Questions concerning new power for winding up by ASIC

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

Feb 272012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

New Bill proposes changes to liquidation and deregistration of companies

ASIC, Corporate Insolvency, Insolvency Law, Regulation Comments Off

Feb 202012

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

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

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

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

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

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

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

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

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

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

There are also extensive transitional provisions.

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

Government says no to single regulator of insolvency laws

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

Oct 142011

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

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

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

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

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

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

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.”

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.]

ACCC thinks (Administrator Appointed) is important

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

Jun 212011

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

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

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

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

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

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

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

__________________________

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

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

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

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

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

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

Large majority of insolvency administrators comply

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

Jun 162011

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

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

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

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

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

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

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

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?

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Proposed merger of Australian insolvency regulators is formally rejected

Australian Senate 2009-2010, Insolvency practices, Official Inquiries, Regulation Comments Off

Jun 062011

The Government has just announced another inquiry into the conduct of insolvency practitioners. This inquiry will consider “reforms with a view to address possible misconduct in the insolvency profession and to improve the value for money for recipients of insolvency services.”

The release of an “options paper” titled “A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia”, follows the often feverish 2010 Senate Economics References Committee inquiry into the role of liquidators and administrators, their fees and their practices, and the involvement and activities of the Australian Securities and Investments Commission.

In issuing the options paper the Government says that the Senate Committee’s recommended that the corporate insolvency arm of ASIC be transferred to ITSA to form a new personal and corporate insolvency regulator will not be accepted.

The paper calls for comment and suggestions aimed at ensuring that the framework for insolvency practitioners:

• promotes a high level of professionalism and competence by practitioners;

• promotes market competition on price and quality;

• promotes increased efficiency in insolvency administration; and

• enhances communication and transparency between stakeholders.

To obtain a copy of the paper CLICK HERE.

Interested parties are invited to comment on the paper. Closing date for submissions: Friday, 29 July 2011. Address written submissions to:
The Manager
Governance and Insolvency Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
Email: insolvency@treasury.gov.au

Enquiries: Timothy Beale on (02) 6263 2870.

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Liquidator voluntarily resigns

ASIC, Industry People, Insolvency Laws, Prosecution of Liquidators, Regulation Comments Off

Mar 022011

Paul Pattison – the Australian liquidator whose own private company became insolvent – has voluntarily resigned from his company appointments and agreed not to take on any more until he demonstrates that he has the financial capacity to adequately and properly perform his duties as a liquidator.

The announcement was made on 1 March 2011 by the Australian Securities and Investments Commission (ASIC), which applied on 7 February to the Supreme Court of Victoria for suspension of his license to practice.

ASIC’s investigation into the conduct and affairs of Mr Pattison and two of his private companies is continuing.

In its media release ASIC states:

Following Mr Pattison’s voluntary resignation, ASIC yesterday obtained orders by consent in the Supreme Court of Victoria appointing new liquidators or deed administrators to 80 companies which were formerly administered by him.

Mr Pattison resigned as liquidator or deed administrator of those companies and gave an undertaking that he would cease to carry out, consent to, or otherwise accept appointment as a liquidator, provisional liquidator, voluntary administrator, administrator of a deed of company arrangement or controller, until he produces evidence in a form acceptable to ASIC or to the Court which demonstrates he has the practice and financial capacity to adequately and properly carry out his duties as a liquidator.

Yesterday’s consent orders follow the commencement of ASIC’s action against Mr Pattison and Pattison Business Recovery & Insolvency Specialists Pty Ltd (PBRIS) in the Supreme Court of Victoria. On 7 February 2011, ASIC asked the Supreme Court to begin an inquiry into Mr Pattison’s conduct and his capacity to adequately and properly perform his duties as a liquidator.

Upon making the orders by consent, the Court ordered that these proceedings be otherwise dismissed.

No findings of impropriety as to the conduct of Mr Pattison as a liquidator were made.

ASIC’s investigation into the conduct and affairs of Mr Pattison, PBRIS and his former company, Pattison Consulting Pty Ltd, is continuing. ASIC will make no further comment on the investigation at this time.

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