – see IPR 50-15). The ‘prescribed body’ is ARITA.
50-10: Minister appointing a person to a committee	No equivalent	The Minister must be satisfied that a person is qualified by virtue of his or her knowledge of, or experience in, one or more of: business; law; economics; accounting; public policy relating to bankruptcy.
50-15: Single committee may consider more than one matter	No equivalent	A single committee may consider one or more of the following: • matter(s) relating to one application for trustee registration • matter(s) relating to more than one applicant for registration • matter(s) relating to one or more registered trustees.
50-20: Ongoing consideration of matters by committee	No direct equivalent (but similar in some respects to the subject matter in Bankruptcy Regs 8.05G and 8.23)	The committee’s powers are not affected by a change in membership of the committee; the committee may adjourn consideration of a matter (and may do so more than once). A matter may be transferred to another committee.
50-25: Procedure and other rules relating to committees	No equivalent	The IPRs may provide for (see division 50 of the IPRs): • the manner in which committees perform their functions including: (i) meetings (ii) quorum requirements (iii) disclosure of interests and (iv) how questions are decided • the reconstitution of a committee and • the termination of consideration of a matter by a committee and the transfer of matters to another committee.
50-30: Remuneration of committee members	No equivalent	Committee members are entitled to receive remuneration as determined by the Remuneration Tribunal. If no Tribunal Determination is in place, the members are entitled to receive such remuneration as the Minister determines in writing.
50-35: Committee must only use information etc. for purposes for which disclosed	No equivalent	A committee member commits an offence if he/she uses or discloses information or a document that was disclosed to him/her for the purposes of serving on the committee (50 penalty unit maximum penalty). Exceptions apply where the document or information is disclosed to: ASIC; other committees under this Part or the corresponding Part of the Insolvency Practice Schedule (Corporations); prescribed bodies; authorities in States, Territories or overseas exercising similar functions to the committee or the IG; or a court or tribunal.
96-1: Review by the Administrative Appeals Tribunal (AAT)	155A(7) – registration application 155F(3) – application to vary/remove condition 155I(5) – disciplinary action by committee	The following decisions are reviewable by the AAT: • a committee decision under 20-20 (registration application) • a committee decision under 20-55 (application to vary or remove condition on registration) • IG decision under 40-15 (directing trustee not to accept further appointments) • IG decision under 40-25 (suspending registration) • IG decision under 40-35 (cancelling registration) • Committee decision under 40-55 (disciplinary action by committee) • Committee decision under 40-85 (application to lift or shorten a suspension).
105-1: The Insolvency Practice Rules	No equivalent	The Minister may, by legislative instrument, make rules providing for matters required or permitted by the Bankruptcy Act to be made by the Rules, or necessary or convenient to be provide for in order to carry out or give effect to the Act.

Endnote (edited)

This table deals only with provisions in Parts 1 and 2 of the Schedule (and sections 96-1 and 105-1 in Part 4, to the extent those provisions relate to Parts 1 and 2).

Transitional arrangements apply in respect of some new provisions – the transitional arrangements are not covered in this table.

This table does not present a full description of the new provisions, but highlights their main features and/or how they differ from existing.

A reference to the IPRs is a reference to the Insolvency Practice Rules, which underpin the Insolvency Practice Schedule (Bankruptcy) and provide greater detail in relation to various requirements of the Parts 1 and 2 of the IPRs commence on 1 March 2017.

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End of table

Missing Submission On Penalties For White Collar Crime

Corporate Insolvency, Insolvency Law, Official Inquiries, Regulation, White collar crime Comments Off

Jan 192017

Boo Hoo

In March 2016 I lodged a submission with the Senate Standing Economics References Committee which is inquiring into penalties for white collar crime in Australia. However, for reasons which remain a mystery (probably just an administrative stuff-up), my submission did not make it to the committee, and so is not published on the Inquiry’s website with the other 139 submissions appearing there (at 19 Jan 2017).

The 139 submissions are listed (and publicly available) on two web pages:

134 submitted during the 44th Parliament

5 submitted during the current (45th) Parliament

Although my submission didn’t contain any astonishing revelations or brilliant insights, a considerable amount of thought and work went into creating it, and the facts and ideas it contains are probably worth considering. Therefore, I’ve decided to publish most of the submission here, just for the record.(The Senate Committee is due to report by 28 February 2017.)

OFFENCES IN CORPORATE INSOLVENCY

The committee is looking at penalties for white-collar crime in general. The focus of my submission was the field of corporate insolvency and the penalties for white collar crimes committed by directors of insolvent companies. Continue reading »

Regulating insolvency practitioners: what ASIC aims to achieve in 2016-17

ASIC, Corporate Insolvency, External administrators, Regulation Comments Off

Dec 202016

The Australian Securities and Investments Commission (ASIC) has a business plan to guide its regulation of insolvency practitioners. In 2016-17 two new projects have been added to the ongoing ones. Here is ASIC’s summary of the plan as published recently on its website …

2016-17 ASIC Business Plan Summary by Sector: Insolvency Practitioners

ASIC Key Projects		ASIC Focus
Stakeholder engagement Communicating with industry and individual firms to reinforce and articulate standards and expectations (ongoing project)		⚬ Communicating with stakeholders (e.g. through media releases, journal articles, ad-hoc bulletins, regular newsletters), including in relation to surveillance outcomes, to reinforce and articulate standards and expectations ⚬ Releasing key communications, such as: – Annual report on supervision of registered liquidators – Monthly insolvency statistics – Annual report on insolvency statistics ⚬ Engaging with stakeholders, including meeting with individual firms and industry bodies (such as the Australian Restructuring, Insolvency and Turnaround Association (ARITA), Chartered Accountants Australia and New Zealand, CPA Australia, and Australian Financial Security Authority, and other government agencies such as the Australian Taxation Office, Department of Employment and Fair Work Ombudsman ⚬ Participating in and contributing to the Phoenix Taskforce and the Serious Financial Crime Taskforce
Information for registered liquidators and other stakeholders (new project)		⚬ Working closely with industry to further develop guidance and lift standards of conduct ⚬ Reviewing existing ASIC guidance to reflect law reform and improving existing creditor and other stakeholder information published by ASIC ⚬ Reviewing and improving what information registered liquidators currently report to facilitate the assessment and, where appropriate, investigation of reports of alleged misconduct
Registered liquidators’ independence and remuneration (new project)		⚬ Independence (including referral relationships with pre-insolvency advisors) and remuneration (including adequacy of disclosure and reasonableness); anticipated to continue into 2017-18
Surveillance of high-risk registered liquidators (ongoing project)		⚬ Misconduct resulting from conflicts of interest, incompetence and improper gain
Ensuring compliance with statutory lodgements obligations and publication of notices requirements (ongoing project)		⚬ Reviewing registered liquidator outstanding statutory lodgements and publication of notices (including insolvency and external administration related notices) on the ASIC published notices website to identify systemic non-compliance
Lodgement of annual statements (ongoing project)		⚬ Reviewing all annual statements from registered liquidators to detect non-compliance with the requirements to maintain registration, including identification of potential competence concerns
Transactional reviews (ongoing project)		⚬ Undertaking reviews identified through referrals, and responding to identified concerns including: – inappropriate relationships between registered liquidators and pre-insolvency advisers – inadequate declarations of relevant relationships and indemnities – inadequate remuneration disclosure
Investigate and where appropriate take administrative or court action (ongoing project)		⚬ Investigating and taking action against registered liquidator misconduct, as identified through surveillances and referrals
Policy advice Support development and implementation of key Government law reforms and other initiatives (ongoing project)		⚬ Advising Government on proposed insolvency reforms (including proposed reforms in the Government’s National Innovation and Science Agenda) and implementing the Insolvency Law Reform Act 2016, including engaging with Treasury, industry and professional bodies, introducing new guidance and implementing IT and business process changes ⚬ Delivering an enhanced ASIC Form 507 Report as to Affairs (RATA), including stakeholder consultation, to provide better information to facilitate the conduct of external administrations and improve reporting to creditors ⚬ Liaising with Treasury and industry/professional bodies regarding the Government’s proposals/reforms to facilitate corporate restructure (a ‘safe harbour’ and voiding of ipso facto clauses) from the Productivity Commission (in recommendations from its inquiry report into business set-up, transfer and closure) and the Government’s National Innovation and Science Agenda

Levy on registered liquidators and other “industries” to help fund ASIC

ASIC, Corporate Insolvency, External administrators, Regulation Comments Off

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.

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

Liquidators begin Public Examination of Queensland Nickel’s downfall

Corporate Insolvency, Insolvency Law, Insolvent Trading, Shadow Directors Comments Off

Sep 052016

NEWS REPORT FROM The Australian ON MORNING OF 5 SEPTEMBER 2016 ……………………………………………..

Clive Palmer faces Federal Court grilling over Queensland Nickel collapse

By Sarah Elks, Queensland political reporter, The Australian, September 5, 2016, 10:29AM.

Clive Palmer demanded weekly cash flow statements for Queensland Nickel (QN) be delivered to him in hard copy because he was “concerned about espionage”.

Former chief financial officer Daren Wolfe has told the Federal Court public examination into the collapse of the Townsville company that Mr Palmer had an “active interest” in the business during 2015, before it fell into voluntary administration in January.

Mr Palmer is alleged to have acted as a shadow director, a claim he denies.

Mr Wolfe told the court weekly and monthly financial documents were prepared about the health of the company. He said Mr Palmer asked for the data in hard copy, not via email. Asked why, by Tom Sullivan QC for special purpose liquidators PPB Advisory, Mr Wolfe said: “He had concerns about espionage”.

Mr Wolfe said Mr Palmer was required to sign off on any expenditure for Queensland Nickel over $10,000 — even when he was not a director of the company.

When Mr Palmer entered politics as an MP in 2013, Mr Palmer described himself as a fulltime politician and retired from business.

When QN collapsed, Mr Palmer said he was not involved in the day-to-day running of the business. However, the Federal Court has heard there was a practice within QN for Mr Palmer to have final say on expenditure even when he was not formally a director.

Palmer fronts court

After two failed attempts to avoid being publicly interrogated over the collapse of his Queensland Nickel company, self-proclaimed billionaire Clive Palmer must front court today over the corporate failure.

The resources tycoon, QN’s former chief financial officer Daren Wolfe, and the refinery’s former managing director of operations, Ian Ferguson, have been summoned to appear this morning in the Federal Court in Brisbane to face public examination. In hearings scheduled to last a fortnight, the three will be quizzed about the Townsville company’s downfall, which left creditors up to $300 million out of pocket and almost 800 workers without jobs. The federal government had to step in with $68m to cover the redundancy entitlements of Mr Palmer’s former employees.

Lawyers instructed by special- purpose liquidators PPB Advisory will lead the questioning, which will focus on whether a claim can be launched against QN’s director, Mr Palmer’s nephew Clive Mensink, and Mr Palmer as alleged shadow director, for insolvent trading.

The special-purpose liquidators have also been told to investigate QN’s historical affairs and possible claims against its parent companies, QNI Metals and QNI Resources, both ultimately controlled by Mr Palmer.

Mr Palmer denies he acted as a shadow director and both men deny any wrongdoing.

Mr Mensink is overseas and has not yet been served with a summons.

Mr Palmer could also be interrogated about his personal assets, such as property, as liquidators seek funds that might be distributed to creditors.

Under the Corporations Act, examinees are entitled to claim privilege against self-incrimination before each answer. That does not shield the witnesses from answering a question, but prevents their answers being used against them as evidence in future criminal or civil proceedings, apart from perjury. The Australian understands the strategy is used commonly by witnesses in public examinations, particularly directors or former directors of failed companies.

Mr Palmer did not respond to questions from The Australian yesterday.

The former federal MP for Fairfax, who stood down before this year’s election, twice tried and failed to avoid the public examination. Both attempts were dismissed by Federal Court judges, who said the hearings were in the public interest.

…………………………………….. END OF NEWS ITEM

Insolvency practitioners granted more time to prepare for law reforms

Corporate Insolvency, Insolvency Law, Law reform proposals, Regulation Comments Off

Aug 242016

The Australian Restructuring Insolvency & Turnaround Association (ARITA) and The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced on 23 August 2016 that many of the changes to insolvency law that were to be implemented under the Insolvency Law Reform Act 2016 have been postponed from March 2017 to September 2017.

ARITA Announcement

IPs get more time to prepare for Insolvency Law Reform Act

In a major win by ARITA, the Minister for Revenue and Financial Services has agreed to delay the commencement of a portion of the Insolvency Law Reform Act (ILRA).

This decision will avoid the situation where the profession simply would not have enough time to become compliant with the Act by the scheduled commencement date of 1 March 2017.

We understand that while Parts 1 and 2 of the two new Insolvency Practice Schedules (for Corporations and Bankruptcy) will still commence on 1 March 2017, these parts of the legislation are largely concerned with registration and discipline, and can be easily implemented by the profession.

The Minister has agreed to delay Part 3 of the new Insolvency Practice Schedules which relate to the general rules for the conduct of external administrations and bankruptcies. These provisions will not commence until 1 September 2017.

We also understand that parts of Schedule 3 of the ILRA (very specific provisions dealing with matters such as termination of a DOCA and the relation back day) will also still commence on 1 March 2017.

The Government’s caretaker period during the lengthy election stopped all work on the all-important Insolvency Practice Rules, which is likely to push out their formalisation until December 2016.

This would have meant there was no way firms could adjust their IT systems or complete the necessary extensive staff retraining before the scheduled commencement. This extension simply provides a more reasonable time period for compliance.

These issues were first flagged with Government, agencies and regulators by ARITA prior to the election, and have been the subject of sustained action on our part to drive for a more acceptable commencement time frame.

Minister’s Announcement

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP today announced that the industry is being given more time to implement the Insolvency Law Reform Act 2016 reforms.

This major reform will increase confidence in Australia’s insolvency regime by:

improving practitioner registration and disciplinary processes;
providing new regulatory powers to ASIC;
increasing practitioner insurance requirements;
introducing new review and audit processes; and
addressing conflicted remuneration and ensuring that offences and penalties are appropriate and proportionate.

“The reforms also ensure that our insolvency processes are modern and efficient – reducing costs, improving timeliness of administrations and improving returns to creditors,” Minister O’Dwyer said.

“Most importantly, the changes will enhance the ability of creditors to terminate underperforming practitioners.

“Given the scale of these reforms industry is being given time to upskill and to update their software systems and business processes before commencement.

“The reforms to insolvency administration processes, to enhance efficiency, improve communication and increase competition, are now scheduled to commence on 1 September 2017.

“We will not defer commencement of those reforms directed at promoting competency and professionalism in the insolvency industry. The practitioner registration and discipline provisions, and enhancements to the ASIC’s powers will commence on 1 March 2017, as planned.

“The Insolvency Law Reform Act represents the Government’s first tranche of insolvency reforms, directed at improving the integrity and efficiency of Australia’s insolvency laws.

“The Government’s second tranche of insolvency reforms will enhance business rescue and support entrepreneurship, and are being progressed as part of the Government’s National Innovation and Science Agenda,” Minister O’Dwyer said.

END OF POST

Court upholds ATO’s right to access company records held by liquidators

Corporate Insolvency, Insolvency Law, Taxation Issues Comments Off

Feb 112016

Illegal Phoenix Squad

Warners case

Speaking of legal disputes between liquidators and the Australian Taxation Office (ATO)*, the ATO achieved victories in July and November 2015 in the Warner case, a case which arose as part of the ATO’s attack on phoenix company activity.
* See my blogs on the Australian Building Systems case .

Warners case is reported in Commissioner of Taxation v Warner [2015] FCA 659 (the first case) and Commissioner of Taxation v Warner (No 2) [2015] FCA 1281 (the second case).

The first Warners case

A case was brought before the Federal Court because the liquidators of a group of nine companies (creditors’ voluntary winding up, June 2013) which owed millions in tax debts refused to comply with demands by the ATO that they produce company documents. Those demands were issued in the course of investigations by the Phoenix Team of the Private Groups and High Wealth Individuals Business Line at the ATO. The basis for the demands was section 264 of the Income Tax Assessment Act 1936 and section 353-10 of Sch 1 to the Taxation Administration Act 1953.

The liquidators took the position that section 264 of the ITAA 1936 must be read as subject to section 486 of the Corporations Act 2001, which states that: “The Court may make such order for inspection of the books of the company by creditors and contributories as the Court thinks just, and any books in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise”. The liquidators claimed that the ATO, in common with any other creditor, must obtain a court order under section 486 before it can inspect the companies’ records held by the liquidators.

The Federal Court disagreed. It found that the liquidators were required to grant access to the documents demanded by the ATO, and that section 486 of the Corporations Act did not apply.

The group

At the bottom of this post is a list of the nine companies (known as the TJT group) involved in both the first and second case, showing their names, and former names, and their reported debts to the ATO. According to the Federal Court judge (Perry J) the group’s tax debt is/was “approximately $20 million, even without taking account of TJT (No 1)’s tax liability which is yet to be advised”. As is usually the case in phoenix activity, the companies changed their names several times. It appears from their former names that they were in business as employment, recruitment and/or human resources agents.
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Corporate Insolvency Law Reform – key changes effective from 1 March 2017

Subjects

Registered Liquidators: Registration, disciplinary actions and insurance requirements.

ASIC Regulatory Guide RG258, Issued: 1 March 2017

Contents of RG 258

Comparative Table (Bankruptcy tranche 1 – commencement date 1 March 2017) re Insolvency Law Reform Act. Table comparing the provisions of the Insolvency Practice Schedule (Bankruptcy) that are to commence on 1 March 2017 with existing provisions of the Bankruptcy Act

Schedule provision

Current Bankruptcy Act provision

Comment

Endnote (edited)

OFFENCES IN CORPORATE INSOLVENCY

ASIC Key Projects

ASIC Focus

The proposal in brief

What the liquidators’ professional association thinks

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

Clive Palmer faces Federal Court grilling over Queensland Nickel collapse

By Sarah Elks, Queensland political reporter, The Australian, September 5, 2016, 10:29AM.

Palmer fronts court

ARITA Announcement

IPs get more time to prepare for Insolvency Law Reform Act

Minister’s Announcement

Warners case

The first Warners case

The group

Comparative Table (Bankruptcy tranche 1 – commencement date 1 March 2017) re Insolvency Law Reform Act.

Table comparing the provisions of the Insolvency Practice Schedule (Bankruptcy) that are to commence on 1 March 2017 with existing provisions of the Bankruptcy Act