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)

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.]

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.

(In Liquidation) not yet on Colourscan website

Insolvency Laws, Insolvency practices, Regulation, Standards Comments Off

Jun 232011

Further to my comments at the end of my blog “ACCC thinks (administrator appointed) is important ” ……..

A liquidator was appointed to Colourscan Pty Ltd (In Liquidation) (ACN 010 569 838) on 15 June 2011, but that fact is not yet mentioned on the website http://www.colourscan.com.au/, and nor is (In Liquidation) shown as part of its name.

On 16 December 2010 a Receiver and Manager was appointed. There is no (Receiver and Manager Appointed) attached to its name. But it appears the Receiver and Manager may no longer be acting.

Here’s a suggestion for a logo change:

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.

Options paper questions insolvency regulation and practises

ASIC, Insolvency Laws, Insolvency practices, Personal Bankruptcy, Regulation, Standards Comments Off

Jun 062011

Over 130 questions about insolvency regulation and practises have been raised for discussion by the Attorney-General’s Department and the Departments of Treasury in their “Options paper: a modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”, released at the 2011 Gala Dinner of the Insolvency Practitioners Association of Australia on 2 June.

The questions, extracted from the 120 page paper, are shown below. The final date for submissions is 29 July 2011.

Standards for entry into the insolvency profession

Discussion questions

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?
Should the gaining of a Masters in Business Administration meet the qualification requirements for registration, if it did not otherwise meet legal and accounting study requirements?
Should a minimum level of actual experience in insolvency administration remain a mandatory requirement for registration as a practitioner?
Should the experience requirements for registered liquidators be reduced to two years of full‑time experience in five years?
Should new market entrants be required to complete some form of insolvency specific education before practicing as registered liquidators or registered trustees?
Should ASIC be empowered to impose requirements on a registered liquidator as a condition of the registration? What types of conditions should a regulator be empowered to impose upon a new registered liquidator’s registration?
Should a registered trustee face more streamlined entry requirements than those that exist for a standard applicant for registration as a registered liquidator, and vice versa?
Is further formal training necessary to ensure that practitioners that wish to transition between the two professions are able to fulfil their statutory obligations?

Registration process for insolvency practitioners

Discussion questions

Should an applicant seeking registration as a registered liquidator or registered trustee be required to be interviewed as part of the registration process?
Should an applicant seeking registration as a registered liquidator or registered trustee be required to sit an exam as part of the registration process?
Should a general ‘fit and proper’ person requirement be imposed for the registration of both personal and corporate insolvency practitioners?
If the process for the registration of liquidators is aligned with the process for the registration of registered trustees, what differences should be maintained between the two registration processes?
Is it appropriate that the current fee for registration of liquidators be increased to reflect the amendments to registration processes?
Should the official liquidator role be maintained?
What other aspects of the current Bankruptcy Act committee system might be amended?
If registration of a registered liquidator is for a defined period, what conditions should be required to be met for renewal of the registration to occur?
Should the renewal process include a fee? Should the fee be commensurate merely with the administrative cost for completing the renewal or should the revenue raised by the fee be used to fund additional oversight of the insolvency market? Should the renewal fee be determined with reference to the numbers and nature of the administrations to which the practitioner is appointed?

Remuneration framework for insolvency practitioners

Discussion questions

Should the Corporations Act be amended to include a provision that aligns with the Bankruptcy Act prohibition upon practitioners making any arrangement whereby a benefit is received, either directly or indirectly, in addition to the remuneration to which he or she is entitled? Should such a prohibition be clarified to provide that this extends to charging disbursements with a profit component that may benefit, directly or indirectly, the practitioner?
Are the current requirements for the provision of information to creditors to assist them in assessing costs appropriate? Should this information be provided in a standard form? Should these requirements be aligned between corporate and personal insolvency?
What could be done to address concerns about cross subsidisation?
What could be done to address concerns about inappropriate use of disbursements?
Should all fee approval be required to be subject to a cap set by creditors in an external administration or bankruptcy? Is it unreasonable to expect that an insolvency practitioner go back to the creditors in order to seek an increase on the initial remuneration cap?
Should a group of creditors (or a single creditor) that successfully challenge an insolvency practitioners’ remuneration, receive an increased priority in relation to the savings that may result?
Should a registered liquidator, under any circumstances, be able to exercise a casting vote on a motion regarding his or her remuneration or removal?

Communication and monitoring

Discussion questions

What amendments should be made to provide creditors with more information or power to monitor the progress of a winding up, administration or bankruptcy?
Should creditors have largely the same rights to information and tools to monitor a liquidation, administration, bankruptcy or controlling trusteeship?
Are there any impediments to insolvency practitioners communicating with creditors electronically?
If the statutory frameworks are aligned, are there any modifications necessary to account for the practical differences between the bankruptcy and corporate insolvency frameworks?
Would support from at least 25 per cent of creditors be an appropriate threshold in corporate insolvency for requiring a creditors meeting to be held? Given the larger numbers and quantum of claims, would a lower threshold (for example, 10 per cent) be more appropriate? What rules should apply in relation to who bears the costs of holding a meeting of creditors?
If liquidators are required to provide all information reasonably requested by a creditor regarding a liquidation or administration and creditors have improved powers to require the calling of meetings, is there any need for default annual meetings, written updates or creditors’ meetings at the completion of a winding‑up? Could these requirements be amended to a requirement for the practitioner to raise the option of having such updates and meetings with creditors (for consideration and voting) as a default reporting arrangement?
Should the role of the COI be given greater prominence in the corporate and personal insolvency systems? If so, how might this occur?
Should the rules governing COIs be aligned between corporate and personal insolvency? Are there any specific aspects of COI law that should be otherwise reformed?
Should creditors be able to make a binding resolution on a liquidator? If yes, should there be any role for the Court to overrule that resolution (for example, where the Court believes that the resolution is not in the best interests of the creditors as a whole)? Should there be any limit on the type of areas that creditors are able to pass a binding resolution?

Funds handling and record keeping

Discussion questions

Should the rules governing record keeping, accounting, audits and funds handling in corporate and personal insolvency be aligned? If so, how should this occur?
If aligned rules on accounts reporting are introduced, what should be the content, form and frequency of the accounts required?
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?
If amendments are made to the personal and corporate law to align the powers of the regulators (in certain circumstances) to freeze the accounts of insolvency practitioners, in what circumstances should the regulators be able to issue an account freezing notice to a bank?
Should the issuing of an account freezing notice require an application to the Courts? For how long should a freezing notice have effect?
At what level should the penalties that apply to breaches of the funds handling, record keeping, retention of books, and audit provisions in the Corporations Act and the Bankruptcy Act be set to provide a greater deterrent to potential offenders?
Will increasing the penalties make practitioners more likely to pay greater attention to these requirements?
Are there additional civil obligations and criminal offences that should be provided for in respect of these areas?
If civil or criminal penalties are applied for the lodgement of inaccurate annual reports, under what circumstances should those penalties apply?
Should late lodgement, non‑lodgement or false lodgement of accounts be a statutory basis for removal? If so, by what process might removal take place?

Insurance requirements for insolvency practitioners

Discussion questions

Is there a benefit for insolvency practitioners, creditors or other stakeholders in aligning the insurance requirements for liquidators and registered trustees?
If the criminal penalty for not complying with insurance requirements is increased, at what level should the penalty be set to provide a sufficient deterrence against breach?
Should a fidelity fund be established? If so, how should such a fund be operated and funded?
What other reforms might be put in place regarding insurance requirements?

Discipline and deregistration of insolvency practitioners

Discussion questions

Are there any reforms that should be made to either the Committee’s or the CALDB’s systems of disciplining practitioners to improve their operation?
Do you think that aligning the disciplinary frameworks will provide for more consistent and improved outcomes for practitioners and other stakeholders between personal and corporate insolvency?
If a Committee structure is adopted for registered liquidators:
- Should there be any amendments to the framework that underpins the current personal insolvency committee system?
- Should the statutory framework for the committee system currently in the Bankruptcy Act be replicated in the Corporations legislation?
- Should ASIC be statutorily required to provide a show‑cause notice to the practitioner before establishing a committee?
- Should the committee consist of a member of ASIC, a member of the IPA, and an appointee of the Minister?
- Should there be a time limit for decisions by the committee? Should it be aligned with the current time limit for bankruptcy?
If a Committee structure is not adopted for registered liquidators, what specific reform options should be adopted under either the CALDB or Committee regimes? In particular:
Should a statutory timeframe be introduced for decisions by the CALDB?
Are there any powers that the CALDB currently has that should equally be conferred upon a Committee under the Bankruptcy Act or vice versa?
What, if any, other reforms should be made in respect of the transparency of Board and Committee hearings and decisions?
Should a committee constituted under the Bankruptcy Act be empowered to summon a third party to appear at a hearing to give evidence and be cross examined?
Should mechanisms be put in place to impose sanctions on practitioners or witnesses who fail to attend or provide books to a Committee or Board?
Should the Bankruptcy Act be amended to provide ITSA with the express power to seek to deregister a registered trustee where the trustee is no longer ‘fit and proper’?
If the regulatory frameworks are amended to expand the powers of ASIC and ITSA to discipline insolvency practitioners directly, what minor breaches should those powers extend to?
Would the suggested amendments to enhance the powers of the court breach considerations of natural justice?
Should the nature of the role of registered liquidators and registered trustees as officers of the court, as well as their inherent fiduciary duties, mean that it is reasonable to empower the Court to direct them to stand aside where there are serious allegations that have yet to be resolved?

Removal and replacement of insolvency practitioners

Discussion questions

Should an initial creditors’ meeting in a compulsory winding up at which creditors would have the right to replace or appoint a new liquidator be mandated?
If an initial creditors’ meeting were mandated for court‑ordered windings up:
Should there be an exception for assetless administrations?
Should approval of the appointed registered liquidator be able to be obtained through a mail out? If confirmation/replacement of registered liquidations occurred by postal vote in court ordered liquidations, should this mechanism also replace the opportunity to replace a practitioner provided via initial meetings in other kinds of corporate insolvency?
Should creditors in corporate insolvencies be generally empowered to remove a registered liquidator by resolution in the same way as under personal insolvency law?
What effect, if any, would the potential for removal be expected to have on remuneration arrangements?
Does the current scheme for the removal of a registered trustee provided sufficient and clear protections against abuses of process?
If creditors are empowered to remove a liquidator in a creditors’ voluntary winding up (subsequent to the first meeting), should members have any corresponding right in a members’ voluntary winding up?
Is there a need to facilitate the transfer of the books of the administration from an outgoing insolvency practitioner to his or her replacement? What barriers, if any, are there to the implementation of such a reform?
Are any other amendments necessary to assist creditors to use any new power to remove a registered liquidator? What other administrative arrangements would be required to ensure a smooth transition from one registered liquidator to another?

Regulator powers

Discussion questions

Are there unjustified divergences between the powers and roles of the insolvency regulators?
Should a creditor in a corporate insolvency have any right to request that ASIC undertake a review of specified kinds of decision by a liquidator?
If ASIC was to be empowered, what types of decisions should ASIC be able to review?
The expansion of ASIC’s current functions to include such a review power would have some cost. Given the Government’s cost recovery policy how should any expansion of powers be funded?
Should ASIC and ITSA be given more flexibility to communicate to a complainant (or creditors generally) information obtained by it in relation to the conduct of an external administration?
Should regulators be able to require a practitioner to sit an examination to test ongoing compliance with the knowledge or skills requirements for registration? Should such a power be extended to enabling regulators to require persons acting under delegation from practitioners to sit an examination?
What powers might be appropriate to provide to regulators to facilitate (if necessary) the rights of creditors to call meetings and to ensure such meetings are held in a transparent manner — in particular in relation to the assessment of votes for and against the retention of the current insolvency practitioner?
Does section 536 of the Corporations Act, as currently applied by the Court, provide for the appropriate supervision of registered liquidators by ASIC?
Should ASIC be able to share information with the IPA for disciplinary purposes?
Should ITSA and ASIC be empowered to impose conditions across the market? If so, what types of conditions should the regulator be empowered to impose?
If a new Ombudsman or external dispute resolution scheme were established:
Should the new body be a statutory body (for example, the Superannuation Complaints Tribunal) or a private body (for example, the Financial Ombudsman Service)?
Should any new body have the ability to hear disputes in both corporate and personal insolvency? Should the new entity be independent of the two regulators?
If the body is a statutory entity, what functions of ITSA or ASIC should be given to the new body? Should the body have power to obtain information or to inspect the records of an organisation relevant to the complaint? If the new body is privately run, what protections would need to be put in place to achieve this?
How should the new body be funded? Should there be any charge to the complainant to investigate a complaint or should it be funded through an industry levy?
Should the body have an explicit educative role?
Should the body have the right to deal with systemic issues or commence its own investigation? If the body is a private entity, what powers should it be given to achieve those objectives?
What types of disputes should the body be able to hear and deal with? Should the body be able to review remuneration? Should this be done through independent cost assessors?

Specific issues for small business

Discussion questions

Are any statutory reforms required to assist regulators to provide improved regulation in relation to interconnected personal and corporate insolvencies? Are improvements needed in relation to their capacity to share information and cooperate?
If the scope of the AA Fund is broadened to allow for the funding of registered trustees to investigate and report on corporate law breaches, which Corporations Act breaches in particular should be provided for?
Should the scope of the AA Fund be broadened to allow for loans to registered liquidators to properly carry out their fiduciary and statutory duties?
Should section 305 of the Bankruptcy Act also be expanded to provide for the funding of investigations into corporate law breaches?
What steps might be taken to improve efficiency in relation to related personal and corporate insolvencies while appropriately addressing conflicts of interest?
What other amendments can be made to assist creditors and directors of small corporates to better engage with the corporate insolvency system?
Is there a case for automatic disqualification of directors after a company failure? If so, how many repeated failures should trigger disqualification? Should there be a threshold for failures to trigger disqualification (for example, where less than 50 cents in a dollar are returned to creditors)? Over what period must the failures occur?
Should a registered liquidator be able to assign actions which vest personally in the liquidator? If so, should a registered trustee be likewise able to assign rights of action?
Should ASIC be able to automatically disqualify a director of an insolvent company who has not taken reasonable steps to ensure that the company has maintained its financial records?

_________________________________________________________

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.

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.

Newer Entries