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.

Parliamentary Committee recommends ASIC be permitted to access data

 ASIC, Offences, White collar crime  Comments Off on Parliamentary Committee recommends ASIC be permitted to access data
Mar 042015
 

Recommendation 20 of the advisory report by the Australian Parliamentary Joint Committee on Intelligence and Security (tabled 27 February 2015) is that the Australian Securities and Investments Commission (ASIC) be listed as a criminal law-enforcement agencies under proposed section 110A of the Telecommunications (Interception and Access) Act 1979, thereby permitting it to continue to access telecommunications data.

ASIC had fought strongly for this change during the Committee’s inquiry – see, for example, my post “Not happy, Malcolm! ASIC argues for access to telecommunications data.”

During a Committee hearing Mr Greg Tanzer, the Commissioner of ASIC, highlighted the need for reliable access to telecommunications data to combat the increasing global threat of insider trading:

It is not like terrorism, and I do not make a case that it is exactly the same as terrorism. That would be churlish and, frankly, stupid. But insider trading is an especially pernicious activity. If insider trading is permitted to continue, retail investors and institutional investors will lose confidence in the Australian market. Australia is a net importer of capital—a very major net importer of capital—and if foreign investors in particular, let alone Australian investors, lose confidence in our market, we lose this whole engine and multiplier effect that we have through our capital markets for efficient capital raising. … I am not equating this to a terrorist act, but I am equating this somewhat to other crimes which cause physical harm to people. It is very difficult for a person who has lost their life savings to recover, particularly if your are at that part of your life… where you do not have a lot of time to recover a deadweight loss. (Page 35 of Report.)

In its comments the Committee said:

6.42 The Committee recognises the importance of carefully circumscribing the agencies which are designated as ‘criminal law enforcement agencies’ to ensure that only agencies involved in investigating serious contraventions of the law and subject to appropriate safeguards may seek warrants to access stored communications.
6.43 On the evidence provided, the Committee considers that ASIC is an appropriate agency to be a ‘criminal law enforcement agency’. In particular, the Committee notes that ASIC’s functions include investigating serious offences; that access to stored communications is, and will continue to be, of assistance in its investigations of serious offences; and that ASIC is subject to appropriate accountability requirements and safeguards including the Australian Privacy Principles.

Factors considered in court review of provisional liquidator’s remuneration

 Corporate Insolvency, court decisions, External administrators, Insolvency Law, law reports  Comments Off on Factors considered in court review of provisional liquidator’s remuneration
Feb 172015
 

What information should a liquidator supply to the court to have his or her remuneration approved? On the other side, those opposed to the amount of remuneration must “settle on particular aspects of the liquidators’ conduct which can be queried”. This judgment from Western Australia on 11 February 2015 considers some issues.

 

Judgment – Remuneration of Provisional Liquidator – WA

 

Judges Gavel

 

RE PNP PACIFIC PTY LTD; EX PARTE STRICKLAND & HURT as Liquidators of PNP PACIFIC PTY LTD [2015] WASC 49 (11 February 2015)

CORAM : MASTER SANDERSON > HEARD : 6 NOVEMBER 2014 > DELIVERED : 6 NOVEMBER 2014 > PUBLISHED : 11 FEBRUARY 2015 > FILE NO/S : COR 147 of 2014

MATTER : Application for approval of liquidators’ remuneration pursuant to s 504 of the Corporations Act 2001 (Cth) > EX PARTE > KIMBERLEY ANDREW STRICKLAND as Liquidator of PNP PACIFIC PTY LTD  First-named Plaintiff > DAVID ASHLEY NORMAN HURT as Liquidator of PNP PACIFIC PTY LTD > Second-named Plaintiff.

Catchwords: Liquidation – Application for approval of remuneration – Turns on own facts. Legislation:   Corporations Act 2001 (Cth), s 449E (7)

________________________________________________________________

1 MASTER SANDERSON: This was the plaintiffs’ application for approval of remuneration. The application was issued on 6 August 2014. It was supported by an affidavit of the second-named plaintiff, David Ashley Norman Hurt, sworn 29 May 2014, and a further affidavit of Mr Hurt, sworn 6 August 2014. Mr Sean Damian O’Reilly, a secured creditor of the company, appeared and opposed the making of the order for remuneration. I granted Mr O’Reilly leave to file any affidavit in opposition to the liquidator’s remuneration claim by 16 September 2014.

2 The matter came back before the court on 6 November 2014. The plaintiffs were represented, but Mr O’Reilly did not appear. I indicated to counsel for the plaintiffs no affidavit from Mr O’Reilly had been received and I would make orders approving the remuneration in terms of the originating process. I indicated I would give written reasons for my decision. On 16 December 2014 I read short oral reasons into the transcript and published these reasons both to the plaintiffs’ solicitors and to Mr O’Reilly. Regrettably, due to an administrative oversight, I did not take into account an affidavit of Mr O’Reilly which had been filed on 7 October 2014. I have now had the opportunity to consider that affidavit and have concluded that even with the benefit of Mr O’Reilly’s affidavit, the plaintiffs’ application should be approved. These reasons deal shortly with why, in these rather unusual circumstances, I would approve the plaintiffs’ remuneration.

3 The way in which the remuneration of liquidators, provisional liquidators and other company administrators is to be determined was set out by the Full Court of this court in Venetian Pty Ltd v Conlan (1998) 20 WAR 96. It is worth setting out again the regime mandated by the court. It is as follows (103 104):

Ordinarily, to commence the proceedings, the provisional liquidator will provide the court with a statement of account reflecting in appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly. The statement of account should also reflect in appropriately itemised form the expenses incurred by the provisional liquidator, accompanied where necessary by voucher proof. Sufficient detail should be provided to enable the court to determine whether the disbursements were reasonably incurred and that the amounts claimed are reasonable.

The statement of account should be verified by affidavit. When the remuneration claimed involves work carried out by the provisional liquidator and his staff, the verifying affidavit need state merely that the work described in the statement of account was done by the provisional liquidator or under his personal supervision, and that from personal knowledge or from the records kept by the provisional liquidator or his firm, or from some other appropriate source, he believes that the information contained in the statement of account is correct. When disbursements are claimed, the affidavit should verify that they were incurred and, if necessary, why they needed to be incurred.

In Re Solfire Pty Ltd (In liq) (No 2), Shepherdson J said (at 1,164):

‘In my view, when a provisional liquidator seeks to have his remuneration determined by the court he should provide a document not dissimilar in form to the bill of costs in taxable form provided by a solicitor to his client … He should identify the person or persons and the grade or grades of the person or persons engaged in the particular task concerning the provisional liquidation, he should identify that task and dates on which time was spent on it, the amount of time spent on it and he should identify the relevant rate, according to the grade of the person or persons performing the work. I also consider that he should require the person performing the work to keep reasonably detailed diary notes and time sheets which documents should be open to inspection by persons entitled to see them.’

In our opinion, however, it is, with respect, unnecessary to lay down an absolute rule, in such detailed terms, concerning the statement of account to be provided by a provisional liquidator. It may well be that in a particular case information particularised as suggested by Shepherdson J would be appropriate. In other cases less detailed information may be required. Every case depends on its own circumstances. But the overriding principle remains: sufficient information must be provided to the court to enable it to perform its function under s 473(2).

If the Master were to be satisfied that the statement of account was sufficiently detailed to enable the remuneration to be determined, but there were objections to the account, special directions should be given in regard to the mode in which the account is to be taken or vouched. The procedure set out in O 45 should as far as possible be adopted. If, for example, the objector challenges whether a particular item of work was in fact done, or whether the person alleged to have done the work spent the time alleged in doing it, it may be necessary for the provisional liquidator to call direct evidence establishing the correctness of the allegations made: see generally Gava v Grljusich (unreported, Supreme Court, WA, Full Court, Library No 970492, 19 September 1997).

Notice should be given of the points on which the provisional liquidator will be crossexamined (if crossexamination is allowed). The notice of objection should be supported by affidavit. Crossexamination of the provisional liquidator and the objecting party may then occur. But care should be taken to follow the admonition of Sir Robert Megarry VC in Computer Machinery Co Ltd v Drescher (at 1386), namely: ‘It would not be right to allow anything resembling a trial of the action to take place in the guise of an argument on costs’.

4 What is anticipated by this regime is a twostage process. The practice is grown up of liquidators swearing an affidavit and attaching to that affidavit copies of the timesheets used to calculate remuneration. In addition, the liquidator will provide a brief description of the role of each person for whom a charge has been made, and the rate at which the time has been charged. I then consider the timesheets and all related material and form a prima facie view as to whether the charge is reasonable.

5 In this case the approach taken by the liquidators was slightly different. They produced a remuneration report pursuant to s 449E(7) of the Act. A copy of that report is annexure DH11 to the first affidavit of Mr Hurt. The remuneration was approved at a meeting of creditors held on 23 April 2012. The liquidators then undertook further work and prepared a further remuneration request report which appears as annexure DH13 to Mr Hurt’s affidavit. It is this report seeking an amount of $25,419 which formed the basis of this application. The report was not approved by a meeting of directors.

6 The first report itself begins by setting out a ‘Schedule of Hourly Rates and General Guide to Staff Experience’. For instance, under the classification ‘Director’ there appears a heading ‘Description’. It reads as follows:

Chartered accountant (or equivalent) and degree qualified with 9+ years (approximately) of experience. Able to autonomously lead complex insolvency appointments.

7 The hourly rate specified is $510. There then follow a number of categories down to the final category of ‘Clerical’. Such persons are charged at $110 an hour. There is then a heading ‘Liquidators’ Disbursements’ which sets out the way in which disbursements are charged. For instance, ‘Printing’ is charged at 30 cents per page. There then follows a heading ‘Remuneration Methods’ and it is said that the liquidators have charged on a time cost basis. There is a further subheading ‘Other Creditor Information on Remuneration’. Reference is made to a number of publications providing some guide as to the way in which liquidators charge generally.

8 The main part of the report appears under the heading ‘Schedule of Liquidator’s Anticipated Tasks and Estimated Remuneration for the Period 5 April 2012 to Finalisation of the Liquidation’. The total shown is $40,230, and it was this amount that was approved.

9 The second report was in a slightly different form. Once again, the hourly rates of staff were set out and it is said charging was based on a time cost method. There then appears a heading ‘Tasks Undertaken by the Liquidators and Time Costs for the Period 5 April 2012 to 30 June 2013’. By way of example as to how these matters are set out, appearing below is the first of a number of discrete boxes setting out what was done in relation to particular matters.

Task area
General description
Includes
Assets
9.9 hours
$2,804
$311 per hour
Stock, Plant and Equipment
  • reviewing asset listings;
  • correspondence and liaison with auctioneers and potential buyers;
  • obtaining valuations; and
  • tasks associated with realising assets.
Debtors
  • reviewing the trade debtor position.
Other assets
  • tasks associated with realising other assets.
Funds in CS Legal trust account
  • tasks associated with realising funds in CS Legal Trust account;
  • correspondence and liaison with solicitors;
  • tasks associated with obtaining court order.

10 There is a final heading ‘Summary of the Liquidators’ Time Costs for the Period 5 April 2012 to 30 June 2013 by Personnel Level and Task’. By way of example, Mr Hurt is described as ‘Associate Director’. His hourly rate is $467. He is said to have spent 6.7 hours working on the liquidation at a total cost of $3,129. That dollar figure is then broken down further. For instance, under ‘Assets’, as set out above, Mr Hurt is said to have incurred an amount of $94 by way of costs.

11 As with every single case I have looked at over the past almost 17 years since Venetian was decided, I was satisfied, prima facie, the charges claimed were justified. It is difficult to see how in any circumstance a different conclusion can ever be reached. All a liquidator can ever do is set out in broad detail what was done in the course of the liquidation and the hourly rate charged. There is no way I could, by looking at the broad description of the work done by Mr Hurt and his hourly rate, assess whether or not the charge is reasonable. Really, the first stage of this two stage process is a waste of time. Of course, if it were the case the material before the court was manifestly inadequate because there were no timesheets, the hourly rate was not specified, or the individuals who did the work were not identified, then the claim would fail. But that is a wholly different thing from requiring a preliminary assessment of the entitlement to remuneration.

12 In any event, having undertaken in this case a preliminary assessment of the material, I was satisfied, prima facie, the plaintiffs were entitled to compensation. It was then a matter of considering the affidavit of Mr O’Reilly. It is somewhat difficult to distil from the affidavit the nature of Mr O’Reilly’s complaint. It would appear to amount to Mr O’Reilly being dissatisfied with the time invested by the plaintiffs in the liquidation. At par 51 of his affidavit he says:

My professional opinion is that the amount of hours that could be substantiated in this matter is less than 50 hours.

13 In a following paragraph he goes on to offer a breakdown of how long various tasks would take. For instance, ‘Creditors’ is suggested to take four hours. Mr O’Reilly also complains about the charges of liquidators generally without reference to this particular liquidation. Mr O’Reilly was also not satisfied there was a need for investigation of the company’s affairs. If an investigation was actually undertaken, he says it was not comprehensive.

14 The difficulty with Mr O’Reilly’s affidavit is its generality. It does not settle on particular aspects of the liquidators’ conduct which can be queried. To refer again to the Venetian decision, Mr O’Reilly does not challenge whether a particular item of work was done or whether a particular person specified actually did the work. Based upon the general affidavit filed by Mr O’Reilly, there was no way I could have directed the liquidator to file further affidavit material. That would have required each and every one of the persons who were associated with the liquidation to swear an affidavit saying what they did, when they did it and why they did it. It is that sort of exercise which, on any approach to a review of remuneration, is to be avoided.

15 Accordingly, I was not satisfied the affidavit of Mr O’Reilly gave rise to any matter about which the liquidators had to provide further information. I am satisfied the approval of that remuneration was proper and appropriate. I made orders accordingly.

___________________________________________________________________

Insolvency law in United Kingdom to help external administrators obtain essential supplies

 Corporate Insolvency, External administration, Insolvency Law  Comments Off on Insolvency law in United Kingdom to help external administrators obtain essential supplies
Feb 102015
 

In the UK on 9 February 2015 the government issued the following statement by the Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs (Business Minister, Jo Swinson) :

Rescuing struggling but viable businesses out of formal insolvency helps save jobs and improves the prospect of creditors recovering some of what they are owed. The Enterprise and Regulatory Reform Act 2013 introduced new powers to help insolvency practitioners secure essential IT and utility supplies to keep a business going whilst it is being rescued.

I have today laid an Order to ensure that insolvency practitioners can retain the essential supplies they need to save viable businesses. There will be an impact on suppliers in the IT and utility sectors but I believe that by providing strong safeguards to ensure the supplier can have  confidence they will be paid, we will ensure that the benefits of this measure far outweigh the
costs. In particular:

1. The supplier will be able to seek a personal guarantee from the insolvency practitioner at any time to give them more certainty that the supplies will be paid for.
2. The supplier will be able to apply to court to terminate their contract on the grounds of
‘ hardship’.
3. Guidance will be issued to insolvency practitioners to urge them to make contact with essential suppliers at the earliest possible time following their appointment to discuss their needs in relation to supply, to ensure that undue costs are not incurred.

The Government’s aim remains to ensure that a balance is struck between ensuring the rescue of viable businesses against the obligations placed on those suppliers that will be impacted by the Order. The proposed changes will have effect in relation to contracts made after 1 October 2015.

The Government consulted on how those new powers should be exercised and whether the safeguards proposed were adequate to ensure that those essential suppliers bound to supply an insolvent business would be paid. A total of 31 responses were received and I am very grateful for the time those respondents took to provide constructive feedback to the consultation. Almost all respondents expressed their support for the aims of the proposals with some suggesting ways to make the safeguards more effective. The draft Order was amended in the light of comments received.

Source: House of Commons: Written Statement (HCWS265)

Press Release: Insolvency Service Essential supplies to be guaranteed during business rescue

The Insolvency Service: Summary of Responses: Consultation on the Continuity of Essential Supplies.

ATO modifies website page for insolvency practitioners

 Corporate Insolvency, External administration, Insolvency practices, Payments to ATO, Personal Bankruptcy, Taxation Issues  Comments Off on ATO modifies website page for insolvency practitioners
Feb 042015
 

The Australian Taxation Office (ATO) has modified the section of its website that provides advice and  information to insolvency practitioners on the various taxation questions and topics that pertain to them.    (Modifications made 29 January 2015.)

 

The following headings in red are links to the subjects on the ATO page:

logo-ato

Insolvency Practitioners

Contacting us about insolvency

“How to contact us regarding insolvency matters.”

Online services and forms

“Here you will find the Business Portal FAQ, Voidable transaction claim form, Appointment or cessation of a representative of an incapacitated entity form and Debt insolvency cover sheet.”

Responsibilities

“Administrative obligations of external administrators in both personal and corporate insolvency.”

 Disclosure of taxpayer information – insolvent entities

“You may need to access information we hold to help you administer an insolvent estate. The information we disclose varies depending on the type of insolvency administration. Find out how to obtain this information from us.”

Preference payments

“Information for insolvency practitioners seeking recovery of voidable transactions.”

Indemnities for trustees and liquidators

“What trustees and liquidators need to consider when making an indemnity request to the Deputy Commissioner of Taxation.”

Superannuation and insolvency

“Information about how superannuation affects insolvency administrations.”

Reports on our management of insolvent entities

“Independent reviews into our decisions to enforce insolvency.”

Shares and securities

“Claiming capital losses on shares and securities that are declared worthless.”

PAYG withholding

“Pay as you go (PAYG) withholding is a system that collects tax from the payments businesses make to employees and other businesses, so they can meet their tax liabilities. Information is provided here for external administrators and trustees of bankrupt estates to understand what they need to do to meet their administrative obligations under the PAYG withholding system.”

Not happy, Malcolm! ASIC argues for access to telecommunications data

 ASIC, Offences, White collar crime  Comments Off on Not happy, Malcolm! ASIC argues for access to telecommunications data
Feb 022015
 

In a move that seems to be based on the curious notion that corporate, white-collar crime is not real crime, the federal government has proposed to reduce the right of the Australian Securities and Investments Commission (ASIC) to access telecommunications metadata.

But ASIC is fighting back, with straight talking, in detailed submissions to the Senate inquiry into the Bill.  [Full name of inquiry: Senate Legal and Constitutional Affairs Committee – An inquiry into the comprehensive revision of the Telecommunications (Interception and Access) Act 1979.]

Background

In introducing the Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2014 (TIA Bill) to parliament in October 2014 the Minister for Communications, Mr Malcolm Turnbull, said:

“The bill contains a package of reforms to prevent the further degradation of the investigative capabilities of Australia’s law enforcement and national security agencies.”

After explaining how crucial this was, he said:

“This bill does not provide agencies with new powers to access communications data; the bill simply ensures that data will continue to be available to agencies as a part of legitimate investigations, subject to the same, strict limits that currently apply. In fact, the bill will strictly limit, and indeed reduce, the range of enforcement agencies permitted to access telecommunications metadata without a warrant. The bill will allow what we might call ‘traditional’ law enforcement agencies, such as the police, Customs, crime commissions and anticorruption bodies, to access this information. The bill will also grant the Attorney-General the power to declare, via legislative instrument subject to parliamentary oversight, additional agencies….” (Underlining mine.)

[Source: Second reading speech- Hansard- 20 October 2014 – page 12561-3]

The Australian Securities and Investments Commission (ASIC) is one of the agencies whose right to metadata has been reduced.

ASIC fights back

The following is an extract from the submission in January 2015 by the ASIC to the Senate Inquiry.

ASIC Submission paragraphs 7 to 22.

(Images added)

 [Source: The full ASIC submission, which is available here.]

Law enforcement

ASIC as a major criminal law enforcement agency

ASIC is, among other things, a major criminal law enforcement agency. The types of white collar crime investigated and prosecuted by ASIC are both notoriously difficult to prove and capable of causing immense harm to Australia’s financial system. This harm includes damage to the integrity of Australia’s financial markets, and devastation to individual victims who risk losing their houses and life savings.

This significant risk is expected to increase into the future given the ever-growing pool of superannuation investments and large number of Australians expecting to retire from active work in the next 20 years.

ASIC’s express criminal law enforcement functions and obligations extend to the investigation and prosecution of “prescribed offences” and “serious offences”, as defined in sections 5(1) and 5D of the TIA Act. For example:

  • ASIC is responsible for the investigation and prosecution of criminal offences in a range of Commonwealth statutes, [1] including the following “serious offences” in Part 7.10 of Corporations Act 2001 (Cth) (Corporations Act) that are punishable by imprisonment for up to 10 years:

(i) insider trading (s 1043A);

(ii) market manipulation (ss 1041A to 1041D); and

(iii) financial services fraud (ss 1041E to 1041G), such as fraudulent investment schemes (including Ponzi schemes), cold calling ‘boiler room’ investment frauds and superannuation fraud; and

  • ASIC is also empowered to, and regularly does, investigate and prosecute other criminal offences (Commonwealth, State or Territory) where the conduct involves corporations, managed investment schemes or certain types of financial fraud, [2] including the following “serious offences”:

(i) general fraud offences under State legislation punishable by a maximum term of imprisonment of 7 years or more. [3]

ASIC is the only agency with specific statutory responsibility for investigating and prosecuting criminal offences in the Corporations Act. ASIC is also the only agency with a standing statutory entitlement to commence prosecutions for offences in the Corporations Act. [4]

ASIC regularly exercises these criminal law enforcement functions and obligations. For example, between 1 July 2009 to 30 June 2014:

  •  ASIC, in collaboration with the Commonwealth Director of Public Prosecutions (CDPP), secured criminal convictions against 129 persons for indictable offences, including “prescribed offences” and “serious offences” as defined in ss 5(1) and 5D of the TIA Act, and achieved sentences of imprisonment against 68 persons; [5] and
  • ASIC, through the conduct of its own prosecutions, secured criminal convictions against 2,404 other persons for less serious summary offences, an average of 481 persons convicted a year.

On 24 June 2013 the Parliamentary Joint Committee on Intelligence and Security (PJCIS) handed down its report entitled Report of the Inquiry into Potential Reforms of Australia’s National Security Legislation. In its report the PJCIS did not recommend removing or reducing ASIC’s existing powers under the TIA Act to access telecommunications data or stored communications. Rather, the PJC wrote the following (at pp.25-26):

2.54       The Committee is satisfied that access to telecommunications data for serious crime and threats to security is justified. Access for agencies not enforcing the criminal law or investigating security threats should be subject to further review.

Recommendation 5

The Committee recommends that the Attorney-General’s Department review the threshold for access to telecommunications data. This review should focus on reducing the number of agencies able to access telecommunications data by using gravity of conduct which may be investigated utilising telecommunications data as the threshold on which access is allowed.

This conclusion and recommendation does not justify the proposed removal of ASIC’s existing powers to access telecommunications data given that ASIC is responsible for enforcing the criminal law, including investigating and prosecuting “serious offences” as defined in the TIA Act.

Neither the Explanatory Memorandum nor the second reading speech relating to the TIA Bill elaborates on the criteria that were adopted in determining which agencies should be included within the definition of “criminal law-enforcement agency”, but in the second reading speech the Minister for Communications stated:

[T]he bill will strictly limit, and indeed reduce, the range of enforcement agencies permitted to access telecommunications metadata without a warrant.

The bill will allow what we might call ‘traditional’ law enforcement agencies, such as the police, Customs, crime commissions and anticorruption bodies, to access this information.

In light of ASIC’s explicit, extensive and longstanding [6] criminal law enforcement functions, there does not appear to be logical reason for its exclusion from the primary definition in the Bill of a “criminal law -enforcement agency”. In particular, ASIC is not aware of any specific submission or suggestion to the effect that it has either misused its existing powers under the TIA or should have them removed.

data-access

ASIC’s existing powers under the TIA Act

ASIC is currently an “enforcement agency”, as defined in s 5(1) of the TIA Act. [7]  Consequently:

  • authorised ASIC officers are able to receive telecommunications data if it is reasonably necessary for enforcement of the criminal law or a law imposing a pecuniary penalty; and
  •  ASIC has the ability to seek a warrant from an independent judicial officer authorising ASIC to access stored communications for the purpose of investigating a “serious contravention”, as defined in s 5E of the TIA Act.

Any subsequent use of telecommunications data or stored communications obtained by ASIC is strictly restricted by a number of legislative and procedural safeguards, in addition to oversight regimes. These are outlined later in the submission.

An important consideration in any assessment of the necessity of ASIC having the ability to access telecommunications data and stored communications is the fact that many of the offences it investigates and prosecutes, including all of the offences in Part 7.10 of the Corporations Act, are actually constituted by communications or otherwise generally require proof of communications for a successful conviction. For example:

  • the insider trading offence in s 1043A(1) ordinarily requires proof that inside information was communicated to the accused;
  • the insider trading offence in s 1043A(2) specifically criminalises the “communication” of inside information;
  • the market manipulation offences in ss 1041A to 1041C ordinarily require proof of communications, such as placing orders for the offending trades by telephone or over the internet, and the identity of the persons who made them;
  • the market manipulation offence in s 1041D specifically criminalises the “circulation or dissemination” of offending “statements or information”;
  • the offence in s 1041E (false or misleading statements) specifically criminalises the “making” or “dissemination” of offending statements or information;
  • the offence in s 1041F (inducing persons to deal) criminalises the “making” or “publishing” of offending statements or information; and
  • the offence in s 1041G criminalises engaging in “dishonest conduct” in the course of carrying on a financial service business, which commonly involves communications of false or misleading information.

The central importance of telecommunications evidence and the need for ASIC to obtain such evidence in relation to investigations of these market-related offences was specifically recognised by the then Minister for Financial Services, Superannuation and Corporate Law when introducing reforms to the TIA Act in 2010. [8]

One particular type of serious criminal activity investigated by ASIC that involves communications is “cold calling” investment frauds, which can be prosecuted as a serious fraud offence against State Acts or as a financial services fraud offence against the Corporations Act. These frauds involve individuals being unexpectedly called and subjected to intense pressure into buying investments on the premise of high returns (sometimes as high as 300 per cent in just 15 days), but the returns are often completely fictitious and the investments a sham or worthless.

An example of cold calling frauds involved ASIC’s investigation between September 2009 and April 2013 of 17 cases of investment fraud causing over $8 million in losses to Australian investors. In these investigations, ASIC used telecommunications data as a crucial form of intelligence. The Australian Crime Commission estimated that between January 2007 and April 2012 more than 2,600 Australians lost over $113 million to investment frauds, but it is believed there is a high level of underreporting and the extent is far greater. [9]

Investigations and prosecutions for Corporations Act offences are notoriously difficult, resource-intensive and time-consuming. Effective performance of ASIC’s law enforcement functions can only be achieved if we have adequate powers to obtain information and evidence about suspected contraventions of the laws we administer. Given the increasing role of telecommunications in the delivery of financial services in Australia, including carrying out trades on Australia’s markets, ASIC anticipates that its need to obtain telecommunications data and stored communications will correspondingly increase over time.

footnote symbol cropped

Footnotes:

[1] See, eg, ss 1(2)(g), 13 & 49(2) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); s 1315 of the Corporations Act; and ss 247 and 274 of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act). While all criminal prosecutions arising out of ASIC investigations are commenced by ASIC and are based on briefs of evidence prepared by ASIC, prosecutions for indictable offences are generally continued by the Commonwealth Director of Public Prosecutions (CDPP).

[2] See, eg, s 13(1)(b) of the ASIC Act. Prosecutions for State or Territory offences are commenced by ASIC or its officers in accordance with the law in each jurisdiction governing the commencement of prosecutions.

[3] ASIC is also responsible for the investigation and civil prosecution of contraventions of a range of federal laws imposing substantial pecuniary penalties. Examples of civil penalty cases successfully brought by ASIC include: ASIC v GE Capital Finance Australia [2014] FCA 701 (penalties totalling $1.5 million); ASIC v Newcrest Mining Ltd [2014] FCA 698 (penalties totalling $1.2 million); Idylic Solutions Pty Ltd, Re; ASIC v Hobbs (2013) 93 ACSR 421 (penalties totalling $670,000); ASIC v Macdonald (No 12) (2009) 259 ALR 116 (James Hardie case) (penalties totalling $670,000); ASIC v Vines (2006) 58 ACSR 298 (penalties totalling $640,000); ASIC v Vizard (2005) 54 ACSR 394 (penalties totalling $390,000); ASIC v Loiterton (2004) 50 ACSR 693 (penalties totalling $805,000); ASIC v Adler [2002] NSWSC 483 (HIH case) (penalties totalling $900,000).

[4] Pursuant to s 1315 of the Corporations Act and s 49(2) of the ASIC Act.

[5] Some examples of recent criminal cases successfully pursued by ASIC include: R v Johnson [2014] VSC 175 (imprisonment for 6 years and 6 months, with a non-parole period of 3 years and 6 months); R v Veitch, NSW District Ct, 26 June 2014 (imprisonment for 6 years and 2 months, with a non-parole period of 4 years); R v Maile, QLD District Ct, 20 June 2014 (imprisonment for 4 years and 3 months, with a non-parole period of 16 months); R v Williams, QLD District Ct, 20 June 2014 (HIH investigation) (imprisonment for 4 years and 3 months, with a non-parole period of 16 months); R v Kur, WA District Ct, 21 February 2013 (imprisonment for 4 years, with a non-parole period of 2 years); R v Evans, NSW District Ct, 7 May 2013 (imprisonment for 5 years, with a non-parole period of 3 years and 9 months); R v Weerappah, VIC County Ct, 6 August 2013 (imprisonment for 4 years, with a non-parole period of 2 years); Banovec v R [2012] NSWCCA 137 (imprisonment for 7 years, with a non-parole period of 4 years and 9 months); R v Hoy [2011] VSC 95 (imprisonment for 13 years and 9 months, with a non-parole period of 9 years); Koch v R [2011] VSCA 435 (imprisonment for 13 years and 2 months, with a non-parole period of 10 years, reduced on appeal to imprisonment for 9 years and 10 months, with a non-parole period of 7 years and 6 months); R v Finnigan, NSW District Ct, 18 December 2011 (imprisonment for 10 years, with a non-parole period of 6 years); R v Dale, QLD District Ct, 25 November 2011 (imprisonment for 7 years and 6 months, with a non-parole period of 3 years and 2 months. The sentence was upheld on appeal: R v Dale [2012] QCA 303); R v Jovicic, QLD District Ct, 1 September 2011 (imprisonment for 7 years, with a non-parole period of 2 years and 4 months); R v Kennedy, QLD District Ct, 8 November 2011 (imprisonment for 6 years, with a non-parole period of 2 years); R v De Silva [2011] NSWSC 243 (imprisonment for 2 years and 6 months, with a non-parole period of 18 months); R v Bangaru, NSW District Ct, 17 December 2010 (imprisonment for 8 years and 6 months, with a non-parole period of 6 years and 4 months); R v Hartman [2010] NSWSC 1422 (imprisonment for 4 years and 6 months, with a non-parole period of 3 years).

[6] ASIC (and its immediate predecessor, the Australian Securities Commission) has been exercising important criminal law enforcement functions since 1991 and before this there was a very long tradition, spanning 150 years, of comparable specialist authorities undertaking criminal investigations and prosecutions in relation to corporate crime in Australia: see, eg, sections LVII to LX of the Companies Statute 1864 (Vic).

[7] ASIC falls within paragraph (n)(i) of the definition of “enforcement agency” in s 5(1) of the TIA Act because ASIC’s functions include, among other things, “administering a law imposing a pecuniary penalty”

[8 ]Minister for Financial Services, Superannuation and Corporate Law, Speech, 2 March 2010, available at:

http://ministers.treasury.gov.au/listdocs.aspx?doctype=1&PageID=005&min=ceba. Also see Minister for Financial Services, Superannuation and Corporate Law, Media Release, 28 January 2010, available at: http://ministers.treasury.gov.au/listdocs.aspx?doctype=0&PageID=003&min=ceba.

[9] Australian Crime Commission, Serious and organised investment frauds¸ https://www.crimecommission.gov.au/publications/intelligence-products/crime-profile-fact-sheets/serious-andorganised-investment-frauds.

 

 

More demanded of liquidators in reporting insolvent trading

 ASIC, Assetless companies, Checklists and guides, Corporate Insolvency, External administrators, Forms, Insolvency Laws, Insolvency practices, Regulation, White collar crime  Comments Off on More demanded of liquidators in reporting insolvent trading
Jan 142015
 

UPDATED 16/1/2015

Despite directors receiving official admonishments, detailed instructions and threats about the practice of allowing a company to trade whilst insolvent (see, for example, ASIC Regulatory Guide 217), the curse of insolvent trading seems to be growing.

So, in an attempt to reel it in – or perhaps (for the cynical) to reduce the number of reported cases – the Australian Securities and Investments Commission (ASIC) is putting the onus on liquidators to provide “better” information in their statutory reports.

Background

Where liquidators of insolvent companies become aware that a past or present director or other officer of a company may have committed an offence, they are required to make a formal report to ASIC. Several years ago ASIC came up with a form and guidelines spelling out the information it wanted from liquidators before it would take their allegations of offences any further. This change came with the introduction of an electronic means of lodging reports, but also occurred after ASIC had become fed-up with receiving offence reports considered by its investigators to be almost worthless.

The latest version of this offence report form was released on 18 December 2014. The changes that have been drawn to the attention of liquidators by ASIC concern allegations of insolvent trading. The previous version of the form (July 2008) asked little of liquidators regarding this subject: about all it wanted was a “Yes” or “No” on the availability of documentary evidence. But the new version requires far more.

In the insolvency profession the ASIC form is known as EX01. More technically it is Schedule B of Regulatory Guide 16: Report to ASIC under s422, s438D or s533 of the Corporations Act 2001 or for statistical purposes. (Note: This reporting requirement applies not only to liquidators but also to receivers or managing controllers and voluntary administrators. However for simplicity all these classes of external administrators are referred to collectively in this article as liquidators.)

ex01-embossed

Possible Misconduct – EX01

In EX01 reporting of “insolvent trading” is carried out in the section headed Possible Misconduct.

Here, ASIC asks the liquidator “Are you reporting possible misconduct?”

If the answer is “Yes”, the liquidator is invited to examine Schedule D of ASIC Regulatory Guide 16 to learn “what is likely to constitute a breach of the relevant section, and the evidence needed to prove such a breach”. Schedule D contains over 6,500 words.

There is also a warning “that ASIC may ask you to provide a supplementary report addressing in detail the possible misconduct reported and we may later require further evidence or statements from you for Court purposes”. A description of what is required in the ASIC supplementary report is set out in Schedule C: Supplementary report by receiver or managing controller under s422(2), by voluntary administrator under s438D(2), or by liquidator under s533(2). Schedule C contains about 3,000 words. Liquidators of “assetless companies” are eligible under Regulatory Guide 109 to apply for funding from ASIC for reasonable remuneration and costs in preparing a supplementary report (ASIC form EX03).

If, after considering what is involved in answering “Yes”, the liquidator still thinks the misconduct is worth reporting, or filing a complaint, he or she is directed to the section headed “Criminal Offences”.

Possible Misconduct – Criminal Offences – Insolvent Trading – EX01

Preliminary details of an allegation of insolvent trading – an offence under section 588G(3) of the Corporations Act 2001 – are sought by ASIC in the usual tick-the-box manner.

First the liquidator reports the alleged offence by ticking “Yes” to the following statement:

“In your opinion, one or more directors failed to prevent the company incurring a debt or debts at a time when the director suspected that the company was insolvent or would become insolvent as a result, and the failure to prevent the company incurring the debt(s) was dishonest.”

Having ticked that box, the liquidator is asked “Do you have documentary evidence or other to support your opinion?” and “Are you aware of documentary evidence in the possession of another person that supports this allegation?”

Up to this section the revised form is practically the same as the previous version.

But in the new version, if the liquidator reports a case of insolvent trading and has, or knows of, documentary evidence supporting this conclusion, the liquidator must provide more information by answering several extra questions.

These extra questions concern the period of insolvency, the methods and records used to determine the date of insolvency, the amount of debts incurred, and the reasonable grounds for the director had to suspect insolvency. (The actual questions are set out verbatim below, but the heading are mine.) They are the type of questions that a liquidator, especially one with sufficient funds, ought to consider as a matter of course before reaching an opinion regarding the existence (or non-existence) of insolvent trading.

Effects of changes to insolvent trading sections of EX01

Prior to the recent changes, if ASIC saw a completed EX01 form in which the liquidator had alleged a breach of the insolvent trading laws, and had also answered “yes” to questions about the possession or existence of documentary evidence “or other” to support that opinion, ASIC would have then needed to consider whether to investigate. Its task would likely have entailed obtaining, or trying to obtain, from the liquidator the extra information that is now set out in the latest version of EX01. So, as far as the extra demands in the form are concerned, ASIC would probably argue that liquidators are no greater imposed upon now than they were before.

But regardless of the information ASIC has or could readily obtain, it often decides not to investigate complaints of alleged offences. For many years this inaction has deeply frustrated a lot of liquidators. Many feel that completing an EX01 form is a waste of their time and also, where there are still funds in the insolvent company, a waste of creditors’ money. Unless the revised EX01 results in greater tangible action by ASIC (increased investigations and prosecutions and not just more detailed statistics), making the form more demanding will aggravate these feelings.

It might even see an increase in the non-reporting of insolvent trading offences (see the new question “Reasons for not reporting insolvent trading”), or in “no” being the liquidator’s response when it really should be “yes”.

Extra questions about insolvent trading – new EX01

Period insolvency commenced

Indicate the period, which, in your opinion, the company became unable to pay all its debts as and when they became due and payable:

◻ At appointment ◻ 1 – 3 months prior to appointment ◻ 4 – 9 months prior to appointment ◻ 10 – 15 months prior to appointment ◻ 16 – 24 months prior to appointment ◻ Over 2 years prior to appointment

Method/s of determining date of insolvency

How did you determine the date on which, in your opinion, the company became unable to pay all its debts as and when they became due and payable? (tick one or more):

◻ Cash flow analysis ◻ Trading history analysis ◻ Balance sheet analysis ◻ Informed by director(s) ◻Other, please specify __________________

Records used to determine date of insolvency

Which of the following records, in your possession, did you use to determine the date on which, in your opinion, the company became unable to pay all its debts? (tick one or more):

◻ Cash flow (actual / forecasts / budgets) ◻ Banking records ◻ Aged debtors’ list ◻ Aged creditors’ list ◻ Profit & loss statements ◻ Balance sheets ◻ Other, please specify _______________

Grounds for director to suspect insolvency

If you believe the director had reasonable grounds to suspect the company was insolvent or would become insolvent by incurring the debt (or a reasonable person in a like position would have reason to suspect), please identify on which of the following indicators of insolvency you have based your belief (tick one or more):

◻ Financial statements that disclose a history of serious shortage of working capital, unprofitable trading ◻ Poor or deteriorating cash flow or evidence of dishonoured payments ◻ Difficulties paying debts when they fell due (e.g. evidenced by letters of demand, recovery proceedings, increasing age of accounts payable) ◻ Non-payment of statutory debts (e.g. PAYGW, SGC, GST) ◻ Poor or deteriorating working capital ◻ Increasing difficulties collecting debts ◻ Overdraft and/or other finance facilities at their limit ◻ Evidence of creditors attempting to obtain payment of outstanding debts ◻ Other, please specify ________________

Approximate debt after insolvency

Estimate the approximate amount of debts incurred after the date (in your opinion) of insolvency:

◻ $0 – $250,000 ◻ $250,001 – less than $1 million ◻ $1 million to $5 million ◻ Over $5 million ◻ Unable to determine

Aged list of creditors

Do you have an aged creditors’ list as at (tick one or more):

◻ Date of insolvency ◻ Date of appointment

Dishonesty by director

If the director/directors was dishonest in failing to prevent the company from incurring the debt, indicate what evidence you have available to support this (tick one or more):

◻ Evidence showing that the director/directors had an opportunity to prevent the company from incurring the debt and did not. Such evidence could include: • documents evidencing discussions with the directors, employees and creditors concerning the circumstances surrounding the incurring of particular debts; • correspondence or other documents relating to the circumstances surrounding the incurring of the debt. ◻ Evidence showing that the failure was dishonest (i.e., the director/directors incurred the debt with the knowledge that it would produce adverse consequences, the failure was intentional, wilful or deliberate, and it included an element of deceit or fraud). Such evidence could include: • documents evidencing discussions with the directors, employees and creditors concerning the circumstances surrounding the incurring of particular debts; • correspondence or other documents relating to the circumstances surrounding the incurring of the debt.

Reasons for not reporting insolvent trading

If you did not report insolvent trading (s588(1)-(2) or s588(3)), was it because, in your opinion:

◻ The books and records are insufficient to establish insolvent trading ◻ The company did not incur debts at a time when it was unable to pay its debts (e.g., it ceased to trade) ◻ The directors had reasons to expect the company could pay its debts as they fell due and payable (eg. they obtained independent advice) ◻ Other, please specify ________________

Whether creditor/s are seeking compensation for insolvent trading

Has a creditor commenced, or indicated that they intend to commence, action to recover compensation for loss resulting from insolvent trading?

◻ Yes ◻ No

Possible Misconduct – Breaches of civil obligations – Insolvent Trading – EX01

Insolvent trading may also be a breach of civil penalty sections 588G(1)-(2) of the Act. The revised form EX01 also seeks details of allegations of this nature, by asking about the period of insolvency, the methods and records used to determine the date of insolvency, the amount of debts incurred, and the reasonable grounds for the director had to suspect insolvency. The questions are practically the same as those asked when a criminal offence is alleged (see above). In the previous version of EX01 only three brief questions were posed, which concerned the availability of evidence and the perceived legitimacy of a director’s defence.

Pre-appointment support for DOCA may be an inducement for valuable consideration

 Corporate Insolvency, court decisions, External administration, External administrators, Insolvency Law, law reports, Offences  Comments Off on Pre-appointment support for DOCA may be an inducement for valuable consideration
Dec 152014
 

Registered liquidators are aware that they are prohibited by law from giving, or agreeing or offering to give, someone valuable consideration with a view to securing their own appointment or nomination as a liquidator or an administrator of a company, or an administrator of a deed of company arrangement (section 595 of the Corporations Act 2001).

But I wonder how many of them would be aware that giving an assurance of support for a proposed Deed of Company Arrangement may be an inducement under section 595.

The Chief Justice of the South Australian Supreme Court, Chief Justice Kourakis, took this view in his judgment in the case of Viscariello v Macks [2014] SASC 189, handed down on 9 December 2014.

Mr John Viscariello, a company director, alleged that registered liquidator Mr Peter Macks, administrator of two of Mr Viscariello’s companies, wrongfully failed to negotiate and put in place a Deed of Company Arrangement which would have allowed the companies to continue to trade under a changed ownership structure.

There were several other matters adjudicated upon in this case, and in a sense the allegation that the administrator had given an undertaking to the director that he would support a certain Deed of Company Arrangement (DOCA) became secondary.

But the comments by Chief Justice Kourakis are intriguing.

Chief Justice Kourakis

Chief Justice Kourakis

Mr Viscariello alleged that Mr Macks made certain representations to him and Mr Fred Bart (a businessman and entrepreneur who was a prospective purchaser of the company’s business) in a meeting in November 2001 to the effect that if he (Macks) were appointed as administrator, he would cause the company to enter into a deed of company arrangement reflecting the terms in a Heads of Agreement document, refered to by His Honour as “the proposed Bart DOCA”.

His Honour said:

“I find it unlikely that Mr Macks would have given an unqualified assurance that he would support the proposed Bart DOCA in breach of his duty to investigate the financial circumstances of the Companies and provide opinions to creditors.” [Para 122 of judgment]
….
“It is inherently improbable that he would have made the unqualified representations pleaded by Mr Viscariello.”[Para.125]
….
“If the pleaded representations were made and an agreement or understanding reached to that effect, Mr Macks would have breached s 595 of the Corporations Act and both Mr Bart and Mr Viscariello would have procured him to do so.” [Para.128]
….
“It would be contrary to the public interest to allow Mr Viscariello to recover damages for a misrepresentation which arises out of a failure to give effect to an unlawful arrangement.(Footnote 76) With respect to the false and misleading conduct alleged against Mr Macks in respect of the 27 November meeting with Mr Viscariello and Mr Bart, I reject Mr Viscariello’s evidence that Mr Macks gave an assurance that he would ensure that the Companies would enter into the Bart DOCA.” [para. 130](Emphasis added)

Footnote 76: Yango Pastoral Co Pty Ltd v First Chicago (Australia) Limited (1978) 139 CLR 410; Brownbill v Kenworth Trucks Sales (NSW) Pty Ltd (1982) 39 ALR 191; Alexander v Rayson [1936] 1 KB 169; McCarthy Rose (Milk Vendors) Pty Ltd v Dairy Farmers Coop Milk Co Ltd (1945) 45 SR(NSW) 266; Mason v Clarke [1955] AC 778.

Click here for pdf copy of judgment by Chief Justice Kourakis on 9 December 2014: Judgment in Viscariello v Macks [2014] SASC 18

Holiday reading for insolvency law enthusiasts

 Corporate Insolvency, External administration, Insolvency Law, Law reform proposals, Regulation  Comments Off on Holiday reading for insolvency law enthusiasts
Dec 102014
 

In time for the Christmas holidays the American Bankruptcy Institute (ABI) has released (8 December 2014) a 400-page report titled Commission to Study the Reform of Chapter 11, 2012-2014, Final Report and Recommendations.

The ABI [**] is a bit like the Australian Reconstructing Insolvency & Turnaround Association (ARITA), only much larger. On its website it’s described as follows:

“The American Bankruptcy Institute is the largest multi-disciplinary, non-partisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI Canal Center Plaza membership includes more than 13,000 attorneys, auctioneers, bankers, judges, lenders, professors, turnaround specialists, accountants and other bankruptcy professionals providing a forum for the exchange of ideas and information. In fulfillment of its mission to provide information to its members, journalists, Congress and the public, ABI is engaged in numerous educational and research activities, as well as the production of a number of publications both for the insolvency practitioner and the public.”

This is an extract from the Introduction to the ABI’s report:

“A robust, effective, and efficient bankruptcy system rebuilds companies, preserves jobs, and facilitates economic growth with dynamic financial markets and lower costs of capital. For more than 35 years, the U.S. Bankruptcy Code has served these purposes, and its innovative debtor in possession chapter 11 process, which allows a company to manage and direct its reorganization efforts, is emulated around the globe. As with any law or regulation, however, periodic review of U.S. bankruptcy laws is necessary to ensure their continued efficacy and relevance …. Markets and financial products, as well as industry itself, often evolve far more quickly than the regulations intended to govern them. It may be that significant economic crises tend to occur cyclically and encourage reevaluation of the federal bankruptcy laws. Regardless, the general consensus among restructuring professionals is that the time has come once again to evaluate U.S. business reorganization laws.”

Despite the ABI’s report being mainly about Chapter 11 – i.e., the US law which permits a corporation or other entity to propose a plan of reorganization (debtor in possession) to keep its business alive and pay creditors over time – it seems to me that Australian insolvency law enthusiasts will find its discussion and analysis invaluable. Seriously.

A pdf copy of may be downloaded from the ABI site.

[**] As we all know, in America the term “bankruptcy” refers to corporate insolvency as well as personal insolvency.

Insolvency industry bodies may request disciplinary action by ASIC against registered liquidators

 ASIC, Corporate Insolvency, External administrators, Insolvency Law, Law reform proposals, Practitioners Association (ARITA), Regulation  Comments Off on Insolvency industry bodies may request disciplinary action by ASIC against registered liquidators
Dec 092014
 

Under the Insolvency Law Reform Bill 2014 the insolvency practitioners association and the accountants associations are to be granted the right to formally refer registered liquidators who they suspect are guilty of misconduct to the Australian Securities and Investments Commission to consider using its disciplinary powers.

Disciplinary-action The following table sets out the proposed legislation by using extracts from the Bill and related official material.

SUBJECT: DISCIPLINE OF REGISTERED LIQUIDATORS:
POWER OF INDUSTRY BODY TO GIVE INDUSTRY NOTICE

SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC.
SOURCE OF TEXT
Subdivision G of Division 40 provides that an industry body will be able to provide information about potential breaches of the law by a liquidator, and also be able to expect a response from ASIC on the outcome of that information provision.
The following industry bodies are proposed to be prescribed bodies:
• Australian Restructuring Insolvency & Turnaround Association;
• CPA Australia;
• Institute of Chartered Accountants in Australia; and
• Institute of Public Accountants.		 Insolvency Practice Rules Proposal Paper,
page 19, para 110
An industry body (prescribed in the Insolvency Practice Rules) may lodge a notice (an industry notice) stating that the body reasonably suspects that there are grounds for ASIC to take disciplinary action against a registered liquidator. The industry body must identify the registered liquidator and include the information and copies of any documents upon which the suspicion is grounded.

ASIC must consider the information and documents included in the industry notice and take action as follows:

• if ASIC decides to take no action ASIC, must give the industry body a notice within 45 business days after the industry notice is lodged;
• however, such a notice does not preclude ASIC from taking action based wholly or partly on the basis of information in the industry notice of the following kind:
– suspending or cancelling the registration of the registered liquidator;
– giving the registered liquidator a show cause notice; or
– imposing a condition on the registered liquidator;
• if ASIC does take action based wholly or partly on the information included in an industry notice, ASIC must give the industry body notice of that fact.

An industry notice is not a legislative instrument.

An industry body is not liable civilly, criminally or under any administrative process for giving an industry notice if the body acted in good faith and the suspicion that the body holds in relation to the subject of the notice is a reasonable suspicion.

A person who makes a decision in good faith as a result of which an industry body gives an industry notice is not civilly, criminally or under any administrative process for making the decision.

A person who gives information or a document in good faith which is included, or a copy of which is included, in an industry notice is not liable civilly, criminally or under any administrative process for giving the information or document.

 Explanatory Material, pages 140-141,
paras 6.67 to 6.70
An industry body (which will be prescribed in the Insolvency Practice Rules) may give ASIC an ‘industry notice’ stating that the industry body reasonably suspects that there are grounds for ASIC to take disciplinary action in relation to a registered liquidator.

ASIC is required to notify the industry body whether or not it has decided to take action in relation to the matters in the industry notice.

An industry body is not liable civilly, criminally or under any administrative process if the body acted in good faith and its suspicion in relation to the subject of the notice is a reasonable suspicion.

A person who makes a decision in good faith as a result of which an industry body gives a notice is not liable civilly, criminally or under any administrative process. Similarly, a person who in good faith provides information or gives a document which is included in an industry notice, or a copy of which is included, is not liable civilly, criminally or under any administrative process.

 Explanatory Material, Comparison of key features
of new law and current law, page 125
Notice by industry bodies of possible grounds for disciplinary action

Industry body may lodge notice
(1) An industry body may lodge with ASIC a notice in the approved form (an industry notice):
(a) stating that the body reasonably suspects that there are grounds for ASIC:
(i) to suspend the registration of a registered liquidator under section 40-25; or
(ii) to cancel the registration of a registered liquidator under section 40-30; or
(iii) to give a registered liquidator a notice under section 40-40 (a show-cause notice); or
(iv) to impose a condition on a registered liquidator under another provision of this Schedule; and
(b) identifying the registered liquidator; and
(c) including the information and copies of any documents upon which the suspicion is founded.

ASIC must consider information and documents
(2) ASIC must consider the information and the copies of any documents included with the industry notice.

ASIC must give notice if no action to be taken
(3) If, after such consideration, ASIC decides to take no action in relation to the matters raised by the industry notice, ASIC must give the industry body written notice of that fact.

45 business days to consider and decide
(4) The consideration of the information and the copies of any documents included with the industry notice must be completed and, if ASIC decides to take no action, a notice under subsection (3) given, within 45 business days after the industry notice is lodged.

ASIC not precluded from taking action
(5) ASIC is not precluded from:
(a) suspending the registration of a registered liquidator under section 40-25; or
(b) cancelling the registration of a registered liquidator under section 40-30; or
(c) giving a registered liquidator a notice under section 40-40 (a show-cause notice); or
(d) imposing a condition on a registered liquidator under another provision of this Schedule; and
wholly or partly on the basis of information or a copy of a document included with the industry notice, merely because ASIC has given a notice under subsection (3) in relation to the matters raised by the industry notice.

Notice to industry body if ASIC takes action
(6) If ASIC does take action of the kind mentioned in subsection (5) wholly or partly on the basis of information or a copy of a document included with the industry notice, ASIC must give the industry body notice of that fact.

Notices are not legislative instruments
(7) A notice under subsection (3) or (6) is not a legislative instrument.

No liability for notice given in good faith etc.

(1) An industry body is not liable civilly, criminally or under any administrative process for giving a notice under subsection 40-100(1) if:
(a) the body acted in good faith in giving the notice; and
(b) the suspicion that is the subject of the notice is a reasonable suspicion.

(2) A person who, in good faith, makes a decision as a result of which the industry body gives a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for making the decision.

(3) A person who, in good faith, gives information or a document to an industry body that is included, or a copy of which is included, in a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for giving the information or document.

 Insolvency Law Reform Bill 2014 Exposure Draft,
Insolvency Practice Schedule (Corporations),
sections 40-100 and 40-105,
pages 186 & 187

New law to give creditors power to review fees of liquidators

 Corporate Insolvency, External administration, Insolvency Law, Insolvency Laws, Law reform proposals, Regulation  Comments Off on New law to give creditors power to review fees of liquidators
Dec 062014
 

When the Insolvency Law Reform Bill 2014 is passed, creditors in an external administration of a company (except under receivership or provisional liquidation) will be granted the power to have the external administrator’s fees reviewed by another external administrator. In the draft legislation, the person appointed by creditors is called a reviewer, a reviewing liquidator and, occasionally, a cost assessor.
reviewer
The following table sets out the proposed legislation by using extracts from the Bill and related official material.
 

SUBJECT: CREDITORS’ REVIEW OF REMUNERATION OF EXTERNAL ADMINISTRATORS

 

SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC.

SOURCE OF TEXT
5-20 Meaning of external administrator of a company

A person is an external administrator of a company if the person is:
(a) the administrator of the company; or
(b) the administrator under a deed of company arrangement that has been entered into in relation to the company; or
(c) the liquidator of the company; or
(d) the provisional liquidator of the company.Note: A person is not an external administrator of a company for the purposes of this Schedule merely because the person has been appointed as a receiver, receiver and manager, or controller in relation to property of the company.

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 5-20,
page 157
90-22 Application of this Subdivision

This Subdivision applies in relation to a company that is under external administration, other than a company in relation to which a provisional liquidator has been appointed.

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), Subdivision C
section 90-22, page 263
Appointment to carry out review
(1) A registered liquidator may be appointed to carry out a review into either or both of the following matters:
(a) remuneration of the external administrator of the company;
(b) a cost or expense incurred by the external administrator of the company.
Appointment by resolution
(2) The appointment may be made by resolution of:
(a) the creditors; or
(b) if the company is being wound up under a members’ voluntary winding up—the company;
(3) If the appointment is made by resolution, the resolution must specify:
(a) the remuneration, costs or expenses which the liquidator is appointed to review; and
(b) the way in which the cost of carrying out the review is to be determined.

Appointment by one or more creditors or members
(4) The appointment may be made by:
(a) one or more of the creditors; or
(b) if the company is being wound up under a members’ voluntary winding up—one or more of the members.
(5) However, an appointment may only be made under subsection (4) if the external administrator of the company agrees to the appointment.
(6) The agreement must:
(a) be in accordance with the Insolvency Practice Rules; and
(b) specify:
(i) the remuneration, costs or expenses which the liquidator is appointed to review; and
(ii) the way in which the cost of carrying out the review is to be determined.
Appointments by creditors etc.—limit
(7) Despite subsection (1), a registered liquidator appointed under this section has no power to review the remuneration to which the external administrator of a company is entitled under subsection 60-5(2) (remuneration if no remuneration determinations made).

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations),
Subdivision C, section 90-24, pages 264 and 265
…. Creditors, ASIC and the Court will also have the power to appoint a cost assessor to assess and report on the reasonableness of the remuneration and costs incurred during a portion or all of an administration. Explanatory Material, page 163, para 7.22
Review of the external administration of a company

The creditors may resolve by majority of creditors in both value and number, or the external administrator may agree, to appoint a reviewer to review and report on the reasonableness of the remuneration and costs incurred in an external administration ….
The purpose of the report is to provide information for interested parties to exercise their rights in relation to the administration, such as to remove the liquidator or challenge the liquidator’s remuneration.
The review is not determinative of the issues considered.
The costs of the review will form part of the expenses of the administration, unless so agreed with the liquidator.
The Court may make any orders it deems fit in relation to the review.
The reviewer must be a registered liquidator.
The Insolvency Practice Rules may prescribe, amongst other things, the duties of a reviewer.

 Explanatory Material, Comparison of key features of new law and current law, page 168
90-29 Rules about reviews

(1) The Insolvency Practice Rules may provide for and in relation to reviews under this Subdivision.
(2) Without limiting subsection (1), the Insolvency Practice Rules may provide for and in relation to any or all of the following matters:
(a) the giving of notice to the external administrator of a company before appointing, or making an application for the appointment of, a reviewing liquidator under this Subdivision;
(b) the meaning, for the purposes of section 90-26, of properly incurred in relation to costs or expenses incurred by an external administrator of a company;
(c) the appointment of reviewing liquidators, including requirements as to who may be appointed and the provision of declarations of relevant relationships;
(d) the powers and duties of reviewing liquidators in carrying out a review;
(e) the form and content of reports by reviewing liquidators;
(f) the preparation and provision of reports by reviewing liquidators.

 Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), section 90-29,
page 268
Subdivision D of Division 90 provides ….for the creditors to resolve to appoint, or otherwise agree with the liquidator, to appoint a reviewer to report on external administrator remuneration or costs only. Section 90-27 provides for the Insolvency Practice Rules to contain rules about such reviews. Insolvency Practice Rules Proposal Paper, page 25, para 143
Only a registered external administrator would be able to be appointed as a reviewer. Insolvency Practice Rules Proposal Paper, page 26, para 147
In conducting a review of remuneration and/or costs, the reviewer will be empowered to do any of following:
• conduct the review;
• direct the external administrator to provide an itemised invoice in a form, and within the time, specified in the direction for work undertaken by the liquidator;
• direct a third party to give an itemised bill of costs in a form, and within the time, specified in the direction in relation to work undertaken by the third party;
• interview any party to the review and allow that party to be questioned by any other party to the review;
• direct a person to give a written statement, in a specified form and signed by the person, about a matter relevant to the review;
• direct the external administrator to produce all or part of the liquidator’s files or documents in relation to the administration of the estate.		 Insolvency Practice Rules Proposal Paper, page 26, para 150
It is proposed that the new rules would also stipulate that:
• if the reviewer gives a person a direction, and the person does not comply with the direction, the reviewer may conduct the assessment on the basis of the information available to the reviewer; and
• the reviewer will have a duty to act independently, in the interests of creditors and to avoid actual and apparent conflicts of interest.		 Insolvency Practice Rules Proposal Paper, page 26, para 151
The report to be prepared by the reviewing practitioner would be required to be provided in the form, and with the content, as agreed between the reviewer and the appointing body. Insolvency Practice Rules Proposal Paper, page 27, para 152
Once the report is completed, it would be required to be provided to the external administrator responsible for the administration, the committee of inspection (if applicable) and ASIC. Insolvency Practice Rules Proposal Paper, page 27, para 153
ASIC may give a registered liquidator notice in writing asking the liquidator to give ASIC a written explanation why the liquidator should continue to be registered, if ASIC believes that …. (g) the liquidator has been appointed to act as a reviewing liquidator … and has failed to properly exercise the powers or perform the duties of a reviewing liquidator Insolvency Law Reform Bill 2014 Exposure Draft,
Insolvency Practice Schedule (Corporations), section 40-40,
page 180
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