Insolvency Services Standard for public accountants to be strengthened

Checklists and guides, Corporate Insolvency, Ethics, Insolvency practices, Regulation, Standards Comments Off

May 282014

Australia’s Accounting Professional and Ethical Standards Board (ASESB) is revising the professional standard that governs accountants in public practice who perform insolvency services.

On 21 May 2014 ASESB issued an exposure draft of the proposed revisions. It is seeking feedback from insolvency accountants and “other stakeholders” by 4 July 2014.

Chairman of ASESB, Stuart Black, says

“The proposed new requirements to (the professional standard) APES 330 will further strengthen the professional requirements applicable to liquidators and administrators and provide a reference for creditors, regulators and other stakeholders to evaluate and monitor practitioner conduct”

The Media Release states that:

“APESB sets the code of ethics and professional standards by which members of Australia’s three major professional accounting bodies (CPA Australia, the Institute of Chartered Accountants Australia and the Institute of Public Accountants) are required to abide.”

Overview of the proposed changes

The exposure draft contains the following list of “significant revisions” to the existing APES 330:

Revision or addition of the following definitions: Administration, Appointment, Approving Body, Contingent Fee, Controller, Firm, Independence, Insolvency Services, Insolvent Debtor, Member, Member in Public Practice, Professional Activity, Professional Bodies, Professional Services, Professional Standards, Referring Entity, and Related Entity;
Removal of the defined terms: Associated Entity, Controlled Entity, and Witness Report;
Extending the scope of the standard to include members’ voluntary liquidations with the exception of having to comply with the Independence requirements of the standard;
Introduction of a requirement to disclose the source of a referral where the Appointment follows a specific referral;
Introduction of a requirement to declare in the DIRRI that no information or advice, beyond that outlined in the DIRRI, was provided;
Use of the term “believing” to clarify that it is the Member in Public Practice’s reasons for believing that the Pre-appointment Advice provided or the relationship disclosed does not result in a conflict of interest or duty;
Extension of the prohibition on providing Pre-appointment Advice to both an insolvent Entity and its directors; to include an Insolvent Debtor and any corporate Entity associated with that individual;
New guidance to encourage disclosure of relationships with Associates of the insolvent Entity that were more than two years prior to the Appointment;
Amendment of the current prohibition of consenting to an Appointment where prior business dealings were held to exclude immaterial dealings, or those business dealings that occurred more than two years prior to the Appointment;
Additional guidance on what is considered a material business relationship;
A new requirement to provide the basis of fee calculations and where relevant the scale
Mandating that where fee estimates are provided that these be provided in writing with explanations of the variables that may affect the estimated fee;
An obligation on the Member in Public Practice to provide details of Expenses that may be charged from the Administration and the basis of how the Expenses will be charged and recovered by the Firm;
Prohibition of Members in Public Practice claiming any pre-appointment disbursements as an Expense;
Requirement for consistency between fees charged and those sought for prospective fee approval;
The scale of rates used to calculate prospective fees must be that approved by the Approving Body
Where a Member in Public Practice accepts an Appointment with another Member, all Members are equally responsible for all decisions on the Appointment;
Payments received for the costs of an Administration from third parties must be disclosed to the Approving Body and approved (other than in an Appointment as a Controller);
Detailed requirements and guidance on Expert Witness obligations has been replaced by referring Members in Public Practice to APES 215 Forensic Accounting Services; and
New requirements for a Member in Public Practice to use appropriate procedures to ensure statutory timeframes are met in a timely manner.

Deadline for comments

The deadline for stakeholder comments is 4 July 2014. APESB says it welcomes comments from respondents on any matters in the exposure draft (ED 01/14).

Comments should be addressed to:
The Chairman, Accounting Professional & Ethical Standards Board Limited
Level 7, 600 Bourke Street, MELBOURNE, VIC, 3000.

A copy of each submission will be placed on public record on the APESB website. http://www.apesb.org.au/apesb-exposure-drafts-open-for-comment.

Sources and Links

APESB Media Release 21 May 2014

APESB At A Glance, APES 330 Insolvency Services ED, May 2014

Proposed Standard: apes 330 Insolvency Services

Footnote

The Australian Restructuring Insolvency & Turnaround Association (ARITA) also has an extensive Code of Professional Practice. That governs members of ARITA, but has also been accepted by some judges in hearings concerning misconduct as a guide to the professional standards expected of all insolvency practitioners. Accordingly, the changes by the accounting bodies to APES 330 may not make much real difference to practice standards. But of course the accounting bodies must have their own rules in place.

Is insolvency administration becoming a mere commodity?

ASIC, Corporate Insolvency, Ethics, Insolvency practices, Regulation, Standards Comments Off

Apr 082014

Liquidators have been classified by our corporate regulator as “gatekeepers” in the financial services industry, to the extent that ASIC says it is “looking to key gatekeepers, such as directors and insolvency practitioners, to ensure that they make appropriate decisions and uphold their obligations regarding insolvent entities”. (1)

As admirable as this concept is – and it’s been decreed as a proper one in many court judgments – I wonder how it sits with the growing marketing and commodification of insolvency administration for a “fixed price” or a “guaranteed low cost”:

Commodification 2

Commodification 8

Commodification 3

Commodification 5

Commodification 6

Commodification 1

Commodification 7

Commodification 9

Commodification 11

Commodification 10

Commodification 12

Commodification 13

_______________________________________________________________________________________________
NOTE (1) See for example, ASIC Report 360, ASIC enforcement outcomes: January to June 2013 (July 2013).

Insolvency Practitioners Association finalises third edition of code of conduct

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

Oct 292013

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

From IPA website, www.ipaa.com.au

Relationship problems for insolvency practitioners

ASIC, Checklists and guides, Corporate Insolvency, Ethics, Insolvency practices, Regulation Comments Off

Oct 162013

Before accepting an appointment as liquidator or administrator of an insolvent company the insolvency practitioner (IP) must evaluate his or her relationships with the company and with those who are involved or have an interest in its affairs. In the following decision chart and accompanying notes I suggest that there are three main steps in the evaluation process.

Step 1 is fairly simple: the task is to ensure that the IP is not prohibited or disqualified from acting by the express laws on disqualification for reason of a specific connection that are contained in the Corporations Act 2001 (the Act), i.e., sections 448C and 532.

Step 2 may be far more difficult. It involves looking out for other relationships which the Act deems to be, prima facie, of interest to creditors of the company (sections 60, 436DA, 449CA and 506A). If such a relationship exists, the IP must evaluate whether the relationship is “relevant”. Unless such a relationship is “trivial”, it will be “relevant”.

If the IP is of the view that there are no relevant relationship, he or she may accept appointment. (His or her view that there are no relevant relationships must be declared in writing in the Declaration of Relevant Relationships presented to creditors (section 60)).

Step 3 in the evaluation process is required if the IP considers that there is a relevant relationship. Relevant relationships need to be evaluated to see whether they give rise to, or are likely to give rise to, a conflict of interest or a conflict of duty for the IP in the performance of his or her obligations. This is a complex issue, which is expanded upon in Note 3.

If the IP forms the view that because of a relevant relationship he or she has or is likely to have a conflict of interest or a conflict of duty, he or she must decline to take the appointment.

On the other hand, if the IP’s view is that there is no such conflict, the IP must – in the written Declaration of Relevant Relationships – give details of the relationship and explain why he or she believes that it does not and will not give rise to a conflict of interest or a conflict of duty.

Changes to code of conduct for liquidators and trustees

Checklists and guides, Corporate Insolvency, Ethics, Insolvency practices, Personal Bankruptcy, Regulation, Standards Comments Off

Sep 182013

In continuing to develop its Code of Professional Practice, the Insolvency Practitioners Association of Australia (IPAA) released a draft third edition on 6 September 2013.

The Code sets guidelines for the behaviour and practices of trustees appointed under the Bankruptcy Act and liquidators and other types of external administrators appointed under the Corporations Act.

The draft is open for comment until 27 September 2013, and the IPAA hopes that the new version will take effect from 1 January 2014.

Those invited by the IPAA to comment are “members, regulators, government agencies and other stakeholders” – which presumably includes financiers, creditors, insolvent debtors, company directors and shareholders. In fact, the IPAA’s announcement is headed “public consultation“.

The full text of the IPAA’s Explanatory Memorandum – which provides “an explanation of the major changes that have been made to the Code in the development of the third edition” – is reproduced below.

From: Kim Arnold (IPAA)
Date: 6 September 2013
Subject: Explanatory Memorandum Draft Third edition of the Code

Introduction

This document summarises the more significant changes to the Code and discusses the reasons for the changes. It also addresses some of the concerns arising out of the first round of consultation with the IPA’s Insolvency Specialist Working Group (ISWG), National Board and State Committees.

Disclosure of referrers (6.6)

A requirement has been added to the Code requiring a Practitioner to disclose the source of a referral in the DIRRI where the appointment follows a specific referral.

During the first round of consultation, concerns were raised about this new requirement, specifically around commercial sensitivity of this information and the impact this may have on the reputation of the referral source.

It is our view that the disclosure of the referral source of an appointment is important for the following reasons:

• Creditors have a right to know how the appointment came about and part of that process is who referred the appointment maker (directors, debtor) to the practitioner;

• It may be relevant to creditors if the referral source is subsequently engaged to provide services in the administration and subsequently paid by the administration;

• We have received numerous complaints about the practices of a number of referral agencies, however as their personnel are not members of the IPA (nor registered liquidators or registered trustees) we are unable to take any action in respect of these complaints. The disclosure of the referral source may assist the IPA in managing this industry issue.

Disclosure of remuneration pre-appointment (6.13)

A section has been added to the Code requiring Practitioners to provide certain information about remuneration to directors/debtor prior to a director/debtor appointment (not court or controller appointments). This is not a requirement to provide a quote or estimate, but if a quote or estimate is provided, it will need to be in writing.

We have received a number of complaints from directors stating that they were told one thing by a Practitioner prior to the appointment and the actual fees sought/drawn in the administration were completely different. As there is usually no documentary evidence regarding what was told to the director prior to the appointment, it is difficult for the Practitioner to be able to verify what information was provided. By providing information about remuneration in writing to the directors/debtor, the Practitioner will receive protection from misinterpretation and will be able to provide evidence of the information provided in the event of a subsequent complaint.

We have also received colloquial evidence from a practitioner that some practitioners are providing directors/debtors will very low fixed fee estimates in order to obtain appointments and subsequently charging remuneration at hourly rates and having that approved by creditors.

Practitioners will also be required to disclose any estimates or quotes provided to directors/debtors prior to appointment in the initial remuneration advice sent to creditors.

We have developed a template for use by Practitioners at 23.2.3

Disclosure of basis of and actual disbursements (15.3.2)

Although creditors do not have the right to approve disbursements, they do have the right to understand on what basis disbursements are recovered and the quantum of disbursements paid to the Practitioner’s firm.

To provide greater clarity to creditors on the basis on which internal disbursements (eg internal non-professional fee expenses) are recovered , Practitioners will be required to disclose the basis in the initial advice to creditors regarding remuneration. This requirement has been built into the template at 23.2.1.

To assist creditors with understanding what disbursements have actually been paid to the Practitioner, the following information must now be included in the remuneration approval report:

• general information on the different classes of disbursements;

• a declaration that the disbursements were necessary and proper;

• in relation to disbursements paid to the Firm, whether directly or in reimbursement of a payment to a third party:

– who the disbursement was paid to;

– what the disbursement was for;

– the quantity and rate (only for internal disbursements); and

– the amount paid; and

• details of the basis of any internal disbursements that will be charged to the Administration in the future (e.g. Page rate for photocopying done internally).

Note that payments direct to third parties by the Administration only need to be clearly included in the receipts and payments.

These requirements have been built into the report template at 23.2.2.

Payment of remuneration by secured creditors in non-controller appointments (15.5.5)

The Code now makes clear that any payments by secured creditors for the realisation of secured assets, in any appointments other than controller appointments, must be disclosed to the approving body and approved in the same way as other remuneration.

In our view, this is a codification of the law.

Section 449E in respect of VA is clear that an administrator is only entitled to remuneration as is determined by agreement with the COI, resolution of creditors or the Court.

Similarly, section 473 for liquidators states that the liquidator is entitled to receive such remuneration as is determined by agreement between the liquidator and COI, resolution of creditors or the Court.

In a bankruptcy, remuneration is fixed under section 162 by resolution of creditors or by the COI. A trustee may also make an application to the Inspector General. Under s 165, a trustee is not able to make an arrangement for receiving from any person any remuneration beyond the remuneration fixed in accordance with the Act.

In our view, it is clear that there is a statutory requirement for proper approval to be obtained to draw any remuneration in any such appointments.

There was resistance to this change to the Code in the first round of consultation. It has been suggested that the Practitioner would be acting as the agent of the secured creditor and thus acting outside the VA/liquidation/bankruptcy. In our view, acting as agent of the secured creditor would be a conflict that would prevent the continuation of the underlying insolvency appointment. ASIC has similar concerns regarding conflict issues.

Furthermore, we envisage that the administrator/liquidator/trustee would be using the ABN, GST registration and insurance coverage of the underlying administration.

The proper view, in our opinion, is that the VA/liquidator/trustee is selling those assets in their role as VA/liquidator/trustee and remitting the proceeds to the secured creditor (subject to any prior ranking creditor, for example section 561 in a liquidation). The VA/liquidator/trustee may withhold sufficient funds to meet the cost of selling those assets, but that money cannot actually be drawn as remuneration until approval is obtained from the approving body.

Identity of directors (20.2)

There is a new requirement in the Code for Practitioners to take appropriate steps to satisfy themselves of the identity of directors or a debtor prior to accepting an appointment where the appointment is being made by the directors or a debtor.

The requirement is to take appropriate steps, which means that the Practitioner should use professional judgement to determine what is appropriate in the circumstances.

This requirement is consistent with AFSA’s (previously ITSA) requirement to verify identity when lodging a debtor’s petition.

Joint appointments (20.3)

General guidance has been added to the Code stating that joint and several appointments:

• should be taken with the knowledge that all Appointees are equally responsible for all decisions made on joint and several appointments, and

• the firm should have in place policies and procedures to ensure that all appointees are knowledgeable about the conduct of the administration, even if one appointee is leading the conduct of the administration.

This is general guidance following a spate of disciplinary action against co-appointees that were not the lead appointee on the administration.

For the purpose of facilitating comment the IPAA has made this Explanatory Memorandum and the following documents publicly available free of charge from its website:

Draft third edition with all edits marked up
A comprehensive Edits List of all changes “made to the Code between the second and third editions”.
Draft “clean” third edition assuming all edits are accepted

To see the notice issued by the IPAA click HERE.

Liquidator likely to be banned for 5 years after Court inquiry

ASIC, Case Reports, Corporate Insolvency, court decisions, Ethics, Forms, Insolvency Law, Insolvency Laws, Insolvency practices, law reports, Records Management, Regulation, Standards Comments Off

Sep 032013

Melbourne liquidator Andrew Leonard Dunner is likely to be prohibited from being registered as a liquidator for 5 years, following a decision by the Federal Court in an action brought against him by the Australian Securities and Investments Commission (ASIC).

In a media release on 30 August 2013 ASIC said that:

“In handing down his reasons for judgment today, Justice Middleton found that Mr Dunner had failed to adequately investigate the circumstances and affairs of companies to which he was appointed and had inaccurately reported to ASIC and creditors.

“The Court also found that he had drawn remuneration in excess of $600,000 without appropriate approval or adequate supporting documentation. The Court considered it appropriate that he should repay that remuneration and have leave to apply to the Court for justification of an entitlement to recoup remuneration where appropriate. Justice Middleton found that Mr Dunner’s conduct indicated ‘…a systemic failure of administration and internal protocols, as well as (in a number of instances) extremely poor professional judgment. In this way, Mr Dunner has failed to satisfy the high standards of conduct required of his offices’.

“In finding that a banning period of 5 years was appropriate, Justice Middleton said:

‘Withdrawing a liquidator’s registration operates directly to protect the public from the work of the person. It also operates generally by deterring other liquidators from acting in a similar fashion. ASIC submitted – and I accept – that there is a compelling public interest in the maintenance of a system which recognises that registration as a liquidator is a privilege, the continuance of which is conditional upon diligent performance of its attendant duties.’

To see the ASIC media release, CLICK HERE.

To see Justice Middleton’s important 67 page report and judgment, CLICK HERE .

Case citation:

Australian Securities and Investments Commission v Dunner [2013] FCA 872.

Case catchwords:

CORPORATIONS – Corporations Act 2001 (Cth), ss 423, 499, 536 – Duties of liquidator – Duties of receiver – Court inquiry into defendant’s conduct as liquidator and receiver – Failure by defendant to investigate circumstances of companies to which he was appointed – Drawing remuneration without approval or adequate supporting documentation – Inaccurate reporting to ASIC and creditors regarding external administrations – Repayment of remuneration drawn without approval – Unfitness to remain registered as liquidator – Duration of prohibition order.

Principles of professional conduct for liquidators and bankruptcy trustees

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

Apr 282011

Set out below are seventeen principles of professional conduct devised by the trade body for Australian insolvency practitioners to govern and inform their conduct as liquidators, administrators, receivers and bankruptcy trustees.

The Insolvency Practitioners Association of Australia (IPA) says that the primary purposes of its Code of Professional Practice (Code) are “to:

set standards of conduct for insolvency professionals;
inform and educate IPA members as to the standards of conduct required of them
in the discharge of their professional responsibilities; and
provide a reference for stakeholders against which they can gauge the conduct of IPA members. “

The summary of principles presented below is taken from the Code. Each principle is described in great detail in the Code. A PDF copy of the 124 page Code is available at the IPAA website, or may be found HERE. Earlier versions of the Code may be found HERE. This current edition of the Code has been effective since 1 January 2011.

_______________________________________________________________

The Principles

Conduct

Principle 1 Members must exhibit the highest levels of integrity, objectivity and impartiality in all aspects of Administrations and practice management.

Principle 2 When accepting or retaining an Appointment the Practitioner must at all times during the Administration be, and be seen to be, independent.

Principle 3 Disclosure and acceptance of a lack of independence is not a cure.

Principle 4 Members must communicate with affected parties in a manner that is accurate, honest, open, clear, succinct and timely to ensure effective understanding of the processes, and their rights and obligations.

Principle 5 Members must attend to their duties in a timely way.

Principle 6 A Practitioner must not acquire directly or indirectly any assets under the administration of the Practitioner.

Principle 7 When promoting themselves, or their firm, or when competing for work, Members must act with integrity and must not bring the profession into disrepute.

Principle 8 When dealing with other Members in transitioning or parallel appointments, Members must be professional and co-operative, without compromising the obligations of the Member in their own particular appointment.

Principle 9 Practitioners must maintain professional competency in the practice of insolvency.

Remuneration

Principle 10 A Practitioner is entitled to claim remuneration, and disbursements, in respect of necessary work, properly performed in an Administration.

Principle 11 A claim by a Practitioner for remuneration must provide sufficient, meaningful, open and clear disclosure to the Approving Body so as to allow that body to make an informed decision as to whether the proposed remuneration is reasonable.

Principle 12 A Practitioner is entitled to draw remuneration once it is approved and according to the terms of the approval.

Practice Management

Principle 13 When accepting an Appointment the Practitioner must ensure that their Firm has adequate expertise and resources for the type and size of the Administration, or the capacity to call in that expertise and those resources as needed.

Principle 14 Members must implement policies, procedures and systems to ensure effective Quality Assurance.

Principle 15 Members must implement policies, procedures and systems to ensure effective Compliance Management.

Principle 16 Members must implement policies, procedures and systems to ensure effective Risk Management.

Principle 17 Members must implement policies, procedures and systems to ensure effective Complaints Management.

______________________________________________________________

The IPAA says:

“The Code is a living document. It will continue to be amended from time to time to reflect changes and developments in insolvency law and practice. …. (and) it is the fundamental building block upon which the insolvency profession sets and manages standards of professional conduct. We were gratified to see the ready acceptance of the Code by the profession, regulatory bodies and the Courts following its initial release.”

______________________________________________________________

Author: P Keenan 28/4/2011

Code of conduct for liquidators being revised

Australian Senate 2009-2010, Ethics, Official Inquiries, Regulation, Standards Comments Off

Sep 302010

Due to “various factors”, including the Senate Inquiry into Liquidators and Administrators, the Australian association of insolvency practitioners has drafted changes to its code of conduct.

On 29 September 2010 the latest version of the code (Version 2) was released to members of the Insolvency Practitioners Association of Australia (IPA) and made available to the public via its website: http://www.ipaa.com.au

Visitors to the site can view the existing Code of Professional Practice (COPP) — which is Version 1, issued in May 2008 — and a version of the proposed new code marked up for changes between versions 1 and 2.

Typically such codes set out the ethical principles, values, behaviours and standards of practice expected of members

The IPA says that its COPP is the standard for professional conduct in the insolvency profession. It says that: “The primary purposes of the COPP are to educate IPA members as to their professional responsibilities; and provide a reference for stakeholders against which they can gauge the conduct of Practitioners”.

IPA members have until 20 October 2010 to provide feedback or raise any concerns in respect of the draft Version 2. The IPA expects that Version 2 will be in operation prior to the end of 2010.