In response to the coronavirus pandemic the Australian Government, through the Department of Treasury, has issued a Fact Sheet of information about the part of it’s economic package that is designed “to lessen the threat of actions that could unnecessarily push (distressed businesses) into insolvency and force the winding up of the business.”
Creators of ASIC’s ROCAP documents describe their process
Soon after the Australian Securities and Investments Commission (ASIC) issued a form titled “Report On Company Activities and Property“ (ROCAP), the creators of the form – the Communications Research Institute (CRI) – published an article describing the process they went through, their standards and the results of tests carried out.
The ROCAP – which replaced the Report as to Affairs (RATA) – is used in corporate insolvencies, where company directors are required to supply liquidators and other external administrators with details of a failed company’s present position, assets, liabilities and history.
As the reader will see, CRI reports that “in the final round of testing (of the new form/documents) participants described the documents as ‘straightforward’ (and that) they easily followed both instructions and the related form-filling task.”
If that’s how the form and accompanying documents are received and processed in practice, it will be a welcome change. Because, by contrast, CRI says it found that “not a single director who participated in the CRI testing of the original RATA could use it appropriately”.
By now (June 2019) feedback to ASIC should indicate whether the new design developed by CRI has been a success, i.e., is regarded by directors and liquidators as more user-friendly and useful. CRI says that “once introduced, the forms and instructions will be carefully monitored and further refined or changed as needed.”
A NEW FORM HELPING FAILED COMPANIES
A Communications Research Institute (CRI) Model project
WHEN A COMPANY fails and an External Administrator is appointed, the Administrator sends a director of the company a form to complete by a set date. The form, known until now as the Report As To Affairs (RATA) had remained largely unchanged since the 19th century. The Australian Securities and Investment Commission (ASIC), which issues the RATA under the Corporations Act 2001, contracted CRI to develop a new design that would be:
- user friendly,
- consistent and logical,
- visually appealing,
- easy to read an complete.
CRI drew on its extensive research and practice in forms design spanning over three decades. CRI collaborated and consulted throughout the project with ASIC and a diverse group of professionals, academics, industry bodies, and former company directors, all of whom contributed to the design of the new form.
External administrators, in particular, who were the main RATA users told us that it failed to provide them with adequate information on the companies they administered. CRI, in consultation with ASIC determined that the needs of administrators had to be taken into account in the redesign.
Receiving the RATA is an unhappy and often traumatic experience for company directors. It marks the end of the company’s life, handing over its remains and final fate to an External Administrator who disposes of it and its assets in the best interests of its creditors. The feedback showed that in that handing over, filling out the RATA was itself traumatic.
Tellingly, not a single director who participated in the CRI testing of the original RATA could use it appropriately.
The redesign involved all aspects of the form’s structure, language, layout, colour and content, and a change of name from RATA to are more easily understood name: ROCAP – Report on Company Activities and Property. CRI undertook three rounds of designing, testing, and consultation with ASIC and stakeholders, followed by redesign.
The result is a totally new set of three documents to replace the RATA: Part A contains most of the RATA questions but in a totally new format, Part B contains new questions about the company records, history and management, and the third document contains detailed instructions for completing Parts A and B….
The instructions … are designed to exactly complement the questions, using the same numbering system throughout.
Observations from previous research shows that form users avoid reading instructions on a form because they see the task is primarily a form-filling task rather than are reading-and-form-filling task. In CRI’s designs, the instructions are always in a separate document, physically removed from the form filling tasks.
Careful design refinement of the navigation between the two documents as a result of testing enabled easy navigation between the two. In the final round of testing, participants describe the document as “straightforward”. They easily followed both instructions and the related form-filling task. The new design meets all CRI standards for good information design.
Once introduced, the forms and instructions will be carefully monitored and further refined or changed as needed.
Professor David Sless
Communication Research institute – October 2018
My previous posts on this subject are titled “Framework of new Report as to Affairs (RATA) drafted by ASIC” and “ASIC notifies liquidators that ROCAP is to replace RATA”.
I plan to post more articles about the new form and documents.
In an email to liquidators on 1 November 2018 the Australian Securities and Investments Commission has notified liquidators that its Report as to Affairs (RATA) form – Form 507 – is to be replaced by its new Report On Company Activities and Property (ROCAP) form – which comprises a new Form 507 plus a questionnaire. Directors and officers of companies entering into insolvent administration are required to complete the form and questionnaire.
Liquidators have been asked to issue the new ROCAP to directors for all new External Administrations after 1 November 2018, but says there will be a three-month transition period to allow software providers to catch up with the change.
A copy of the email is reproduced below.
For more about the new form and questionnaire, see my post “Framework of new Report as to Affairs (RATA) drafted by ASIC” (19/10/2018).
Email from ASIC to Registered Liquidators, 1 November 2018:
For more in this subject see my post of 22 June 2019: “Creators of ASIC’s ROCAP documents describe their process.”
On 1 October 2018 the Australian Securities and Investments Commission (ASIC) released a draft of a new Report as to Affairs (commonly known as a RATA). A copy of this form, which includes detailed instructions, may be downloaded from my website or from this ASIC journal.
The new name of the report is to be Report On Company Activities and Property (ROCAP). ASIC intends releasing it in November 2018.
The following comments outline my preliminary analysis of the draft.
The reports are in two media releases, both published on 19 December 2017. Copies of the media releases appear below. But unfortunately, the media releases do not report on what, if anything, happened in relation to the assets of the stripped companies. If the only consequences of the phoenix activities were fines and, in one case, disqualification, there has been little in the way of deterrence.
As can be seen, one director was convicted and fined $5,000, and automatically disqualified from managing corporations for five years. His company (Brimarco) had all its funds – $34,800 – taken and transfered to a related company, leaving behind debts of $2 million. The release does not say whether the $34,800, or anything at all, was recovered.
The other director was discharged without conviction upon entering into recognisance in the sum of $2,000 on condition that she would be of good behaviour for two years. She sold the assets of her company (Greenlay Enterprises) to a related entity for $20,000, which appears to have been less than their market value. To make matters worse, the related entity did not actually pay the $20,000. The release does not say whether the assets, or an amount equal to their worth, or anything at all, was recovered.
From 18 September 2017 company directors will be able to seek shelter from liability for insolvent trading.
Previously, a director who caused a company to incur new debts (e.g., obtain goods and services on credit) at a time when the company was unable to pay its existing debts/liabilities, could – if the company was subsequently placed in liquidation – be sued by the liquidator or by the creditor provider.
Now, the laws will “protect a director in relation to debts that a company incurs directly or indirectly in connection with developing and taking a course of action that is reasonably likely to lead to a better outcome for the company than proceeding immediately to voluntary administration or winding up.” [Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017, Explanatory Memorandum, paragraph 1.32]
For the full history of this legislation – which encompasses “Safe Harbour for Insolvent Trading” laws and “ipso facto” clauses – and to see a discussion of the key issues (35 pages in all), click on this link: Parliamentary Library’s Bills Digest No. 33 of 11 September 2017.
TO BE CONTINUED …
Media release, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, 12 September 2017:
The Turnbull Government is taking action to crack down on illegal phoenixing activity that costs the economy up to $3.2 billion per year to ensure those involved face tougher penalties, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced today.
Phoenixing – the stripping and transfer of assets from one company to another by individuals or entities to avoid paying liabilities – has been a problem for successive governments over many decades. It hurts all Australians, including employees, creditors, competing businesses and taxpayers.
The Government’s comprehensive package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity.
The DIN will identify directors with a unique number, but it will be much more than just a number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.
In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers. These include:
With the commencement on 1 September 2017 of the delayed parts of the Insolvency Law Reform Act 2016 (the ILRA), the Australian Securities and Investments Commission (ASIC) has updated some of the Information Sheets which it makes available on its website to the general public.
ASIC says that “Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.”
Over time ASIC has issued about 36 insolvency information sheets and flow charts (click here for my list). Below is a list of 15 which have recently been reissued.
In the past, nearly all ASIC’s information sheets have been available to download as printable sheets in PDF file format. However, this facility has not (yet) been provided with the updated/reissued sheets, which are only available as text on ASIC web pages. The links below are to the relevant website pages.
ASIC INSOLVENCY INFORMATION SHEETS – REISSUED 1 SEPTEMBER 2017
Title of Sheet
Link to ASIC site
|INFO 39||Insolvency information for directors, employees, creditors and shareholders||
|INFO 41||Insolvency: A glossary of terms||1/9/2017||INFO 41|
|INFO 42||Insolvency: a guide for directors||1/9/2017||INFO 42|
|INFO 43||Insolvency: a guide for shareholders||1/9/2017||INFO 43|
|INFO 45||Liquidation: a guide for creditors||1/9/2017||INFO 45|
|INFO 46||Liquidation: a guide for employees||1/9/2017||INFO 46|
|INFO 53||Providing assistance to external administrators – Books, records and RATA||1/9/2017||INFO 53|
|INFO 54||Receivership: a guide for creditors||1/9/2017||INFO 54|
|INFO 55||Receivership: a guide for employees||1/9/2017||INFO 55|
|INFO 74||Voluntary administration: a guide for creditors||1/9/2017||INFO 74|
|INFO 75||Voluntary administration: a guide for employees||1/9/2017||INFO 75|
|INFO 84||Independence of external administrators: a guide for creditors||1/9/2017||INFO 84|
|INFO 85||Approving fees: a guide for creditors||1/9/2017||INFO 85|
|INFO 152||Public comment on ASIC’s regulatory activities||1/9/2017||INFO 152|
|INFO 212||Illegal phoenix activity||1/9/2017||INFO 212|
With the commencement on 1 September 2017 of the delayed parts of the Insolvency Law Reform Act 2016 (the ILRA), the Australian Restructuring Insolvency & Turnaround Association (ARITA) has updated the Insolvency Explained section of its website which provides information to stakeholders in the insolvency process, and has developed a range of information sheets designed to assist creditors with understanding insolvency processes.
This is a guide to ARITA’s information, with links to the relevant website pages.
1. Insolvency explained CLICK HERE
What is insolvency? CLICK HERE
- Overview of insolvency – corporate
What is bankruptcy? CLICK HERE
- Overview of insolvency – personal
How does insolvency work? CLICK HERE
Insolvency and creditors CLICK HERE
Insolvency and employees CLICK HERE
Insolvency and shareholders CLICK HERE
Insolvency and company directors CLICK HERE
Insolvency information sheets see section 2 below
Glossary of terms CLICK HERE
2. ARITA insolvency information sheets
The ARITA insolvency information sheets listed below may be downloaded from the page headed “Insolvency information sheets”. They are all in PDF format. ….. CLICK HERE
- Creditor rights (liquidation)
- Creditors rights (voluntary administration)
- Remuneration of an external administrator
- Proposals without meetings
- Committees of Inspection
- Offences and recoverable transactions in a voluntary administration
Personal insolvency (including bankruptcy)
- Creditor rights
- Proposals without meetings
- Committees of Inspection.
A short history of the ILRA
The ILRA reform provisions relating to the rules and conduct of external administrations, commenced on 1 September 2017. This followed ILRA reform provisions relating to the registration and discipline of registered liquidators, and provisions relating to matters such as notification of contravention of a Deed of Company Arrangement and lodgement of a declaration of relevant relationships and declaration of indemnities in a voluntary administration, which commenced on 1 March 2017.
Parliament passed the Insolvency Law Reform Act 2016 (the ILRA) on 22 February 2016. The government registered the related Insolvency Practice Rules (Corporations) 2016 (the Rules) in December 2016. The ILRA and Rules change the law relating to the registration and discipline of liquidators and the conduct of external administrations.
What His Honour said – extracts:
There is no doubt that the code is a useful document in assisting practitioners; …. it is “a useful guide to the common practice in such matters, and to the profession’s own view of proper professional standards”; …. it is “… permissible for the Court to take [it] into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner’s conduct in the case before it”; …. On the other hand, the code “has no legal status”; …. Any question relating to the appearance of impartiality must be determined according to law. It is not the Court’s function in a case such as this to either apply or interpret the code.
For more, see his complete comments below.
Judgment published 11 August 2017 … In Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed)  FCA 914
The code of professional practice
92. I should also say something briefly about the Code of Professional Practice of The Australian Restructuring Insolvency and Turnaround Association (ARITA) (the code), because the administrators sought to rely on the code as providing an independent basis upon which they might be permitted to continue to act as administrators. In particular, submissions were made on behalf of the administrators about those parts of the code which define “exceptions” to the “rule” that, relevantly, practitioners must not take an appointment if they have had a professional relationship with the insolvent company during the previous two years: see section 6.8 of the third edition of the code.
93. There is no doubt that the code is a useful document in assisting practitioners, including with respect to questions of whether, in accepting or retaining an appointment as an administrator, the practitioner is, and is seen to be, independent: see chapter 6 of the third edition of the code. The code is intended to provide guidance on standards of practice and professional conduct expected of ARITA members.
94. In Bovis Lend Lease Pty Ltd v Wily  NSWSC 467; 45 ACSR 612, Austin J described (at ) the Code of Professional Conduct published by the Insolvency Practitioners Association of Australia (as ARITA was previously known) as “a useful guide to the common practice in such matters, and to the profession’s own view of proper professional standards”. Accordingly, his Honour held that “[i]t is permissible for the Court to take [it] into account, to that extent, in applying the law concerning independence and impartiality to the insolvency practitioner’s conduct in the case before it”: see Bovis Lend Lease Pty Ltd v Wily  NSWSC 467; 45 ACSR 612 at ; comparing National Roads and Motorists’ Association Ltd v Geeson  NSWSC 832; 39 ACSR 401 at 403 and Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735 at 738.
95. On the other hand, the code “has no legal status”, as Sanderson M stated in Monarch Gold Mining Co Ltd; Ex parte Hughes  WASC 201. Relevantly, Sanderson M observed in that case, “a failure to comply with the terms of the code would not render a practitioner liable for prosecution under the Corporations Act or any other statute … Nor does a failure to comply with the provisions of the code mean that there has been a failure to comply with what is required in the DIRRI”: see Re Monarch Gold Mining Co Ltd; Ex parte Hughes  WASC 201 at .
96. Any question relating to the appearance of impartiality must be determined according to law. It is not the Court’s function in a case such as this to either apply or interpret the code.