ASIC – Page 6 – ░░░ INSOLVENCY INTERFACE

New Bill proposes changes to liquidation and deregistration of companies

ASIC, Corporate Insolvency, Insolvency Law, Regulation Comments Off

Feb 202012

A Bill just released by the Australian Government’s Treasury department (17/2) contains amendments to the winding up of companies, a new duty for external administrators of companies that are “paid parental leave employers”, changes to requirements regarding the publication of notices, and changes to laws governing deregistration of companies.

The Bill is titled the Corporations Amendment (Phoenixing and Other Measures) Bill 2012 and is described, officially, as follows:

“The Bill amends the Corporations Act 2001 (Corporations Act) to: introduce an administrative process for compulsory external administration to facilitate payment of employee entitlements and address phoenix company activity; include a regulation making power to prescribe methods of publication of notices relating to events before, during and after the external administration of a company; and to make other miscellaneous, minor and technical amendments.”

There is plenty in the Bill that Australian insolvency practitioners will need to be aware of.

The first part of the Bill is titled “Winding up by the ASIC”. It includes the following new and amended sections:

Section 489EA – ASIC may order the winding up of a company
Section 489EB – Deemed resolution that company be wound up voluntarily
Section 489EC – Appointment of liquidator
Section 601AA (6) & (7)
Section 601AB (6) & (7)
Section 1317C (ca).

Part two is titled “Publication requirements” and has the following new and amended sections:

412(1)(b)
412(4)
436E(3)(b)
439A(3)(b)
446A(5)(b)
449C(5)(b)
450A(1)(b)
465A(c)
491(2)(b)
497(2)(d)
498(3)
509(2)
568A(2)
589(3)(a)
601AA(4)
601AB(1)
601AB(3)
601AB(4)
601AB(5)
1351(4)(a)(i)
1367A

Part 3 is titled “Miscellaneous amendments” and contains the following new and amended sections:

Section 9 – (New) Definition of “paid parental leave employer”;
Section 600AA – (New) Duty of receiver, administrator or liquidator—parental leave pay;
Section 601AH(3)

There are also extensive transitional provisions.

To see the Bill and the Explanatory Memorandum click this link to the Australian Government Com Law website.

Laws governing insolvency practitioners to change

ASIC, Corporate Insolvency, Insolvency Law, Regulation Comments Off

Dec 152011

On 14 December 2011 a new paper proposing changes to laws governing Australia’s insolvency practitioners was released by the departments of the Treasurer and the Attorney-General. The paper’s introduction describes the intention and aims of the changes:

“The reforms are intended to improve value for money for recipients of insolvency services and to address cases of misconduct in the insolvency profession …. The reforms are aimed at ensuring the framework for insolvency practitioners promotes a high level of professionalism and competence by practitioners; promotes market competition on price and quality; provides for increased efficiency in insolvency administration; and enhances communication and transparency between stakeholders.”

The paper provides the following overview of the proposals:

Reforms to the standards of entry into the insolvency profession are proposed to improve the balance between the need to protect consumers of insolvency services with the need for a competitive market that provides the best opportunity for maximising returns to creditors.
The qualification and experience requirements for insolvency practitioners would be aligned across the personal and corporate regimes. The requirements would include a prescribed level of formal studies in insolvency administration, adequate insurance cover, a fit and proper person test, and the requirement that the person has not been convicted of an offence involving fraud and dishonesty in the past 10 years.
The framework for standards of entry would also be adjusted to allow conditions to be placed upon insolvency practitioners. This would include conditions on the registration of a particular practitioner and industry‑wide conditions. Standard conditions would be able to be imposed in relation to continuing education, quality assurance or review programs, insurance, complaint handling, residency, and inactive practice.
The registration of practitioners would be aligned in a manner similar to the current personal insolvency process. Applications for registration would be determined by Committees composed of a regulator representative, an industry representative and a third person selected from a panel appointed by the Minister. Practitioners would be required to renew their registration every three years.
Reforms to remuneration arrangements are also proposed, including mandated caps on prospective fee approvals; restrictions on payments of disbursements to related entities; amendments to minimum fee entitlements; and the introduction of mechanisms for independent investigations into costs for corporate insolvency. Given recent substantial changes to remuneration arrangements in personal insolvency, there would be limited amendments to the rules regarding practitioner remuneration as part of this package.
Significant communication and monitoring reforms are proposed to better empower creditors to monitor administrations and obtain information from practitioners. The laws governing committees of inspection would be aligned and consolidated, with committees of inspection being given expanded functions and rights. Creditors would have improved abilities to make reasonable requests for information; to set reporting requirements and to require meetings to be convened. Changes would also be made to allow resolutions to be passed without meetings in order to streamline the operation of administrations and reduce costs.
Funds handling and record keeping rules would be aligned and made more efficient. Rules regarding the audit of accounts would be reformed and the ability of the regulators to appoint a person to audit the financial statements of an insolvency administration would be aligned. Mechanisms to enable third party reviews by insolvency practitioners of corporate administrations would also be introduced.
Insurance rules would be revised and penalties for not taking out appropriate cover significantly increased. A practitioner would be required to take all reasonable steps to maintain adequate and appropriate professional indemnity insurance and adequate and appropriate fidelity insurance, with an increase in the offence from 5 penalty units ($550) to up to 1000 penalty units ($110,000) for a breach of this duty.
There would be significant reforms to discipline and deregistration mechanisms. The regulators would be empowered to take direct action in relation to certain breaches. Liquidators would no longer be subject to the Companies Auditors and Liquidators Disciplinary Board’s (CALDB’s) jurisdiction. Personal and corporate insolvency practitioners would be subject to Committees modelled on the current personal insolvency disciplinary mechanisms, with an expansion in Committees’ powers. Recognised professional bodies would be able to make referrals to the Committee in the same way as regulators.
Reforms are also proposed to provide creditors with powers regarding the removal and replacement of insolvency practitioners. Creditors would be given the power to remove practitioners by resolution, subject to protections against actions that amount to an improper use of the power. Amendments would provide for the efficient transfer of records from outgoing to incoming practitioners.
Regulators’ powers would be amended in relation to information gathering, information provision to stakeholders, and their ability to require meetings to be called. The ability of the regulators to gather information would be clarified and enhanced. The reforms would facilitate cooperative arrangements between the personal insolvency regulator and corporate insolvency regulator. Mechanisms would be introduced to ensure transparency in relation to regulator resourcing, the levels of complaints and referrals, regulator activity and regulatory outcomes.
Specific reforms are also proposed to ensure that the insolvency framework works for small businesses. It is proposed that reforms would be introduced to ensure compliance by directors with filing and record provision obligations; allow practitioners to assign causes of action; facilitate greater co‑operation between the Australian Securities and Investments Commission (ASIC) and the Insolvency and Trustee Service Australia (ITSA) on connected insolvencies; and improve the utilisation of the existing Assetless Administration Fund (AA Fund).
The Government’s 2010 Corporate Insolvency Reform Package has also been revised to ensure it is consistent and complements the proposed reforms set out in the Proposals Paper.

The paper – titled ‘A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia’ – may be viewed and downloaded from the following links:

click here for an Adobe PDF copy
click here for a MS Word copy

Interested parties have been invited to comment on the paper by 3 February 2012. Written submissions are to be sent to:

The Manager
Governance and Insolvency Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
Email: insolvency@treasury.gov.au

Phone enquiries may be made by calling Alix Gallo on (02) 6263 2870.

Government says no to single regulator of insolvency laws

ASIC, Official Inquiries, Personal Bankruptcy, Productivity Commission 2010, Regulation Comments Off

Oct 142011

The Government has examined the case for making one regulator responsible for both personal insolvency laws and corporate insolvency laws and decided to retain the status quo.

Hence, it will be business as usual for the Insolvency Trustee Service Australia (personal insolvency) and the Australian Securities and Investments Commission (corporate insolvency).

The Australian Productivity Commission (APC) recommended in its report on the Annual Review of Regulatory Burdens on Business: Business and Consumer Services (the Report) that the Government consider the option of having a single regulator of what are, in many respects, similar laws.

In response to this recommendation (part of number 4.3), the Government says:

“The Government is not proposing to establish a new single regulator of personal and corporate insolvency regimes. There would be major upfront costs of merging the regulators, which may not necessarily be offset by long-term savings. The extent to which simply unifying the regulators would result in an improved regulatory environment is not clear. Separate policy considerations apply to many aspects of personal and corporate insolvencies and there is not currently sufficient evidence that a one-size-fits-all approach for all issues would necessarily optimise outcomes for stakeholders. The removal of the responsibility for regulation of corporate insolvency from the corporate regulator would result in corporate insolvency losing its important connection with other parts of ASIC, for example in relation to major corporate administrations, regulation of insolvent trading and of director and corporate misconduct that may have occurred in the lead up to, or during, an insolvency event.”

The Government’s formal response to the Report was released by the APC on 13 October 2011 and may be found HERE.

Ariff case prompts calls for Royal Commission into white collar crime

ASIC, Australian Senate 2009-2010, Insolvency practices, Offences, Official Inquiries, Prosecution of Liquidators, Regulation, White collar crime Comments Off

Sep 292011

The Senator who instigated the Senate Economics References committee inquiry into the role of administrators and liquidators has called for a Royal Commission into white collar crime.

Senator John Williams, the Nationals Senator for New South Wales, has congratulated the Armidale Dumaresq Council for supporting his call. Senator Williams said yesterday (28/9/2011) that Armidale Dumaresq Council has first-hand knowledge of the damage that can be done to community assets through unscrupulous practices of some in the insolvency industry. The YCW Leagues Club in Armidale was the victim of the administration of Newcastle liquidator Stuart Ariff who this week was found guilty on 19 criminal charges relating to a separate matter.

Senator Williams said the Council’s submission to the 2009 Senate inquiry was damning of the Australian Securities and Investments Commission (ASIC) for a lack of action. Since then, Armidale Dumaresq Council Deputy Mayor Jim Maher has been keen to see reform in the insolvency industry, and successfully moved two motions.

On 21 September 2011 Senator Williams called for a Royal Commission into white collar crime in Australia, and handed a file of statutory declarations alleging wrongdoing to the Australian Federal Police and the NSW Fraud Squad.

“Unfortunately there is no confidence in the industry regulators like ASIC anymore. Mr. Ariff is a case in point. I hope the Federal government acts on white collar crime because it is destroying peoples’ lives. To do nothing would be a green light for the illegal activities to continue”, Senator Williams said.

SOURCE: MEDIA RELEASE BY SENATOR JOHN WILLIAMS, 28 September 2011. Click here for Senator William’s Website.

ASIC penalises two liquidators over conflicts of interest

ASIC, Insolvency Laws, Insolvency practices, Prosecution of Liquidators, Regulation, Standards Comments Off

Aug 262011

Official liquidators, John Frederick Lord, a former partner of accounting firm PKF Chartered Accountants and Business Advisers (PKF), and Atle Crowe-Maxwell, a current partner of PKF, have been penalised for not disclosing to the Supreme Court of New South Wales that they had a commercial relationship with the petitioning creditor in hundreds of liquidations.

The Australian Securities and Investments Commission (ASIC) has cancelled Mr Lord’s registration as an official liquidator. Mr Crowe-Maxwell has been required to enter into an undertaking with ASIC.

The following is the media release from ASIC dated 26 August 2011:

“ASIC has cancelled the registration of one NSW-based liquidator and required a second to enter into an undertaking, under section 1291 of the Corporations Act 2001 (the Act), after the liquidators consistently failed to disclose conflicts of interest in more than 100 administrations to which they were appointed.

John Frederick Lord, 59, a former partner of accounting firm PKF Chartered Accountants and Business Advisers (PKF), had his official liquidator registration cancelled because, from 8 April 2004 to 6 March 2009, he did not disclose to the Supreme Court of New South Wales that he had a commercial relationship with the petitioning creditor of 225 companies in respect of which he consented to act as official liquidator.

Atle Crowe-Maxwell, a current partner of PKF, also failed to disclose the same information to the Court for 105 administrations in which he consented to act as official liquidator, over the period from 19 July 2007 to 6 March 2009. As a result, ASIC has required Mr Crowe-Maxwell to enter into an undertaking with ASIC.

Following its investigations, ASIC formed the view that Mr Lord and Mr Crowe-Maxwell’s acceptance and maintenance of the role of official liquidator in these circumstances while at the same time both being indirect shareholders – and in the case of Mr Lord, being a director as well – of debt collector, Premium Collections Pty Limited (Premium Collections), was a breach of their duties as fiduciaries to reveal potential conflicts of interest.

Mr Lord’s de-registration as an official liquidator comes into effect immediately.

ASIC Commissioner Michael Dwyer said ASIC considered it in the public interest to take action against Mr Lord and Mr Crowe-Maxwell.

‘ASIC’s decisions highlight the need for practitioners to be aware of their overriding obligation to both be and be seen to be independent,’ Mr Dwyer said.

‘The independence of liquidators underpins, and is the foundation of, an effective and efficient system of corporate insolvency.’

Mr Lord and Mr Crowe-Maxwell have the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

BACKGROUND

Mr Lord was a director and indirect shareholder of Premium Collections, a company that went into voluntary administration on 22 April 2009. A liquidator was appointed to Premium Collections on 27 May 2009. Mr Crowe-Maxwell was an indirect shareholder of the same company.

Premium Collections provided debt collections services for workers compensation insurers who were nominees of WorkCover. Two of those insurers were the largest clients of Premium Collections.

Premium Collections issued demands on behalf of the insurers to company policyholders whose workers compensation insurance premiums were unpaid. If the premiums continued to remain unpaid, Premium Collections recommended that their client, the relevant workers compensation insurer, make an application to wind up the debtor company.

From February 2008, Premium Advisory Pty Limited and PC Legal Pty Limited provided legal services to the insurers in respect of the winding up proceedings. Mr Lord was an indirect shareholder of both Premium Advisory and PC Legal. Mr Crowe-Maxwell was an indirect shareholder of Premium Advisory.

For the purpose of the winding up applications, Mr Lord and Mr Crowe-Maxwell consented to act as official liquidators to the debtor company. Each consent to act provided to the Court did not refer to the existing commercial relationship with the insurer that was the petitioning creditor.

The liquidator of Premium Collections lodged a supplementary report with ASIC on 19 April 2010 under section 533(2) of the Act. ASIC undertook its own investigations which resulted in the decisions to cancel Mr Lord’s registration and require an undertaking from Mr Crowe-Maxwell.”

Although ASIC has cancelled Mr Lord’s registration as an “official liquidator” it appears his registration as a “registered liquidator” will remain intact for a little while longer. ASIC has two registers for liquidators – one for “official liquidators” and the other for “registered liquidators” . A search on 28 August 2011 reveals that Mr Lord is not on the former but is still on the latter.

However, this distinction is probably of no practical consequence in this case, because Mr Lord decided some time ago to resign from all his appointments. On 15 August 2011 he told the NSW Supreme Court that he is to resign as a partner of the accounting firm PKF on 31 October 2011 and intends to cease practising as an insolvency practitioner”. Also, he stated that ” He ceased accepting appointments as an external administrator on 30 April 2011 (and) intends to resign as liquidator of all companies in which he holds appointments.” See the judgment in the matter of the Resignation of John Frederick Lord and the companies listed in the Schedules of the Originating Process [2011] NSWSC 917.

[A “registered liquidator” can accept appointments in voluntary liquidations (such as creditors’ voluntary liquidations under Section 497 of the Corporations Act 2001), and appointments as a voluntary company administrator or a deed of company arrangement administrator. But only an “official liquidator” can act in compulsory liquidations/court liquidations.]

Published submissions on regulation of insolvency practitioners

ASIC, Insolvency practices, Official Inquiries, Regulation, Treasury Options paper 2011 Comments Off

Aug 182011

Public responses to the Australian Treasury’s options paper titled “A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia” have been published on the Treasury website. Click HERE to see them. There were 22 public submissions.

My own submission focused on the following 3 issues raised by the government:

QUESTION re STANDARDS FOR ENTRY INTO THE INSOLVENCY PROFESSION. Are there any concerns with changing the academic requirements to remove the greater emphasis placed upon accounting skills over legal skills, while retaining a minimum level of study in each?

MY SUBMISSION > Yes. 1. The current emphasis in the academic requirements of liquidators is not on “accounting skills” (as the Options Paper states) but on accounting studies. Such studies teach important aspects of business activity, including budgeting, economics, business management, break-even analysis, financial ratios, business finance, costing methods, stock control, valuations, auditing, and taxes. 2. A liquidator or other external administrator is likely to require a solid understanding in these aspects of business, particularly in trade-on situations. 3. The present system, under which lawyers provide legal advice to liquidators as required, works well. It brings fresh, independent, expert minds to bear when needed, which enhances the integrity of external administration regimes. Would a liquidator whose professional qualification is that of a lawyer seek advice from another lawyer and give it the same status?

REMUNERATION FRAMEWORK FOR INSOLVENCY PRACTITIONERS. INTEGRITY OF THE FEE SETTING PROCESS.

MY SUBMISSION > When the Options Paper refers to “clients” (of the insolvency practitioner) (para 162) it says that this term is used to refer to “creditors and/or members, depending upon the nature of the relevant insolvency administration”. This seems to me to be a huge oversimplification which hides some important elements present in many insolvency administrations.

In a voluntary corporate insolvency appointment the liquidator or administrator appointed at the first instance is engaged by the directors. So, especially in the case of small enterprises, the liquidator or administrator will tend to think of the directors or, perhaps the directors’ accountant or lawyer, as his/her client. The insolvency practitioner is approached by the directors (directly or indirectly) to assist with a problem that they have.

In such a case the liquidator’s fee is likely to be set by the directors or their advisers. For example, the company’s lawyer or public accountant will contact two or more insolvency practitioners and ask them for advice on what to do and a “quote” on a fee – essentially a “fixed” fee – to carry out the work.

The competition that keeps down insolvency administration fees occurs at this point. It is, in fact, a tender process. The winner, once appointed, then has the task of convincing those who have the power to approve or cut the fee (the creditors) that the fee is reasonable. In this scenario, that tends to be the nature of the insolvency practitioners relationship with creditors.

Often overlooked in discussions about the fee setting process in insolvency administration is the downside of competition. Although a tender process keeps fees down, what is the cost to the integrity of our insolvency laws? An analogy of sorts exists in the building industry, where fierce competition has encouraged quotes that are only achievable by the use of fake contracting agreements (to reduce employment costs), the fraudulent retention of tax monies, and the use of phoenix companies. In the insolvency industry the push for cheap fees is likely to encourage tasks being cut, and the easiest tasks to cut are those to do with the investigation and reporting of offences and misconduct.

Inquiries and discussions about fees (including the discussion in the Options Paper) usually overlook the fact that our laws and our regulators charge and entrust liquidators with being part of the white-collar police force. The amount of work liquidators are expected to carry out in this area – in investigations, collecting evidence, reporting and prosecution support – is considerable. If liquidators do not meet this obligation, the insolvency laws are not enforced. Through regulatory guides and the like the ASIC has almost “privatized” the enforcement of insolvency laws. And, where the liquidator does this work, creditors often pay for it. “Justice” has become another important client for the liquidator to consider. Lower liquidation fees could be achieved, and justice might be better served, if a much greater part of this function was handed back to the ASIC or given to another government-funded police force.

QUESTION re FUNDS HANDLING AND RECORD KEEPING. Are there other record keeping, accounting, audits and funds handling rules that should be mandated for personal and corporate insolvency, in addition to those that currently exist?

MY SUBMISSION > Yes. I believe that the current law which allows liquidators in a creditors voluntary liquidation to destroy their own records of a liquidation soon after the winding up is finalized ought to be repealed. Sec 542(1) contains the phrase “all books of the company and of the liquidator”. The reference to the books of the liquidator should be removed. For more comments see http://insolvencyresources.com.au/blog/2010/05/24/retaining-books-and-records-post-liquidation/

Free Excel template: corporate insolvency Report as to Affairs (Form 507)

ASIC, Forms, Insolvency practices, Regulation, Templates Comments Off

Aug 162011

I have created – in Microsoft Excel format – the current Australian statutory companies Report as to Affairs form. It is free to download and/or view from my website. Click HERE for the forms page and look for Form 507, MS Excel version.

Directors need “a questioning mind” concerning financial statements

ASIC, Offences, Regulation, Standards, White collar crime Comments Off

Jun 292011

The Federal Court judge who decided in favour of the Australian Security and Investments Commission (ASIC) in its case against 8 directors and officers of Centro Properties Limited, Centro Property Trust and Centro Retail Trust regarding the 2006/07 consolidated financial statements, has provided an important summary of the law about a director’s duty in relation to the content of financial statements.

The following are extracts from the judgement of Middleton, J on 27 June 2011 in Australian Securities and Investments Commission v Healey [2011] FCA 717:

“The central question in the proceeding has been whether directors of substantial publicly listed entities are required to apply their own minds to, and carry out a careful review of, the proposed financial statements and the proposed directors’ report, to determine that the information they contain is consistent with the director’s knowledge of the company’s affairs, and that they do not omit material matters known to them or material matters that should be known to them.

A director is an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of a company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.

This proceeding involves taking responsibility for documents effectively signed-off by, approved, or adopted by the directors. What is required is that such documents, before they are adopted by the directors, be read, understood and focussed upon by each director with the knowledge each director has or should have by virtue of his or her position as a director. I do not consider this requirement overburdens a director, or as argued before me, would cause the boardrooms of Australia to empty overnight. Directors are generally well remunerated and hold positions of prestige, and the office of director will continue to attract competent, diligence and intelligent people.

The case law indicates that there is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor. There is a responsibility to read, understand and focus upon the contents of those reports which the law imposes a responsibility upon each director to approve or adopt.

All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by s 295(4). Such a reading and understanding would require the director to consider whether the financial statements were consistent with his or her own knowledge of the company’s financial position. This accumulated knowledge arises from a number of responsibilities a director has in carrying out the role and function of a director. These include the following: a director should acquire at least a rudimentary understanding of the business of the corporation and become familiar with the fundamentals of the business in which the corporation is engaged; a director should keep informed about the activities of the corporation; whilst not required to have a detailed awareness of day-to-day activities, a director should monitor the corporate affairs and policies; a director should maintain familiarity with the financial status of the corporation by a regular review and understanding of financial statements; a director, whilst not an auditor, should still have a questioning mind.

A board should be established which enjoys the varied wisdom, experience and expertise of persons drawn from different commercial backgrounds. Even so, a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience or expertise. A director is not relieved of the duty to pay attention to the company’s affairs which might reasonably be expected to attract inquiry, even outside the area of the director’s expertise.

The words of Pollock J in the case of Francis v United Jersey Bank (1981) 432 A 2d 814, quoted with approval by Clarke and Sheller JJA in Daniels v Anderson (1995) 37 NSWLR 438, make it clear that more than a mere ‘going through the paces’ is required for directors. As Pollock J noted, a director is not an ornament, but an essential component of corporate governance.

Nothing I decide in this case should indicate that directors are required to have infinite knowledge or ability. Directors are entitled to delegate to others the preparation of books and accounts and the carrying on of the day-to-day affairs of the company. What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her. Such a responsibility arises in this proceeding in adopting and approving the financial statements. Because of their nature and importance, the directors must understand and focus upon the content of financial statements, and if necessary, make further enquiries if matters revealed in these financial statements call for such enquiries.

No less is required by the objective duty of skill, competence and diligence in the understanding of the financial statements that are to be disclosed to the public as adopted and approved by the directors.

No one suggests that a director should not personally read and consider the financial statements before that director approves or adopts such financial statements. A reading of the financial statements by the directors is not merely undertaken for the purposes of correcting typographical or grammatical errors or even immaterial errors of arithmetic. The reading of financial statements by a director is for a higher and more important purpose: to ensure, as far as possible and reasonable, that the information included therein is accurate. The scrutiny by the directors of the financial statements involves understanding their content. The director should then bring the information known or available to him or her in the normal discharge of the director’s responsibilities to the task of focussing upon the financial statements. These are the minimal steps a person in the position of any director would and should take before participating in the approval or adoption of the financial statements and their own directors’ reports.

The omissions in the financial statements the subject of this proceeding were matters that could have been seen as apparent without difficulty upon a focussing by each director, and upon a careful and diligent consideration of the financial statements. As I have said, the directors were intelligent and experienced men in the corporate world. Despite the efforts of the legal representatives for the directors in contending otherwise, the basic concepts and financial literacy required by the directors to be in a position to properly question the apparent errors in the financial statements were not complicated.”

The full judgement in Australian Securities and Investments Commission v Healey [2011] FCA 717 may be accessed HERE.

ACCC thinks (Administrator Appointed) is important

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

Jun 212011

The Advanced Medical Institute Pty Ltd [ACN 117 372 915] and AMI Australia Holdings Pty Ltd [ACN 095 238 645] are under external administration. Trent Hancock and Michael Hird, of accounting firm, BDO, Sydney, were appointed Joint Voluntary Administrators by Life Science Group Pty Ltd, a secured creditor of both companies, in December 2010.

The Australian Competition and Consumer Commission (ACCC) issued a media release on 15 June 2011 stating:

“Today, the Australian Competition and Consumer Commission obtained interim orders by consent against Advanced Medical Institute Pty Limited (administrators appointed) and AMI Australia Holdings Pty Ltd (administrators appointed) – collectively referred to as AMI. In proceedings filed on Wednesday, the ACCC alleged that AMI failed to advise existing and potential clients that it is in administration, is insolvent and may not be able to provide goods and services after determination of the administration period. The ACCC also claimed that AMI had wrongly accepted payments in advance for treatments when there is a real risk that AMI will not be able to continue to supply its treatments, and that clients will not receive refunds claimed by them, after the conclusion of its administration.

Today the ACCC obtained orders by consent that AMI will disclose to clients that:

AMI is in administration;
AMI is, in the opinion of its administrators, insolvent; and,
there is a real risk that AMI will not be able to continue to supply its treatments to patients and that patients may not receive refunds claimed by them, after the conclusion of its Administration.” ….

“In these circumstances, the ACCC considered it vital to ensure that potential customers of AMI were clearly informed about the situation the company is in before they bought into any agreements,” ACCC chairman Graeme Samuel said.”

“This case underlines the fact that companies under administration are not exempt from their obligations under the Competition and Consumer Act.”

__________________________

Speaking of statutory duties, section 450E(1) of the Corporations Act 2001 (“the Act”) stipulates that:

“a company under administration must set out, in every public document, and in every negotiable instrument, of the company, after the company’s name where it first appears, the expression (“administrator appointed”)”.

[There are virtually identical requirements in the Act that apply to companies where a receiver or controller has been appointed (section 428), or the company is in liquidation (section 541), or the company is subject to a deed of company arrangement (section 450E(2).]

Section 88A of the Act gives the meaning of the phrase “public document” of a corporation. It appears to me to be wide enough to include an advertisement published on the internet by the corporation; and a website or blog published by the corporation.

Breaches of sections 450E(1), 428 or 541 are strict liability offences, meaning there is no requirement that the prosecution prove intention, knowledge, recklessness, negligence or any other variety of fault.

So it would be prudent for insolvency practitioners to ensure that the internet advertisements, websites and blogs of companies they control carry the required notice.

Large majority of insolvency administrators comply

ASIC, Forms, Insolvency Laws, Insolvency practices, Insolvency Statistics, Practitioners Association (IPAA), Regulation Comments Off

Jun 162011

The Australian Securities and Investments Commission (ASIC) has found that “the large majority” of registered liquidators are complying with their statutory duty to lodge six-monthly accounts of receipts and payments (Companies Form 524) (“financial statements”) in respect of external administrations they are conducting.

In a special compliance program the ASIC analysed its database of approximately 24,800 companies in external administration at March 2010. It identified 517 external administrations where a Form 524/financial statement had been outstanding for a period of more than six months; and 171 registered liquidators who appeared to be at fault.

Preliminary results of the program were published in the December 2010 issue of “ASIC Insolvency Update – an update for registered liquidators”.

Final results have just been published in an article by the ASIC in the June 2011 edition of “Australian Insolvency Journal”, the journal for members of the Insolvency Practitioners Association of Australia (IPA). The article and the chart accompanying it show that:

In only 2.1% of external administrations were financial statements by the administrator overdue (517 out of 24,800).
In the 517 identified external administrations:
- there were an estimated 2,472 financial statements outstanding;
- one registered liquidator had more than 800 outstanding financial statements;
- another registered liquidator had 135 outstanding financial statements;
- 612 financial statements were lodged as a result of the ASIC project; and
- 469 financial statements would be lodged as a result of the project because the external administrators had acknowledged that they had not been lodged.
The ASIC wrote to 171 registered liquidators regarding outstanding financial statements. 63% of the liquidators were from small to medium size firms (of 1 to 9 practitioners). 7 registered liquidators “did not respond (to the ASIC) within the project timeframe”.
The most common reasons for not lodging financial statements were:
- “inadequate monitoring of internal control systems (including lack of staff supervision);
- inadequate internal control systems;
- staff turnover combined with heavy workloads; and
- incorrect use or delayed implementation of insolvency-based software.”

There are some other findings and explanations reported in the article. ASIC Commissioner, Michael Dwyer, says: “It was pleasing to see that the large majority of practitioners complied with their obligation to lodge accounts”.

[Undoubtedly the ASIC’s final report will appear in a form available to non-members of the IPA shortly. As soon as a link becomes available I will insert it in this blog.]

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░░░ INSOLVENCY INTERFACE