ASIC – Page 5 – ░░░ INSOLVENCY INTERFACE

What do ASIC’s Enforcement Outcomes reports mean?

ASIC, Corporate Insolvency, Insolvency Statistics, Offences, Regulation, White collar crime Comments Off

Jul 262013

An Enforcement Outcomes report has been issued by the Australian Securities and Investments Commission (ASIC) for the six months from January to June 2013 (Report 360).

It is the fourth of its type since ASIC abandoned its Prosecution Reports. But unlike those reports – upon which I based my paper, “Convictions for summary insolvency offences committed by company directors” , a detailed comparison of prosecution outcomes over the years 2006 to 2010, including the sections of the Corporations Act under which enforcement action was taken and the fines imposed – the new Enforcement Outcomes reports provide far less information.

In the part of the latest Enforcement Outcomes report that mentions summary insolvency offences, the reader is simply told that:

“As part of our liquidator assistance program, 249 directors were successfully prosecuted for summary offences concerning a failure to assist an external administrator.” (paragraph 86)

Similar brief references are made in the three previous reports.

So what, if anything, do these limited figures say?

About all we can do is compare the latest figure with those from the previous 18 month period.

In the six months from July to December 2012 the comparative number of directors successfully prosecuted under the liquidator assistance program was 275. (Report 336, paragraph 91.)

Further comparisons with the two earlier Enforcement Outcomes reports might not be all that meaningful, because those reports give figures on summary “proceedings against” directors rather than the current classification of “successful prosecutions” against directors. That said, the reports for the six months to June 2012 and for the first six months (to December 2011), put the figures at 196 and 208 respectively (see Report 299, paragraph 48 and Report 281, paragraph 39 )

But according to ASIC, readers need to be cautious when making comparisons of such data. The Enforcement Outcomes report 360 states (at paragraph 18):

“Comparisons between individual enforcement reports have some limitations. This is because no two enforcement actions are the same. For example, there may be differences in the complexity or seriousness of the allegations. However, over a two-year period, it is possible to identify the types of conduct or sectors that are the focus of ASIC’s enforcement activity in the longer term.”

This statement – minus the final sentence – was also used in the Media Release that accompanied the report.

Too many liquidators failing to provide adequate disclosure to creditors on relationships

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

Jul 242013

When the Australian Securities and Investments Commission (ASIC) released its report on supervision of registered liquidators it bemoaned the fact that its compliance checks had found a 10% increase in inadequate declarations, up from 46.9% in 2011 to 56.3% in 2012.

In the accompanying Media Release ASIC Commissioner John Price was fairly blunt:

“The increase in inadequate declarations concerns ASIC. Liquidators must make full disclosure to creditors when it comes to their independence. Given our guidance, and education programs through the Insolvency Practitioners Association of Australia (IPA), there is no good reason for such a failure rate.”

Under the Corporations Act 2001 liquidators and administrators (other than those appointed by the Court) are required to make written declarations to creditors concerning indemnities they have received and relationships they have, or have had, with certain defined “persons” within the preceding 24 months. Both declarations are to be made and sent to creditors before the first meeting of creditors is held. The Declaration of Relevant Relationships and Declaration of Indemnities are referred to collectively in the insolvency profession as a DIRRI.

An “inadequate” DIRRI is described in ASIC’s report (para 56) as one which:

(a) fails to disclose a relevant relationship in pre-appointment dealings and/or, where such a relevant relationship has been identified, adequately explain why it does not create a conflict of interest;

(b) fails to disclose all companies involved in appointments to a group of companies, and whether or not circumstances existed between the group entities that may give rise to a conflict and, if so, how the appointees would manage those issues; and/or

More detailed guidance on how to make sure a DIRRI is adequate was given to registered liquidators in an email sent to them on 28 June 2013 by Adrian Brown, leader of ASIC’s Insolvency Practitioners Team.

The email extract below is Mr Brown’s description of “seven key areas for improving the likelihood that your DIRRIs do comply with the law, relevant professional standards and the IPA’s Code of Professional Practice.”

“1. Disclose pre appointment dealings/advice

Provide meaningful information about the nature and extent of pre-appointment meetings (regardless of the nature of the meeting or dealing, be it face to face meetings, telephone discussions or email/ other electronic communications) with the company’s directors and any of their advisors.

2. Disclose relationships

Disclose all relevant relationships in accordance with the Act, professional standards and the IPA Code to ensure full disclosure and transparency. We suggest you consider:

· how the relevant relationship might impact your ability to act in the best interests of creditors; and

· whether there is a reasonable chance that creditors might consider that independence is, or appears to be, compromised by that relationship if it were to subsequently come to light.

3. Provide a reason why a relationship does not result in a conflict

Give a reason why you believe each relevant relationship does not result in a conflict of interest or duty. The reasons provided must be specific to the appointment and should not simply be a restatement of example reasons provided in the IPA Code.

Merely stating that a relationship will not affect your independence, or that you received no payment for pre-appointment advice or meetings, is NOT a “reason”.

4. Disclose when appointed to a group of companies

Where the appointment is to a number of companies in a group, the DIRRI should specifically refer to each company and cite a reason why you believe that multiple appointments will not result in a conflict of interest or duty.

You should also consider what steps you must take should you become aware of an actual or potential conflict after the appointment.

5. Disclose external administrations with common directors

Documented conflict checks undertaken pre-appointment should show if you or your firm acted, or continue to act, as external administrator of another company with the same or a common director where the appointment occurred within two years before the new appointment.

Where this occurs, the relationship should be disclosed together with the reason why you believe the new appointment will not result in a conflict of interest or duty.

6. Disclose indemnities and other up-front payments

Disclose full details of the nature and extent of all non-statutory indemnities and up-front payments. This should include stating whether there are any conditions governing the indemnity, including what the indemnity can be used for.

7. Review and sign the DIRRI

It is vital that you carefully review every DIRRI before signing it. All appointees must sign the DIRRI.”

ASIC’s message is taking a long time to get across to some liquidators …

Three years ago (May 2010) Mr Stefan Dopking, then ASIC’s leader of the Insolvency Practitioners & Liquidators Stakeholder Team, wrote to registered liquidators to reveal the findings of its compliance review of DIRRIs in 2009. What ASIC found then was strikingly similar to its findings in 2012, as this extract from Mr Dopking’s letter shows:

“The review identified a number of areas where we believe the adequacy of disclosure needs improvement. In particular, our general observations are that:

a large number of Declarations did not adequately disclose the nature of the relationships or provide adequate reasons to explain why the disclosed relationships did not result in a conflict of interest or duty;

Declarations did not clearly articulate whether the registered liquidator’s firm (i.e. partners or related bodies corporate) was included in the Declaration;

the majority of Declarations did not disclose the nature and extent of pre appointment meetings and advice;

prior or contemporaneous appointments as external administrators of other companies with common directors were not adequately disclosed in over 20 instances;

many Declarations did not provide sufficient information to adequately identify the party providing an indemnity or sufficiently disclose the nature and extent of the indemnity provided;

many Declarations were not signed by both joint and several appointees (ASIC is of the view that each appointee must consider whether any relevant relationships exist that require disclosure and the Corporations Act 2001 (‘the Act’) requires each appointee to sign the relevant Declarations); and

it was not evident from the minutes of the meeting of creditors in many cases that Declarations were tabled at the meeting of creditors as required by the Act3. Minutes of the meeting of creditors should evidence compliance with this statutory requirement.”

The law requiring liquidators to prepare DIRRIs for creditors came into effect in January 2008.

(End of post)

Value of a penalty unit increased for first time in 15 years

ASIC, Corporate Insolvency, Insolvency Laws, Offences, Regulation, White collar crime Comments Off

Dec 202012

If you believe that the notional monetary value of fines should keep pace with inflation, then you’ll be pleased by recent amendments to the Crimes Act 1914.

The amendments, which take effect from 28 December 2012, will see the monetary value of a penalty unit increased for the first time in 15 years.

Also, the amendments require that in future the value of a penalty unit must be reviewed every three years to ensure that it is “amended to accommodate changes in the Consumer Price Index”.

The monetary value of a penalty unit will increase from $110 to $170. This is the first increase since 1997. On my calculations the $60 increase is the equivalent of a 2.2% increase each year over the past 15 years.

The change affects the value of a penalty unit in most Commonwealth laws, including the Corporations Act 2001. and, therefore, the sections dealing with liquidations and other forms of external administration.

I have written previously about penalties imposed under sections 475 and 530A of the Corporations Act. A section 475 penalty may be imposed if a director fails to submit a Report as to Affairs to the liquidator. A section 530A penalty may be imposed if a director fails to deliver books and records or fails to assist the liquidator. The old and new maximum fines for these summary offences are shown in the chart below.

Offence	Maximum Penalty Units	Old Maximum Fine to 27/12/2012	New Maximum Fine from 28/12/2012
Section 475	25	$2,750	$4,250
Section 530A(6)	50	$5,500	$8,500

Of course, it remains to be seen whether the increased maximums will result in greater penalties being imposed by the Courts.

____________________________________________________________________________________

Sources:

Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Bill 2012 received royal assent on 28 November 2012. See HERE

Crimes Act 1914, subsection 4AA

Section 1311 of the Corporations Act 2001

Schedule 3 of the Corporations Act 2001

ASIC invites comment on use of its new power to wind up companies

ASIC, Corporate Insolvency, Employee Entitlements, GEERS, Insolvency Laws, Insolvency practices, Regulation, White collar crime Comments Off

Jul 182012

How should the public interest test be applied?

The Australian Securities and Investments Commission (ASIC) has released a consultation paper outlining how it intends to implement its new power to wind up companies.

Recent amendments to the Corporations Act have given ASIC the power to order the wind up a company in specific circumstances and appoint a liquidator. The Corporations Amendment (Phoenixing and Other Measures) Act 2012 amends the Corporations Act to add a new part to Chapter 5 – External Administrations. The new part (Part 5.4C) – which comprises new sections 489EA, 489EB and 489EC – gives ASIC the power to wind up companies in FOUR scenarios:

SCENARIO 1:

ASIC may order a winding up if:

(a)	the response to a return of particulars given to the company is at least 6 months late; and
(b)	the company has not lodged any other documents under this Act in the last 18 months; and
(c)	ASIC has reason to believe that the company is not carrying on business; and
(d)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 2:

ASIC may order a winding up if the company’s review fee in respect of a review date has not been paid in full at least 12 months after the due date for payment.

SCENARIO 3:

ASIC may order a winding up if

(a)	ASIC has reinstated the registration of the company under subsection 601AH(1) in the last 6 months; and
(b)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 4:

ASIC may order a winding up if

(a)	ASIC has reason to believe that the company is not carrying on business; and
(b)	at least 20 business days before making the order, ASIC gives to:
	(i)	the company; and
	(ii)	each director of the company;
	a notice:
	(iii)	stating ASIC’s intention to make the order; and
	(iv)	informing the company or the director, as the case may be, that the company or the director may, within 10 business days after the receipt of the notice, give ASIC a written objection to the making of the order; and
(c)	neither the company, nor any of its directors, has given ASIC such an objection within the time limit specified in the notice.

Comments on Consultation Paper 180 are due by Friday 10 August, 2012.

Click here to download Consultation Paper 180. (PDF format.)

The following is ASIC’s media release of 12 July 2012:

ASIC today released a consultation paper outlining how it intends to implement its new power to wind up abandoned companies under the Corporations Act 2001 (Corporations Act) to facilitate greater access to the General Employee Entitlements Redundancy Scheme (GEERS).

Consultation Paper 180 ASIC’s power to wind up abandoned companies outlines how ASIC intends to exercise this new power, and how it will prioritise matters for winding up

‘When using this power, our first consideration will be if an order to wind up the company would facilitate employee access to GEERS’, Commissioner John Price said.

GEERS is a scheme funded by the Australian Government to assist employees of companies that have gone into liquidation and who are owed certain employee entitlements. However, companies are sometimes abandoned by their directors without being put into liquidation. This has previously resulted in employees of the company who are owed employee entitlements being unable to access GEERS.

Consistent with the new law, ASIC is proposing to apply a public interest test when deciding whether to wind up a company. This public interest test will consider factors like the cost of winding up, the amount of outstanding employee entitlements and how many employees are affected.

‘ASIC needs to consider the broader public interest when deciding which abandoned companies with outstanding employee entitlements will be wound up’, Mr Price said.

ASIC is proposing not to reinstate companies that have already been deregistered in order to wind them up later. Among other reasons, there are already court processes in place to facilitate the reinstatement of a company where that is needed.

ASIC intends to commence using this new power to wind up abandoned companies in the final quarter of 2012.

Comments on Consultation Paper 180 ASIC’s power to wind up abandoned companies are due by Friday 10 August, 2012.

Background

One of the measures of the Australian Government’s Protecting Workers’ Entitlements Package (announced July 2010) is to assist employees of abandoned companies to access the General Employee Entitlements and Redundancy Scheme when they are owed certain employee entitlements.

When the employer is a corporation, it must be in liquidation before GEERS can assist an employee.

Amendments to the Corporations Act have given ASIC the power to wind up an abandoned company in specific circumstances.

ASIC may appoint a registered liquidator over a company when exercising its power to wind up an abandoned company.

All about the Report As To Affairs in corporate insolvency

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

Jul 112012

The corporate regulator may not care much about it but liquidators do, and they want some changes made.

The Report as to Affairs (RATA) is a form which is prepared for the purpose of showing the financial position of a company at commencement of its entry into liquidation, controllership or administration.

Between November 2011 and March 2012, and with support from a scholarship administered by the Insolvency Practitioners Association of Australia (IPA), I carried out extensive research into the RATA, including a random survey of 105 official liquidators.

My research paper is now available from the IPA or from the Centre for Corporate Law and Securities Regulation.

Titled “An Appraisal of the Report as to Affairs”, the paper is a report on the written survey of official liquidators concerning the Report as to Affairs form and associated compliance issues. The report also examines the history and purpose of the Report as to Affairs, laws which impose duties to submit the form, and ideas for change.

The paper concludes with several recommendations and observations, including the following:

“This survey of liquidators has brought to light substantial criticisms and concerns about the RATA and a desire for change. It coincides with moves towards harmonisation of personal and corporate insolvency regulation, and with the start of the Personal Property Securities Act, which makes significant changes to priority rules for secured parties as well as introducing a new vocabulary. All this suggests that it’s time the RATA form was revisited and overhauled. The ASIC should make the RATA the subject of an inquiry through a Consultative Paper …. The ultimate aims of the consultation would be to produce a new or redesigned form, a Regulatory Guide to the form, and an information sheet for directors. The inquiry should consider, for example, what constitutes an acceptable standard for a RATA – i.e., when does a professed RATA qualify as a valid RATA – and how the receipt of a RATA that fails to meet that standard should be handled.”

Appended to the main research report is a supplement which reproduces verbatim all the ideas, suggestions and comments made by liquidators concerning what is wrong with the present RATA and how it could be improved.

Thanks to Professor Ian Ramsay, of Melbourne University, who is Director of the Centre for Corporate Law and Securities Regulation, the full research paper appears in SAI Global Corporate Law Bulletin No. 178. A copy of the paper (including the annexures) is available as one pdf file from http://cclsr.law.unimelb.edu.au/files/The_RATA_-_research_paper_-_Keenan_-_2012_-_IPA_TTS.pdf

A shortened version of the paper appears in the latest edition of the Australian Insolvency Journal , which is published by the IPA (see Volume 24 Number 2, pages 10 to 23). The link to that version is http://www.ipaa.com.au/default.asp?menuid=319&artid=1157

I am indebted to Michael Murray, Legal Director of the IPA, who vetted the research paper and edited the version that appears in the Australian Insolvency Journal. It was as a result of his enthusiasm and status in insolvency law circles that Professor Ian Ramsay took an interest in the paper and had it published by the Centre for Corporate Law and Securities Regulation. Michael has also forwarded the paper to the ASIC, ITSA and relevant government departments.

Location of ASIC website for publication of insolvency notices

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

Jul 042012

The new ASIC website to be used by liquidators and other insolvency practitioners, and which can be searched by the public free of charge, is located at https://insolvencynotices.asic.gov.au/

The name of the site is a little misleading, because not all the notices are about insolvent companies. Notices to do with solvent companies who have entered a members’ voluntary liquidation are also shown. Accordingly, caution needs to be shown when browsing or searching. For example, regardless of whether a company is undergoing a solvent liquidation or an insolvent liquidation, the Browse/Search Notices page of the website shows the Status of such companies as simply “In liquidation”. Even when a notice is Viewed, there is no obvious sign as to the type of liquidation the company is undergoing.

When browsing or searching the results can be filtered by Appointment Type. The types are Court Liquidation, Creditors’ Voluntary Liquidation, Deed of Company Arrangement, Deregistration, Members’ Voluntary Liquidation, Scheme of Arrangement, Voluntary Administration and Winding Up Application.

Reasons why court replaced special purpose liquidator of One.Tel

ASIC, Case Reports, Corporate Insolvency, court decisions, Insolvency Law, Insolvency Laws, law reports, Regulation Comments Off

Jun 292012

A NSW Supreme Court judge has replaced the special purpose liquidator of the collapsed telecommunications company One.Tel.

Registered Liquidator, Paul Weston, who has served as special purpose liquidator since December 2003, was removed from his role after judge Patricia Bergin found creditors, led by Optus, had lost confidence in Mr Weston’s capacity “to bring a dispassionate mind to bear in exercising his powers in the liquidation”. Mr Weston contended that the creditors’ loss of confidence in him was not enough to justify his removal. He contended that there must be some serious misconduct, conflict of interest or lack of independence.

Justice Bergin appointed another registered liquidator, Stephen Parbery, in Mr Weston’s place.

The application for removal of was Mr Weston was brought under section 503 of the Corporations Act 2001: “The Court may, on cause shown, remove a liquidator and appoint another liquidator.”

Issues considered in the case included:

The special liquidator’s relationship with the creditors’ Committee of Inspection.
The liquidator’s remuneration and expenses.

THE JUDGMENT ALSO CONTAINS A “BRIEF” HISTORY OF THE LONG BATTLE THAT HAS BEEN GOING ON BETWEEN THE PACKER/MURDOCH/RICH INTERESTS, THE SPECIAL LIQUIDATOR AND THE COMMITTEE OF INSPECTION.

Extracts from the court judgment, and a link to the full judgement of 19 June 2012, are given below.

“In a court appointed liquidation (or a liquidation by the Court), a liquidator, as an officer of the Court, is a representative of the Court, entrusted with the reputation of the Court. It is expected that the liquidator will discharge the relevant functions and powers with impartiality and proper dispatch: Commissioner for Corporate Affairs v Peter William Harvey [1980] VR 669. Albeit that it may be inappropriate to refer to the defendant as “an officer of the Court” in this particular liquidation, it is expected that he would discharge his relevant functions and powers with impartiality and proper dispatch.” (para 151)

“It is expected that the defendant will maintain an “even and impartial hand” in his dealings with those interested in the liquidation … It is expected that he will be independent in the sense that he will deal impartially and objectively in the interests of the creditors …”. (para 152)

“In City & Suburban Pty Ltd v Smith, Merkel J observed at 336 (excluding citations): Section 503 of the Law provides that the court may “on cause shown” remove a liquidator and appoint another liquidator. It has long been accepted that the section and its predecessors were not confined to situations where it is established that there is personal unfitness, impropriety or breach of duty on the part of the liquidator. Cause is shown for removal whenever the court is satisfied that it is for the better conduct of the liquidation or, put another way, it is for the general advantage of those interested in the assets of the company that a liquidator be removed.” (para 160)

“In the present case the acrimony which has arisen between the liquidator and the committee of inspection has not come about as a result of any unreasonable conduct on the part of the committee. Rather, it has come about because the liquidator has carried out his tasks in respect of the liquidation with some insensitivity to the angst of the members of the committee of inspection.” (para 162)

“In AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996, Neuberger J (as his Lordship then was) considered the power under s 180(2) of the Insolvency Act 1986 (UK) to remove a liquidator “on cause shown” and said at 1001-1002:

On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications under s 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.” (para 164)

“Conclusion

I am satisfied that it is in the best interests of this liquidation for the defendant to be removed as special purpose liquidator and for Mr Parbery to be appointed in his place. The defendant is to meet with Mr Parbery and provide him with any advice, documents or other assistance sought by Mr Parbery so that he may be in a position to pursue the remaining purposes of the special purpose liquidation in the most cost efficient manner.
I am conscious that ASIC’s review of the defendant’s remuneration and fees has effectively been put on hold pending the outcome of these proceedings. I am satisfied that it is appropriate to defer any ruling in relation to conducting an inquiry under s 536 of the Act until ASIC’s review has concluded. It may be that, having regard to the defendant’s removal and/or the outcome of ASIC’s review, the plaintiffs may no longer wish to press for such an inquiry.”

FULL JUDGMENT:

SingTel Optus Pty Limited & Ors v Weston [2012] NSWSC 674 (19 June 2012)

Click here to read and/or copy judgment.

New regime for publication of insolvency notices

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

Jun 262012

From 1 July 2012 most insolvency notices issued by Australian registered liquidators will be published on a new website set up by the Australian Securities and Investments Commission (ASIC).

This largely replaces the existing age-old system under which notices were published in classified advertisements in newspapers and in the Federal Government’s business gazette.

Just ahead of the start of the new system and the launch of the ASIC’s special website, the ASIC has sent three documents to liquidators explaining the change:

“Getting started on ASIC’s new website for insolvency and other matters.” To read and/or copy CLICK HERE.
“Updated fact sheet for Registered Liquidators – 26/6/2012: Lodging notices for publication on the ASIC’s website.” To read and/or copy CLICK HERE.
“Fact sheet – Proposed changes to publish notices electronically.” To read and/or copy CLICK HERE.

The types of notices that must be sent to the new ASIC website are :

1. notices of winding up applications
2. notices relating to appointments
3. notices of meetings of creditors
4. notices of intention to disclaim property
5. notices calling for proofs of debt and intention to declare dividends
6. company deregistration.

Anyone will be able to search the new website free of charge for a particular notice. The enquiry/search parameters will be:

* company name.
* trading name.
* appointment type (eg court liquidation, voluntary administration etc)
* notice purpose (eg meeting of creditors, appointment, declaration of dividend, disclaimer etc).
* publication date.

The ASIC expects to introduce more advanced search functionality after 1 July 2012.

Parliament debates the proposed new liquidation and “phoenixing” laws

ASIC, Insolvency Laws, Insolvency practices, Regulation Comments Off

Mar 092012

Although it started out with a dream run, the Bill to allow ASIC to order the winding up of companies has been the subject of considerable debate in the House of Representatives.

The government had hoped to get the Corporations Amendment (Phoenixing and Other Measures) Bill 2012 through quickly. It was introduced in the House on 15 February 2012. A day later it was referred to the House Standing Committee on Economics. The Committee met via a telephone conference – which lasted less than a minute – on 21 February 2012 and resolved to discharge the reference. The Committee issued a statement of explanation on 27 February 2012, saying:

“….the committee considers that the Bill comprises uncontroversial measures that will assist in curbing the amoral practice of phoenixing.”

The Committee quoted from a briefing issued by the law firm Minter Ellison, which expressed the view that the Bill “contains some reasonable measures for facilitating the protection of workers’ entitlements. These measures are unlikely to affect the position of the majority of directors.”

But back in the House of Reps heated debate ensued. A total of seventeen speeches for and against the Bill were made by MPs. Naturally MPs took the view of their party, but nevertheless the debate did explore many of the issues involved. Those who spoke were:

Joe Hockey (LP) (Opposition); Julie Owens (ALP) (Government); Scott Buchholz (LP); Bernie Ripoll (ALP); Paul Fletcher (LP); Gai Brodtmann (ALP); Deb O’Neill (ALP); Steven Ciobo (LP); Sharon Grierson (ALP); Steve Irons (LP); Kelvin Thompson (ALP); Bruce Billson (LP); Mike Symon (ALP); Bert Van Manen (LP); Tony Zappia (ALP); Stuart Robert (LP); David Bradbury (ALP).

All the speeches may be seen at the following link:

http://parlinfo.aph.gov.au/parlInfo/search/summary/summary.w3p;query=BillId_Phrase%3A%22r4753%22%20Dataset%3Ahansardr,hansards%20Title%3A%22second%20reading%22;rec=0

The main protagonists were David Bradbury (for) and Joe Hockey (against). The speech on 1 March 2012 by David Bradbury will be found by following this link:

http://parlinfo.aph.gov.au/parlInfo/genpdf/chamber/hansardr/bda27a36-a8b5-4e6a-a64f-6084b2c53511/0059/hansard_frag.pdf;fileType=application%2Fpdf

The speech on 1 March 2012 by Joe Hockey will be found by following this link:

http://parlinfo.aph.gov.au/parlInfo/genpdf/chamber/hansardr/89274c8f-2468-4c73-b7cf-69715d12aa15/0167/hansard_frag.pdf;fileType=application%2Fpdf

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None of the debate touches on the technical issues that I pondered in my post entitled Questions concerning new power for winding up by ASIC.

Questions concerning new power for winding up by ASIC

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

Feb 272012

New laws have been drafted to give the Australian Securities and Investments Commission (ASIC) power to wind up companies. But what mode of winding up will these liquidations be? Creditors’ voluntary liquidation, or failed members’ voluntary liquidation? And will there be any requirement that directors prepare a statement of assets and liabilities?

The focus in this post is on a proposed new section of the Corporations Act 2001, namely section 489EB — “Deemed resolution that company be wound up voluntarily”.

The section seems, at the beginning, to be proposing that the winding up proceed as a creditors’ voluntary winding up. Subsections 489EB(a) and (b) state:

“(a) the company is taken to have passed a special resolution under section 491 that the company be wound up voluntarily; and

(b) the company is taken to have passed the special resolution:

(i) at the time when ASIC made the order under section 489EA; and

(ii) without a declaration having been made and lodged under section 494; ”

In other words, it is deemed to be a creditors’ voluntary liquidation because the deemed resolution to wind up the company is deemed to have not been accompanied by a declaration of solvency under section 494.

But then in subsection 489EB(c) reference is made to section 496: a section that only applies where a declaration of solvency has been made under section 494.

Section 496 – Duty of liquidator where company turns out to be insolvent – applies in a members’ voluntary liquidation. But how could section 496 have any application?

To me the reference to section 496 seems to be in direct conflict with (proposed) subsections 489EB(a) and (b).

If section 496 does somehow have some application as (proposed) section 489EB(c) seems to suggest, then it would appear that the winding up by the ASIC is to be a members’ voluntary winding up where a company turns out to be insolvent.

If section 496 (for members’ voluntary liquidations) does apply, then section 496(2) – notice to creditors, section 496(4) – liquidator to lay before meeting a statement of assets and liabilities, and section 496(5) – replacement of liquidator, and the other subsections in 496, would be brought into play, wouldn’t they? Is this intentional or are these oversights or unintended consequences?

If section 496 is to have some application in a winding up by the ASIC, does that mean that the liquidator may choose a path other than the winding up of the company? I ask this because section 496(1) gives the liquidator the option to apply under section 459P for the company to be wound up in insolvency, or appoint an administrator of the company under section 436B, or convene a meeting of the company’s creditors? Is this intentional or are these oversights or unintended consequences?

If the winding up is a creditors’ voluntary winding up, then it appears that — unlike in an ordinary creditor’ voluntary winding up — there will be no requirement of directors to submit a Report as to Affairs (RATA). This is so because the section that does require a RATA from the directors — section 497(5) — seems, along with all other parts of section 497, to have been made inapplicable by the following words of (proposed) subsection 489EB(d), “section 497 is taken to have been complied with in relation to the winding up”.

The same would be true of section 497(2)(b)(i), which requires the liquidator to send creditors a summary of affairs (Form 509). It too would be “taken to have been complied with in relation to the winding up”.

Which suggests that when a company is wound up by the ASIC there will be no requirement on the part of directors to prepare and submit a statement about the company’s business, property, affairs and financial circumstances.

This seems strange given that in the other two types of insolvent winding up – court-ordered winding up and creditors’ voluntary winding up– such a statement is required. Is this an oversight or an unintended consequence?

Also, the removal of a duty to do a RATA would be extraordinary when liquidators say – as made clear in my recent IPA sponsored survey of official liquidators – that a RATA from directors is a very valuable tool for the efficient conduct of a winding up.

This is all that the official Explanatory Memorandum says about proposed section 489EB:

“If ASIC exercises its powers to wind up a company under the new law, the company is deemed to have passed a special resolution under existing section 491 of the Corporations Act that the company be wound up voluntarily. The resolution is deemed to have been made on the day that ASIC uses its administrative power to order the winding up and does not require a declaration of solvency to have been made under existing section 494 of the Corporations Act. A meeting of creditors under existing subsection 497(1) of the Corporations Act is not required where the winding up has been ordered by ASIC. “

The peculiar phrase “The resolution … does not require a declaration of solvency to have been made under existing section 494” suggest to me a lack of understanding of the law.

And the reference to subsection 497(1) is odd given that the proposed law refers to section 497 as a whole, not just subsection 497(1). Has there been a mistake in drafting subsection 489EB(d)? Should it refer more narrowly to subsection 497(1) rather than to the whole section?

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So what, if anything, do these limited figures say?

“1. Disclose pre appointment dealings/advice

2. Disclose relationships

3. Provide a reason why a relationship does not result in a conflict

4. Disclose when appointed to a group of companies

5. Disclose external administrations with common directors

6. Disclose indemnities and other up-front payments

7. Review and sign the DIRRI

ASIC’s message is taking a long time to get across to some liquidators …

How should the public interest test be applied?

“Conclusion

“Getting started on ASIC’s new website for insolvency and other matters.” To read and/or copy CLICK HERE.

“Updated fact sheet for Registered Liquidators – 26/6/2012: Lodging notices for publication on the ASIC’s website.” To read and/or copy CLICK HERE.

“Fact sheet – Proposed changes to publish notices electronically.” To read and/or copy CLICK HERE.