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.

ASIC calls for greater penalties and stands up for its staff

ASIC, Australian Senate 2013-14, Corporate Insolvency, Official Inquiries, Regulation, White collar crime Comments Off

Feb 192014

In today’s opening statement to the Senate inquiry into the performance of the Australian Securities and Investments Commission (ASIC), the Chairman of ASIC, Mr Greg Metcalf, has called for greater penalties for breaches of corporate law and has strongly defended ASIC staff.

Greg Metcalf, ASIC Chairman

On Penalties

“On the topic of penalties, I would like to say a little more.

There is an expectation among the public that we will take strong action against wrongdoers – and doing this will send a message that shapes future behaviour. However, one of the barriers we face to achieving this is the inadequacy of penalties.

We have outlined some of these inadequacies in our main submission. They include the fact that:

some comparable criminal offences currently attract inconsistent penalties

civil penalties:

are currently set too low

are not available for a sufficiently wide range of misconduct

lastly, we require a more graduated set of penalties to provide an effective enforcement response in a wider range of cases.

We consider that this includes the greater availability of infringement notice powers.

It is frustrating – both for us and the public – when the penalty available to respond to misconduct is much less than the profit someone made in the process. If this is so, then rational players in the market will routinely take that risk. If the thinking of law-breakers is a tussle between fear versus greed, then we need penalties that amplify the fear and smother the greed.

We need penalties that create a fear that overcomes any desire to take risks and break the law.”;

On ASIC staff

“Chairman, one disappointing thing about some of the submissions was the inflammatory tone of criticisms made – particularly about ASIC staff.

ASIC has exceptional employees. They are men and women who work at ASIC for good reason. This is because they believe in the public interest. They are skilled and committed to their work. Considering the difficult job they do, they should receive appropriate respect.

Our people have diverse backgrounds – they have experience in law, accounting and financial services. Many have invaluable industry or consumer advocacy experience. This means they understand how markets work and the issues facing investors, consumers and the wider industry.

ASIC employees also undertake ongoing internal training and have access to industry secondment programs, which further develop their skills.

All of these things make our people highly sought after by the private sector and internationally by other regulators.”

SOURCE: These are extracts from an ASIC document dated 19 February published on the ASIC website. The subtitle is “Speaking notes from Greg Metcalf, Chairman, ASIC”. To see CLICK HERE.

Compliance by personal insolvency practitioners in 2012-13

Debt Administration, Insolvency practices, Insolvency Statistics, Personal Bankruptcy, Regulation, Standards Comments Off

Jan 242014

A Federal Government report on compliance by insolvency practitioners who work in the field of personal bankruptcy and insolvency, and are governed under the Bankruptcy Act 1966, was released on 16 January 2014. The 29 page report, published by Australian Financial Security Authority (AFSA), is titled

“Personal insolvency practitioners compliance report 2012-13”.

The phrase “personal insolvency practitioners” refers to Registered Trustees in Bankruptcy and Registered Debt Agreement Administrators.

A list of the CONTENTS is published below. For a copy of the report (PDF) CLICK HERE.

Free Insolvency & Recovery Services Directory

Corporate Insolvency, Debt Administration, Industry People, Insolvency Consultants, Personal Bankruptcy, Services Directory Comments Off

Jan 142014

On the Insolvency Interface blog site menu

I have created a directory facility for insolvency practitioners, lawyers and other consultants that provide specialist insolvency and recovery services (corporate and personal) to list their names and contact details. This facility is available free of charge and obligation free until 30 June 2014.

Just click on the menu item “Insolvency & Recovery Services Directory” (above).

Then on “Submit a Listing”, and follow the prompts. You will be asked to enter your category of service, business name, location, phone number, and a description of your services. You can also supply certain other information if you like, such as your web site address.

Visitors will be able search the directory by business name, category of service, location, etc.

Peter Keenan 14/1/2014

UK directors disqualified for failing to maintain adequate accounting records

Corporate Insolvency, Insolvency Law, Insolvency practices, Records Management, Regulation, White collar crime Comments Off

Jan 102014

Encouraging news. According to an article published on insolvencynews.com on 9 January 2014, the United Kingdom insolvency authority has banned the directors of two unrelated companies from acting as company directors for failing to maintain adequate accounting records:

“The directors of two unrelated companies have been banned from acting as company directors for failing to maintain adequate accounting records.

The disqualifications, which followed investigations by The (UK) Insolvency Service, were handed to Bradley Carter of Dr Spafish Limited, and Alan Coffey of Datadesk Computer Services Limited.

Carter, whose company offered fish pedicures and also sold franchises, was banned for seven years. Spafish began trading in August 2010 and went into liquidation on 28 November 2011, owing £788,968 to creditors.

The investigation found that due to the lack of available accounting records, it was unable to determine the company’s turnover, who benefitted from cheques and cash worth £181,953 withdrawn from the company’s bank account, and what happened to £68,100 received as part payments for franchise.

Neither was it possible for the investigation to determine the full extent of losses incurred by customers or who these customers were.

Mark Bruce, a chief examiner at The Insolvency Service said: “Company directors must keep sufficient financial records that show and explain the company’s transactions.

“This director failed to do this and there remain a large number of unexplained transactions, representing significant amounts, over the company’s trading period.”

Coffery of Datadesk Computer Services, which operated as supplier of office and technology equipment, was also disqualified for seven years, at Airdrie Sheriff Court in Scotland.

The investigation found that the lack of proper accounting records meant it was not possible to verify if £312,266 paid out of the bank account was for the benefit of the company.

This included over £123,141 paid to a company which holds petroleum exploration and extraction rights in Sierra Leone, West Africa and £26,000 paid for the purchase of coffee and related products. In addition, there were unexplained cheque payments totalling £79,038.

The company entered liquidation on 3 February 2012.

Robert Clarke, head of insolvent investigations north, at The Insolvency Service, said: “The lack of records in this case made it impossible to determine whether there was other, more serious, misconduct at Datadesk and that is reflected in the lengthy period of disqualification.”

Liquidators’ professional association has new name and new head

Corporate Insolvency, Industry People, Insolvency practices, Personal Bankruptcy, Practitioners Association (IPAA) Comments Off

Jan 092014

It’s been announced today that from January 2014 the Insolvency Practitioners Association of Australia (IPAA) will be known as the Australian Restructuring, Insolvency & Turnaround Association (ARITA), and that from February 2014 the CEO of the association will be John Winter, former head of a professional association of accountants and a person with “an extensive background in media”.

In a notice to members, Denise North, current CEO of IPAA/ARITA, said she was “delighted to report that our new name and brand are now in place” and invited members to visit the association at arita.com.au

ARITA is being described as “the peak professional body in Australia for company liquidators, bankruptcy trustees, lawyers, financiers and academics involved in restructuring, insolvency and turnaround activity. It provides advice and assistance to its members on insolvency law and practice, gives advice to government on law reform, and generally represents the interests of those in the insolvency profession.”

John Winter’s career and specialities are detailed on his LinkedIn page.

IPA guide: acceptable creditor resolutions for external administrators seeking future remuneration encompassing increases in hourly rates.

Checklists and guides, Corporate Insolvency, court decisions, Insolvency Law, Insolvency practices Comments Off

Dec 182013

Several years ago an external administrator (Paul Gidley) went to the Federal Court for advice on the validity of resolutions passed approving his remuneration prospectively (i.e. ahead of the work being performed). It was a treated as test case, and in it he was supported by the Insolvency Practitioners Association of Australia (IPA) and opposed by the Australian Securities and Investments Commission (ASIC).

The judgment of Justice Gyles favoured the external administrator and opened the way for liquidators and other external administrators to have their remuneration “fixed by reference to a formula based upon time, provided that the formula is objective enough to satisfy the test laid down by the High Court ….” He decided that “the resolutions in question in this case are capable of objective application. All of the necessary elements can be objectively identified. The person doing the work, that person’s category and the period spent are all the elements required. The sum can be calculated or ascertained definitely….” (Gidley re: Aliance Motor Body Pty Limited [2006] FCA 102).

Now the IPAA has drafted two examples of alternative resolutions that it believes meet the test in situations where the external administrator seeks prospective (future) remuneration that allows for the increase of hourly rates. See IPAA release 17 December 2013: Prospective remuneration approval – Increase in hourly rates

The sample resolutions are:

“That the future remuneration of the [appointee type] from [date] is determined at a sum equal to the costs of time spent by the [appointee type] and their partners and staff, calculated at the hourly rates as detailed in the report to creditors of [date] that will be increased at a rate of X% at 1 July each year, up to a capped amount of $[capped amount], exclusive of GST, and that the [appointee type] can draw the remuneration on a monthly basis or as required.”

“That the future remuneration of the [appointee type] from [date] is determined at a sum equal to the costs of time spent by the [appointee type] and their partners and staff, calculated at the hourly rates as detailed in the report to creditors of [date] that will be increased in accordance with the June quarter Consumer Price Index (all groups) at1 July each year, up to a capped amount of $[capped amount], exclusive of GST, and that the [appointee type] can draw the remuneration on a monthly basis or as required.”

In providing these examples the IPAA says:

“The Third Edition of the IPA Code of Professional Practice (effective from 1 January 2014) provides further clarification that hourly rates can only be increased where an objective formula is approved by creditors as part of the resolution …In practice this means that, should a practitioner wish to adjust their hourly rates, they must include a definitive formula in the resolution – a resolution which refers to an increase “from time to time” or similar is not acceptable. The IPA also considers that a resolution that refers to increases of “up to X%” does not meet the definitive requirements of the Gidley decision. Should practitioners wish to be able to increase rates during the period of a prospective fee approval, they should consider resolutions which refer to increases of X%pa or in accordance with CPI. “

A blip or not? Trends in corporate insolvency statistics part ways.

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

Dec 052013

For the first time in six years the number of initial investigation reports filed with the Australian Securities and Investments Commission (ASIC) by external administrators has not risen in line with the increase in the number of companies entering external administration.

There could be several reasons for this variation, or it may simply be a blip. Next year’s statistics will be interesting.

The chart below, prepared exclusively for this blog using ASIC statistics, compares the trends from 2007/08 to 2012/13 in the numbers of corporate insolvency appointments, companies entering external administration and Schedule B investigation reports filed with ASIC.

ASIC does not appear to have commented publicly on the variation.

The following extracts from ASIC’s Report 372 (October 2013) give some general information about Schedule B reports:

“Liquidators, receivers and voluntary administrators (external administrators) must lodge reports under the following sections of the Corporations Act:

(a) s533 (by a liquidator);
(b) s422 (by a receiver); and
(c) s438D (by a voluntary administrator).

External administrators must lodge a report with ASIC as soon as practicable:

(a) when they suspect an offence under an Australian law, or instances of negligence or misconduct relating to the company to which they are appointed; or
(b) in the case of a liquidation only, when unsecured creditors are unlikely to receive more than 50 cents in the dollar dividend.

Changes to the Corporations Act introduced a statutory time limit on the lodgement of a s533(1) report by a liquidator appointed after 31 December 2007. A liquidator must lodge a report as soon as practicable and, in any event, within six months after it so appears to the liquidator that any of the conditions in s533(1)(a), (b) or (c) apply. No statutory time limit was introduced under s422 or 438D.”

…………………….

“The statistics in this report (on Schedule B investigation reports) do not directly correlate with the monthly statistics for ‘Companies entering external administration’ and ‘Insolvency appointments’ on ASIC’s website due to the time difference in lodgement of external administrators’ reports …. External administrators are not required to lodge reports where the pre-conditions of s422, 438D or 533 of the Corporations Act are not met.”

Insolvency statistics: Reports to corporate regulator by liquidators: trend in insolvency deficiencies

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

Nov 252013

This chart, prepared exclusively for this blog, shows the trend in the number of Schedule B investigation reports filed with the Australian Securities and Investments Commission (ASIC) by external administrators of insolvent corporations from 2007/08 to 2012/13 and the trend in the estimated minimum deficiency that all these corporations, taken together, are said to have incurred.

The primary data has been published by ASIC in annual reports titled, “Insolvency statistics: External administrators’ reports”.

My analysis shows that during 2012/13 the external administrators who filed Schedule B reports electronically reported deficiencies which, taken together, total an estimated minimum of $7.8 billion spread over 9,254 companies. This compares with deficiencies totalling at least $7.3 billion spread over 10,074 companies in 2011/12, and deficiencies totalling at least $6.1 billion spread over 8,054 companies in 2010/11. A deficiency is the amount by which liabilities owing by a company exceeds the value of its assets. In other words, it is the amount that creditors are expected to lose.

When completing the initial external administrator report (Schedule B), the external administrator selects from a predetermined set of options for qualitative questions, and ranges for quantitative questions. There are over 30 questions on the form.

One of those questions requires the external administrator to make an estimate of the company’s deficiency and report the result by selecting the range into which it falls. For this question there are seven ranges specified by ASIC. All ranges (except the top) have both minimum and maximum amounts. For the purposes of this analysis I have taken a conservative approach and used the bottom of the range. For example, where 2,473 companies are reported to have an estimated deficiencies in the range $50,001 to $250,000, I have used a total deficiency for that range of $123,652,473, i.e., 2,473 by $50,001. The same principal has been applied throughout my calculations. The total estimated deficiency in this chart is, therefore, the minimum or bottom of the range.

Of its compilation reports – the latest of which is Report 372 – ASIC says they have been “compiled from the estimates and opinions contained in statutory reports lodged with ASIC by liquidators, receivers and voluntary administrators (external administrators’ reports) in the format of Schedule B to Regulatory Guide 16 External administrators: Reporting and lodging (RG 16) (Schedule B report).”

In its Disclaimer ASIC says: “In compiling the statistics in this report, ASIC has relied on the information in the external administrators’ reports lodged electronically with ASIC. Other than as discussed in Section B of this report, ASIC has not verified or sought to confirm the accuracy of any information in the external administrators’ reports lodged electronically. Accordingly, the statistics in this report cannot be construed or relied on as representing a complete and accurate depiction or statement about the matters or events to which the statistics relate.”

Insolvency Practitioners Association finalises third edition of code of conduct

Checklists and guides, Ethics, Forms, Insolvency practices, Practitioners Association (IPAA), Regulation, Standards, Templates Comments Off

Oct 292013

The Australian Insolvency Practitioners Association (IPA) today released the third edition of its Code of Professional Practice, together with a new Explanatory Memorandum, a document showing all changes, and four templates for insolvency practitioners to use as guides when preparing such documents for creditors.

From IPA website, www.ipaa.com.au

Targeting phoenix activity: union asks Senate for tougher laws and action

ASIC, Australian Senate 2013-14, Corporate Insolvency, Employee Entitlements, Official Inquiries, Phoenix company activity, Regulation, White collar crime Comments Off

Oct 252013

The Australian Manufacturing Workers’ Union (AMWU) has focused its recent submission to the inquiry by the Australian Senate into “The performance of the Australian Securities and Investments Commission” on the issue of phoenix company activity.

The AMWU claims that “ASIC’s failure to adequately hold directors to account has cost millions of dollars worth of unpaid entitlements for employees nationwide. The time is now for action to be taken, impunity to end, and for unscrupulous directors to be held accountable.”

The AMWU submission (21 October 2013) makes four recommendations, namely:

1) Increasing resources and funding to ASIC so that it can properly investigate corporate misbehaviour.

2) A comprehensive review and amendment of s 596AB of the Corporations Act to provide stronger safeguards for employee entitlements and allow for more successful actions by ASIC and liquidators.

3) Introducing a reverse onus procedure by which a director, where there has been an adverse liquidators’ report lodged against them, will be required to ensure that they have acted honestly and responsibly in relation to company affairs.

4) Increasing ASIC’s legislative powers to hold directors and officers personally responsible for unpaid employee entitlements, with a particular focus on phoenix activity.

In expanding on and explaining these recommendations the AMWU says:

1) “ASIC is under-resourced to handle the thousands of complaints submitted to it every year. Regardless of what legislative or regulatory reforms are undertaken, without additionally funding, ASIC will not be able to protect the interests of even the most vulnerable of parties, such as employees. There needs to be a commitment to replace impunity with accountability, and increased resources and funding to ASIC must be the driving force behind this.”

2) “The intention behind s 596AB was to “deter the misuse of company structures … to avoid the payment of amounts to employees that they are entitled to prove for on liquidation of their employer”. This intention has not materialised. Instead, the criticism that s 596AB will prove to be a “toothless tiger… so hard to prove that nobody will be effectively prosecuted” has been proven true. This recommendation would allow for ASIC to, more easily, bring proceedings against directors who have compromised employee entitlements through corporate restructures. This would have a threefold effect of protecting employee entitlements, holding dishonest directors to account, and deterring similar conduct.”

3) “This recommendation is modelled upon Irish legislation under the Companies Act 1990 (Ireland) s 149. In Ireland, where an adverse liquidators’ report has been lodged, directors must ensure that a large amount of equity capital is invested in the new company (at least £100 000 with a minimum of £20 000 paid up in cash) or are required to prove in court why they should not be required to do so. This reverse onus procedure would reduce the detection and compliance burden on ASIC.”

4) “The AMWU submits that continued review of the anti-phoenix activity measures implemented be undertaken, especially in light of the first anniversary of the enactment of the Corporations Amendment (Phoenixing and Other Measures) Act 2012 (Cth).”

In support of its submission the AMWU gives its summary of the following recent cases:

• Steel Tube Pipe Group
• Forgecast Australia Pty Ltd (AMWU v Beynon [2013] FCA 390)
• Carlton Sheet Metal Pty Ltd
• Huon Corporation
• Paragon Printing Ltd

The inquiry by the Senate Standing Committee on Economics began on 20 June 2013. Submissions were to close on 21 October 2013. The Committee is due to report by 31 March 2014.

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