Offences – Page 2 – ░░░ INSOLVENCY INTERFACE

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

Retired federal court judge claims white collar criminals are treated differently

Offences, Taxation Issues, White collar crime Comments Off

Jun 052012

Ray Finkelstein, QC, retired federal court judge, writing in the March 2012 edition of the Australian Tax Office publication “Targeting tax crime: A whole-of-government approach”, says:

“There is significant law breaking by persons from the middle classes. When these people commit crimes they are seen to be, and are, treated differently. This is especially true in the case of ‘white collar crime’ …. If the distinction between the two kinds of crimes is removed this would reduce the problems resulting from inconsistencies in sentencing”.

Mr Finkelstein’s article, titled “Crime and punishment: White collar crime vs true crime”, is reprinted below. In the article he takes issue with judges who have a rationale in sentencing white collar criminals that is different from that which they employ in sentencing ‘true’ criminals, and suggests that it may be necessary to relax some features of criminal law for the purposes of combating white collar crime.

The original article is available at http://www.ato.gov.au/content/downloads/snc00313370.pdf

“Crime and punishment: White collar crime vs true crime”

by The Honourable Ray Finkelstein, QC:

“There is a longstanding myth, slowly being eroded, that criminal behaviour is largely committed by those in a lower socio economic class.

The studies I have seen that address this define ‘true crimes’ as those that (1) directly harm or violate the rights of others or (2) constitute inherently immoral activity. When it comes to the punishment of true crimes, a court considers a blend of just desserts, reformation and crime control: rehabilitation, retribution, deterrence, incapacitation (prison) and restitution.

In the world in which we live it should be evident that it is wrong to assume that criminal behaviour is confined to lower socio economic class. There is significant law breaking by persons from the middle classes. When these people commit crimes they are seen to be, and are, treated differently. This is especially true in the case of ‘white collar crime’.

Here I refer to crimes committed by people of high social status in the course of their occupation. One thing that stands out about white collar crime is that it is not due to poverty and the like. Also the ‘cost’ of white collar crime is probably much higher than true crime. Compare a bank robber who steals $25,000 from a neighbourhood bank with the corporate manager who steals $2 billion from his company.

How do judges punish white collar crimes? As a general rule the judge’s rationale in sentencing is different from sentencing true criminals. General deterrence – that is deterring others in similar positions from engaging in like behaviour – is usually the sole guiding principle. Retribution seems to have little role to play. Most judges believe that the humiliation, loss of job and loss of status experienced by white collar criminals when they are apprehended, brought to trial and punished, is usually sufficient punishment.

There are, of course, some white collar crimes where an element of punishment cannot be avoided. This is usually confined to crimes that involve a breach of public trust, a serious effect on the market, or a very large fraud loss.

What is interesting is that even though deterrence is the primary goal – imprisonment, when available, is regarded as a last resort. Probably the reason is a belief that imprisonment has a far greater detrimental effect on a white collar criminal. In some cases the judge will take into account the accused’s ability to make restitution as a factor that eliminates the need for a prison sentence.

This approach to sentencing inevitably leads the public to the conclusion that there is a law for the rich and a law for the poor. The problem that leads to this perception is what I see to be a tension between the aim of general deterrence (which usually requires a harsh penalty – often imprisonment if it is available) and the particular (personal) attributes of white collar criminals.

When resolving this conflict, judges tend to compromise – they impose weekend sentences, short sentences or suspended sentences. I do not agree with this approach. It is, I think, necessary for white collar crimes, especially those that involve violations of trust, market manipulation, share market manipulation, anti-trust violations and the like to be regarded in the same way as other fraudulent conduct such as false pretences, or obtaining money by deception. They should be regarded in the same way because they are of a similar character. That is to say, most (I do not say all) white collar crimes are not really different from true crimes.

If the distinction between the two kinds of crimes is removed this would reduce the problems resulting from inconsistencies in sentencing.

A more difficult issue is whether it is necessary to relax some features of criminal law for the purposes of combating white collar crime. The fight against white collar crime is an immense task and regulatory authorities have limited resources. Establishing a guilty mind at trial is always difficult and sometimes impossible. The courts’ narrow approach to construction of statutes often defeats parliament’s true intention. The difficulty of obtaining independent (for example, documentary) evidence is well known. All this inhibits the proper pursuit of white collar crime.

The courts do not possess power to overcome all these difficulties. Parliamentary intervention is necessary in some areas; but courts do have an essential role to play.

In the first place when acting as a court of construction the court could adopt a pragmatic approach to the definition of crimes. Second, as a court of construction the court could limit those crimes in which the prosecutor must establish a guilty mind. Finally, perhaps there may be some crimes where the courts can state that the standard of proof should be lower than ‘beyond reasonable doubt’ and suggest that parliament should bring about the necessary change.

The most likely contenders are those statutes which have introduced civil penalties for contraventions that are also criminal. Parliament has already decided that a lower standard of proof is in order for these offences, provided there is a lower penalty. In substance, all that is needed is for parliament to legislate for an appropriately higher penalty for those offences.”

http://www.ato.gov.au/content/downloads/snc00313370.pdf

END

Second attempt at tax laws to impose director liability for employee superannuation entitlements

Corporate Insolvency, Employee Entitlements, Insolvency Laws, Offences, Tax debts, Tax liabilities, White collar crime Comments Off

Apr 202012

The Government is again proposing to extend the director penalty regime to cover employee superannuation entitlements.

The original Bill was introduced to Parliament on 13 October 2011. (I wrote about this in my blog post on 18/10/2011: see “Parliament sees new tax laws to protect superannuation and deter phoenix companies”.)

In its media release on 18 April 2012, the Government says it “held further consultation with industry after withdrawing an earlier version of the legislation in November. Following this consultation, the Government has made amendments to the draft Bill, including to ensure that new directors have time to familiarise themselves with corporate accounts before being held personally liable for corporate debts and requiring the ATO to serve director penalty notices on directors in all cases before commencing action.”

This is the full GOVERNMENT MEDIA RELEASE of 18 April 2012:

“Draft legislation released today will help to protect workers’ superannuation entitlements, said Assistant Treasurer, David Bradbury.

Under the director penalty regime, which has been in operation since 1993, company directors are personally liable for amounts withheld by their company that have not been remitted to the Australian Taxation Office (ATO). The Tax Laws Amendment (2012 Measures No. 2) Bill 2012: Companies’ non-compliance with PAYG withholding and superannuation guarantee obligations will extend the regime to cover Superannuation Guarantee amounts.

As well as strengthening directors’ obligations to arrange for their companies to meet Pay As You Go (PAYG) withholding and superannuation obligations, the measure will also help counter phoenix behaviour.

“The Gillard Government is committed to protecting workers’ entitlements,” said Mr Bradbury.

“This legislation makes it clear that directors have an obligation to ensure that provision is made for the ongoing payment of workers’ superannuation.

“It also ensures that fraudulent directors who use phoenix companies to try and avoid their debts will be held personally liable for their PAYG withholding and superannuation obligations.”

The Government held further consultation with industry after withdrawing an earlier version of the legislation in November. Following this consultation, the Government has made amendments to the draft Bill, including to ensure that new directors have time to familiarise themselves with corporate accounts before being held personally liable for corporate debts and requiring the ATO to serve director penalty notices on directors in all cases before commencing action.

The draft legislation also includes a new defence for directors liable to penalties for superannuation debts where, broadly, they reasonably thought the worker was a contractor and not an employee,” he said.

“The measure strikes the appropriate balance between protecting workers’ entitlements while not discouraging people from becoming company directors.”

The Government looks forward to receiving submissions from the public about this important reform. Submissions close on 2 May 2012 to allow for the introduction and passage of the legislation in the Winter 2012 sittings of Parliament.

The draft legislation, explanatory memorandum, and a summary of the policy changes can be found on the Treasury website.

CANBERRA 18 April 2012″

Click on the following link to go to THE TREASURY WEBSITE LOCATION WHERE DETAILS WILL BE FOUND. The closing date for submissions regarding the proposed legislation is 2 May 2012.

End

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.

Jury finds liquidator guilty of white collar crimes

Industry People, Insolvency practices, Offences, Prosecution of Liquidators, Regulation, White collar crime Comments Off

Sep 272011

On 26 September 2011 former liquidator Stuart Ariff was found guilty of various charges brought under the NSW Crimes Act and the Corporations Act. The Australian Securities and Investments Commission has issued the following media release. (The photo of Mr Ariff is from The Australian.)

“Former liquidator Stuart Ariff was today found guilty by a jury in the New South Wales District Court on all 19 criminal charges brought by ASIC. The offences relate to Mr Ariff’s conduct while he was the liquidator of HR Cook Investments Pty Ltd (in liquidation) (“HR Cook Investments”) during the period 9 June 2006 to 29 March 2009. Mr Ariff was found guilty on 13 charges under section 176A of the NSW Crimes Actconcerning the transfer of funds totalling $1.18 million with intent to defraud HR Cook Investments. Mr Ariff was also found guilty on six charges under section 1308(2) of the Corporations Act 2001of making false statements in documents lodged with ASIC recording receipts and payments relating to HR Cook Investments. The NSW Crimes Act charges each carry a maximum penalty of 10 years imprisonment. The Corporations Act 2001 charges each carry a maximum fine of $22,000 or imprisonment for five years or both.

Mr Ariff’s conditional bail was revoked and he was remanded into custody. The matter will return to Parramatta District Court on 25 November 2011 for sentencing.

The matter was prosecuted by the Commonwealth Director of Public Prosecutions.”

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.

Is Bureau of Statistics missing insolvency crimes?

Insolvency Statistics, Offences, Standards, White collar crime Comments Off

Jun 022011

The Australian Bureau of Statistics (ABS) has just published the latest edition of Australian and New Zealand Standard Offence Classification (ANZSOC) with the aim of improving crime and justice statistics. It is a detailed document , comprising 108 pages plus 66 pages of appendices and indexes.

Crimes listed in the huge alphabetical and numerical indexes of categories of crimes include “Killing, unlawful, with intent” (0111), “Tram fare evasion” (0829), “Skateboard riding under the influence of alcohol” (0411) and “Fail to sound audible warning of intended blasting” (1629).

I have searched in vain for any mention of bankruptcy offences or corporate insolvency offences. The nearest categories I could find that might apply to corporate insolvency offences were “Breach of company code legislation (e.g. falsification of register, false advertising)” and “Fraudulent trade or commercial practices”. Both are listed under Division 09 “Fraud, Deception and Related Offences”, in sub-division 093 “Deceptive business/government practices”.

It’s interesting to see the number of offences that warrant special mention, when none is given to, for example, a director’s breach of the law in failing to assist his or her company’s liquidator – which carries a maximum penalty of a fine of $2,750 and imprisonment for 6 months. What does this say about society’s view of what is a crime, and the thoroughness of the way in which we collect and publish crime statistics?

To see the ANZSOC document click here.

Big rise in bankruptcy penalty

Insolvency practices, Offences, Personal Bankruptcy, White collar crime Comments Off

May 192011

A crucial instrument of insolvency administration is a properly prepared and sworn statement of affairs made out by the proprietors of the insolvent business enterprise.

This fact was recently granted further recognition in Australia’s bankruptcy (personal insolvency) laws when the Federal Government ramped up the penalty for bankrupts who fail to make out a statement of affairs. [S.54(1) of the Bankruptcy Act 1966]

The penalty was increased fivefold or 500%.

In recommending the Bankruptcy Legislation Amendment Bill 2010 – which was supported by the Government and the Opposition – the Attorney-General, Mr McClelland, said:

“Importantly, the bill also provides trustees with stronger powers to obtain a statement of affairs from a bankrupt who fails to file this as required. The statement of affairs is the most important information required by a trustee to commence administering the bankrupt’s estate. Failure to comply with the requirement to file a statement of affairs significantly frustrates the trustee’s ability to administer the estate in a timely way. Failure to provide a statement of affairs often results in a trustee expending additional time and expenses to identify a debtor’s assets, income and liability. This in turn can diminish a bankrupt’s estate and returns to creditors.” [Second reading speech]

Simultaneously the government introduced a new power for the Official Receiver in Bankruptcy to compel a bankrupt to provide a statement of affairs [Section 77CA]. If the bankrupt fails again to comply after having had the obligation under Section 54 (1) brought to his or her attention by the Official Receiver, the bankrupt will have committed a further and more serious offence, the penalty for which is imprisonment for 12 months [Section 267B].

These laws became effective on 1 December 2010. To see the Official Receiver’s Practice Statement 10 titled “Filing of a Statement and issue of 77CA notices by the Official Receiver” CLICK HERE.

Government funding of liquidators: latest figures released

ASIC, Assetless Administrations Fund, Insolvency Laws, Insolvency Statistics, Offences, Regulation, White collar crime Comments Off

Feb 232011

Figures just released by the Australian Securities and Investments Commission (ASIC) show that 644 grants totalling over $8.6 million have been paid to liquidators out of the Federal Government’s Assetless Administration Fund (AA Fund) between 19/12/2007 (the first payment) and 21/2/2011.

Creation of the AAFund was announced in October 2005 and officially launched on 22 February 2006.

Liquidators of companies with few or no assets may apply to ASIC for grants to finance preliminary investigations by them into the failure. Where ASIC is satisfied that enforcement action may result from a liquidator’s investigation and report, it may approve a grant.

Liquidators can seek funding to carry out an investigation and report in circumstances where they believe director bannings may be appropriate; or for other matters; such as where the liquidator believes there is or may be evidence of possible offences or other misconduct in relation to the Corporations Act 2001.

The largest single payment to date is $442,000 in 2009, to a liquidator who received $739,000 in total in that year . Most payments have been $8,250.

Click here to see the latest list of grant recipients. (… to 9 May 2011)

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