Corporations Act – ░░░ INSOLVENCY INTERFACE

Penalties for White Collar Crime: Senate Report of March 2017

ASIC, Offences, Regulation, White collar crime Comments Off

May 292017

crime-cloud

Inquiries by Parliamentary committees can be a waste of everyone’s time. The Senate’s Inquiry into criminal, civil and administrative penalties for white collar crimes is a good example.

It began in November 2015 and ended in March 2017 (after pausing for 5 months because of the election). It received 139 submissions, 2 lots of “additional information”, and had a public hearing at which 23 witnesses appeared. It’s report, which carries the grandiose title “Lifting the fear and suppressing the greed” (23 March 2017), runs to 108 pages. The committee said:

“A clear message to the committee from inquiry participants was that white-
collar crime and misconduct can cause serious harms, both at the individual level and
in the community as a whole.”

But despite this statement and the enormous amount of work that went into making submissions, conducting the inquiry and writing the report, media coverage has been almost non-existent. Perhaps news editors thought the subject matter was fairly dry, and/or that the report’s recommendations were not particularly noteworthy or inspiring or controversial. Such a conclusion would be understandable. To which I would add, that the report is unlikely to have much of an impact on how we deal with white collar crime.

THE COMMITTEE’S RECOMMENDATIONS
Recommendation 1	That the government consider reforms to provide greater clarity regarding the evidentiary standards and rules of procedure that apply in civil penalty proceedings involving white-collar offences.	paragraph 3.52
Recommendation 2	That the Australian Securities and Investments Commission (ASIC) consider ways in which the accessibility and usability of the banned and disqualified register might be enhanced, in order to create greater transparency regarding banning and disqualification orders.	paragraph 5.24
Recommendation 3	That the government consider making infringement notices available to the ASIC to respond to breaches of the financial services and managed investments provisions of the Corporations Act.	paragraph 5.34
Recommendation 4	That the government amend the Corporations Act 2001 to increase the current level of civil penalties, both for individuals and bodies corporate, and that in doing so it should have regard to non-criminal penalty settings for similar offences in other jurisdictions.	paragraph 6.55
Recommendation 5	That the government provide for civil penalties in respect of white-collar offences to be set as a multiple of the benefit gained or loss avoided.	paragraph 6.56
Recommendation 6	That the government introduce disgorgement powers for the ASIC in relation to non-criminal matters.	paragraph 6.57

The committee’s full report is available for viewing and download at the committee’s Parliament of Australia website.

Incidentally, insolvency practitioners will be disappointed that there are so few references in the report to insolvency and liquidation, although potentially recommendation 4 could have an impact in corporate insolvency.

The next part of this blog post contains extracts which reveal “The Committee’s Views” and the “Table of Contents of Report”.

Index to Schedule 2—Insolvency Practice Schedule (Corporations)

Corporate Insolvency, External administrators, Insolvency Law, Regulation Comments Off

Apr 282017

Issues impacted upon by this new legislation

Schedule 2 is now part of the Corporations Act 2001. The Act is available for viewing/download from www.legislation.gov.au. Schedule 2 is in Volume 6, and follows section 1637 of the Act. To see Schedule 2 only, go to this page at austlii.ed.au

New Corporate Insolvency Laws commencing 1 March 2017

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

Mar 072017

Commencing on 1 March 2017 are some of the changes to Australia’s corporate insolvency legislation that were approved when the Insolvency Law Reform Act was passed in 2016. The Australian Securities and Investments Commission (ASIC), the regulator of the Corporations Act, has issued a table listing and summarizing what it says are the key changes. Set out below is a copy of that table. (The original is available to view at ASIC).

For a convenient list of NEW ASIC FORMS and AMENDED ASIC FORMS go to this EMAIL extract from ASIC to registered liquidators on 6 March 2017. NOTE: Some of the new and amended forms have not yet been released by ASIC (7/3/2017).

………………………………….

Corporate Insolvency Law Reform – key changes effective from 1 March 2017

Subjects

Registration Process

Industry wide conditions

Applying to vary or remove a condition or to lift or shorten a suspension

Renewal of registration

The Liquidator Register

Insurance

Annual liquidator return

Notice of significant, and other, events

ASIC power to direct registered liquidator to lodge documents or give information or correct inaccuracies

ASIC power to cancel or suspend a person’s registration

Disciplinary action by a committee

Notice by industry body of possible grounds for disciplinary action

Court oversight of registered liquidators

Registration and disciplinary committees

Administrator’s notice to owner or lessor of property

Notice – material contravention of deed of company arrangement

Company’s former name

Relation back day

Lodging declarations of relevant relationships and indemnities

Lodgement requirements relating to pooled groups

Liquidators begin Public Examination of Queensland Nickel’s downfall

Corporate Insolvency, Insolvency Law, Insolvent Trading, Shadow Directors Comments Off

Sep 052016

NEWS REPORT FROM The Australian ON MORNING OF 5 SEPTEMBER 2016 ……………………………………………..

Clive Palmer faces Federal Court grilling over Queensland Nickel collapse

By Sarah Elks, Queensland political reporter, The Australian, September 5, 2016, 10:29AM.

Clive Palmer demanded weekly cash flow statements for Queensland Nickel (QN) be delivered to him in hard copy because he was “concerned about espionage”.

Former chief financial officer Daren Wolfe has told the Federal Court public examination into the collapse of the Townsville company that Mr Palmer had an “active interest” in the business during 2015, before it fell into voluntary administration in January.

Mr Palmer is alleged to have acted as a shadow director, a claim he denies.

Mr Wolfe told the court weekly and monthly financial documents were prepared about the health of the company. He said Mr Palmer asked for the data in hard copy, not via email. Asked why, by Tom Sullivan QC for special purpose liquidators PPB Advisory, Mr Wolfe said: “He had concerns about espionage”.

Mr Wolfe said Mr Palmer was required to sign off on any expenditure for Queensland Nickel over $10,000 — even when he was not a director of the company.

When Mr Palmer entered politics as an MP in 2013, Mr Palmer described himself as a fulltime politician and retired from business.

When QN collapsed, Mr Palmer said he was not involved in the day-to-day running of the business. However, the Federal Court has heard there was a practice within QN for Mr Palmer to have final say on expenditure even when he was not formally a director.

Palmer fronts court

After two failed attempts to avoid being publicly interrogated over the collapse of his Queensland Nickel company, self-proclaimed billionaire Clive Palmer must front court today over the corporate failure.

The resources tycoon, QN’s former chief financial officer Daren Wolfe, and the refinery’s former managing director of operations, Ian Ferguson, have been summoned to appear this morning in the Federal Court in Brisbane to face public examination. In hearings scheduled to last a fortnight, the three will be quizzed about the Townsville company’s downfall, which left creditors up to $300 million out of pocket and almost 800 workers without jobs. The federal government had to step in with $68m to cover the redundancy entitlements of Mr Palmer’s former employees.

Lawyers instructed by special- purpose liquidators PPB Advisory will lead the questioning, which will focus on whether a claim can be launched against QN’s director, Mr Palmer’s nephew Clive Mensink, and Mr Palmer as alleged shadow director, for insolvent trading.

The special-purpose liquidators have also been told to investigate QN’s historical affairs and possible claims against its parent companies, QNI Metals and QNI Resources, both ultimately controlled by Mr Palmer.

Mr Palmer denies he acted as a shadow director and both men deny any wrongdoing.

Mr Mensink is overseas and has not yet been served with a summons.

Mr Palmer could also be interrogated about his personal assets, such as property, as liquidators seek funds that might be distributed to creditors.

Under the Corporations Act, examinees are entitled to claim privilege against self-incrimination before each answer. That does not shield the witnesses from answering a question, but prevents their answers being used against them as evidence in future criminal or civil proceedings, apart from perjury. The Australian understands the strategy is used commonly by witnesses in public examinations, particularly directors or former directors of failed companies.

Mr Palmer did not respond to questions from The Australian yesterday.

The former federal MP for Fairfax, who stood down before this year’s election, twice tried and failed to avoid the public examination. Both attempts were dismissed by Federal Court judges, who said the hearings were in the public interest.

…………………………………….. END OF NEWS ITEM

Court upholds ATO’s right to access company records held by liquidators

Corporate Insolvency, Insolvency Law, Taxation Issues Comments Off

Feb 112016

Illegal Phoenix Squad

Warners case

Speaking of legal disputes between liquidators and the Australian Taxation Office (ATO)*, the ATO achieved victories in July and November 2015 in the Warner case, a case which arose as part of the ATO’s attack on phoenix company activity.
* See my blogs on the Australian Building Systems case .

Warners case is reported in Commissioner of Taxation v Warner [2015] FCA 659 (the first case) and Commissioner of Taxation v Warner (No 2) [2015] FCA 1281 (the second case).

The first Warners case

A case was brought before the Federal Court because the liquidators of a group of nine companies (creditors’ voluntary winding up, June 2013) which owed millions in tax debts refused to comply with demands by the ATO that they produce company documents. Those demands were issued in the course of investigations by the Phoenix Team of the Private Groups and High Wealth Individuals Business Line at the ATO. The basis for the demands was section 264 of the Income Tax Assessment Act 1936 and section 353-10 of Sch 1 to the Taxation Administration Act 1953.

The liquidators took the position that section 264 of the ITAA 1936 must be read as subject to section 486 of the Corporations Act 2001, which states that: “The Court may make such order for inspection of the books of the company by creditors and contributories as the Court thinks just, and any books in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise”. The liquidators claimed that the ATO, in common with any other creditor, must obtain a court order under section 486 before it can inspect the companies’ records held by the liquidators.

The Federal Court disagreed. It found that the liquidators were required to grant access to the documents demanded by the ATO, and that section 486 of the Corporations Act did not apply.

The group

At the bottom of this post is a list of the nine companies (known as the TJT group) involved in both the first and second case, showing their names, and former names, and their reported debts to the ATO. According to the Federal Court judge (Perry J) the group’s tax debt is/was “approximately $20 million, even without taking account of TJT (No 1)’s tax liability which is yet to be advised”. As is usually the case in phoenix activity, the companies changed their names several times. It appears from their former names that they were in business as employment, recruitment and/or human resources agents.
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Pre-appointment support for DOCA may be an inducement for valuable consideration

Corporate Insolvency, court decisions, External administration, External administrators, Insolvency Law, law reports, Offences Comments Off

Dec 152014

Registered liquidators are aware that they are prohibited by law from giving, or agreeing or offering to give, someone valuable consideration with a view to securing their own appointment or nomination as a liquidator or an administrator of a company, or an administrator of a deed of company arrangement (section 595 of the Corporations Act 2001).

But I wonder how many of them would be aware that giving an assurance of support for a proposed Deed of Company Arrangement may be an inducement under section 595.

The Chief Justice of the South Australian Supreme Court, Chief Justice Kourakis, took this view in his judgment in the case of Viscariello v Macks [2014] SASC 189, handed down on 9 December 2014.

Mr John Viscariello, a company director, alleged that registered liquidator Mr Peter Macks, administrator of two of Mr Viscariello’s companies, wrongfully failed to negotiate and put in place a Deed of Company Arrangement which would have allowed the companies to continue to trade under a changed ownership structure.

There were several other matters adjudicated upon in this case, and in a sense the allegation that the administrator had given an undertaking to the director that he would support a certain Deed of Company Arrangement (DOCA) became secondary.

But the comments by Chief Justice Kourakis are intriguing.

Chief Justice Kourakis

Mr Viscariello alleged that Mr Macks made certain representations to him and Mr Fred Bart (a businessman and entrepreneur who was a prospective purchaser of the company’s business) in a meeting in November 2001 to the effect that if he (Macks) were appointed as administrator, he would cause the company to enter into a deed of company arrangement reflecting the terms in a Heads of Agreement document, refered to by His Honour as “the proposed Bart DOCA”.

His Honour said:

“I find it unlikely that Mr Macks would have given an unqualified assurance that he would support the proposed Bart DOCA in breach of his duty to investigate the financial circumstances of the Companies and provide opinions to creditors.” [Para 122 of judgment]
….
“It is inherently improbable that he would have made the unqualified representations pleaded by Mr Viscariello.”[Para.125]
….
“If the pleaded representations were made and an agreement or understanding reached to that effect, Mr Macks would have breached s 595 of the Corporations Act and both Mr Bart and Mr Viscariello would have procured him to do so.” [Para.128]
….
“It would be contrary to the public interest to allow Mr Viscariello to recover damages for a misrepresentation which arises out of a failure to give effect to an unlawful arrangement.(Footnote 76) With respect to the false and misleading conduct alleged against Mr Macks in respect of the 27 November meeting with Mr Viscariello and Mr Bart, I reject Mr Viscariello’s evidence that Mr Macks gave an assurance that he would ensure that the Companies would enter into the Bart DOCA.” [para. 130](Emphasis added)

Footnote 76: Yango Pastoral Co Pty Ltd v First Chicago (Australia) Limited (1978) 139 CLR 410; Brownbill v Kenworth Trucks Sales (NSW) Pty Ltd (1982) 39 ALR 191; Alexander v Rayson [1936] 1 KB 169; McCarthy Rose (Milk Vendors) Pty Ltd v Dairy Farmers Coop Milk Co Ltd (1945) 45 SR(NSW) 266; Mason v Clarke [1955] AC 778.

Click here for pdf copy of judgment by Chief Justice Kourakis on 9 December 2014: Judgment in Viscariello v Macks [2014] SASC 18

Employees of 19 abandoned companies rescued by ASIC. Companies named.

ASIC, Corporate Insolvency, Insolvency Law, Insolvency practices, Insolvency Statistics, Phoenix company activity, Regulation, White collar crime Comments Off

May 152014

Since mid-2012, when the Australian Securities and Investments Commission (ASIC) was given the power to wind up companies that met certain criteria, ASIC has ordered the winding up of 19 companies.

In its media releases ASIC has estimated that those 19 companies have over $1.5 million in unpaid employee entitlements (wages, leave, etc.) owing to 100 workers.

As a result of the companies being wound up, those workers will be entitled to claim payment of their entitlements from the Fair Entitlements Guarantee (FEG) scheme administered by the Department of Employment.

The following chart lists the 19 “abandoned companies” wound up by ASIC. They are called “abandoned” because ASIC believes they are no longer carrying on business and that their directors have effectively walked away from them and their debts. abandon-companies

Background:

In July 2012 ASIC was given the power to order the winding up of a company in certain circumstances [Part 5.4C of the Corporations Act 2001] [Section 489EA]. In the lead up to this legislation the phrase “abandoned companies” was coined to describe such companies. Shortly after obtaining these powers ASIC decided that its primary consideration when exercising its discretion would be whether ordering the winding up of a company would facilitate employee access to funds from the government’s General Employee Entitlements Scheme (GEERS), since replaced by the Fair Entitlement Guarantee scheme (FEG). [ASIC Consultation Paper 180]. This objective had been the main reason behind introduction of the new law, which was part of the Gillard Government’s Protecting Workers’ Entitlements package of April 2012. A precondition for an employee of a company receiving a payment from GEERS/FEG is that the company be placed into liquidation.

Links:

ASIC media release 13-233MR “Workers to gain access to entitlements after ASIC employs new powers” 27 August 2013 ASIC media release 14-097MR ” ASIC wind-up actions enable access to employee entitlements” 6 May 2014

Targeting phoenix activity: union asks Senate for tougher laws and action

ASIC, Australian Senate 2013-14, Corporate Insolvency, Employee Entitlements, Official Inquiries, Phoenix company activity, Regulation, White collar crime Comments Off

Oct 252013

The Australian Manufacturing Workers’ Union (AMWU) has focused its recent submission to the inquiry by the Australian Senate into “The performance of the Australian Securities and Investments Commission” on the issue of phoenix company activity.

The AMWU claims that “ASIC’s failure to adequately hold directors to account has cost millions of dollars worth of unpaid entitlements for employees nationwide. The time is now for action to be taken, impunity to end, and for unscrupulous directors to be held accountable.”

The AMWU submission (21 October 2013) makes four recommendations, namely:

1) Increasing resources and funding to ASIC so that it can properly investigate corporate misbehaviour.

2) A comprehensive review and amendment of s 596AB of the Corporations Act to provide stronger safeguards for employee entitlements and allow for more successful actions by ASIC and liquidators.

3) Introducing a reverse onus procedure by which a director, where there has been an adverse liquidators’ report lodged against them, will be required to ensure that they have acted honestly and responsibly in relation to company affairs.

4) Increasing ASIC’s legislative powers to hold directors and officers personally responsible for unpaid employee entitlements, with a particular focus on phoenix activity.

In expanding on and explaining these recommendations the AMWU says:

1) “ASIC is under-resourced to handle the thousands of complaints submitted to it every year. Regardless of what legislative or regulatory reforms are undertaken, without additionally funding, ASIC will not be able to protect the interests of even the most vulnerable of parties, such as employees. There needs to be a commitment to replace impunity with accountability, and increased resources and funding to ASIC must be the driving force behind this.”

2) “The intention behind s 596AB was to “deter the misuse of company structures … to avoid the payment of amounts to employees that they are entitled to prove for on liquidation of their employer”. This intention has not materialised. Instead, the criticism that s 596AB will prove to be a “toothless tiger… so hard to prove that nobody will be effectively prosecuted” has been proven true. This recommendation would allow for ASIC to, more easily, bring proceedings against directors who have compromised employee entitlements through corporate restructures. This would have a threefold effect of protecting employee entitlements, holding dishonest directors to account, and deterring similar conduct.”

3) “This recommendation is modelled upon Irish legislation under the Companies Act 1990 (Ireland) s 149. In Ireland, where an adverse liquidators’ report has been lodged, directors must ensure that a large amount of equity capital is invested in the new company (at least £100 000 with a minimum of £20 000 paid up in cash) or are required to prove in court why they should not be required to do so. This reverse onus procedure would reduce the detection and compliance burden on ASIC.”

4) “The AMWU submits that continued review of the anti-phoenix activity measures implemented be undertaken, especially in light of the first anniversary of the enactment of the Corporations Amendment (Phoenixing and Other Measures) Act 2012 (Cth).”

In support of its submission the AMWU gives its summary of the following recent cases:

• Steel Tube Pipe Group
• Forgecast Australia Pty Ltd (AMWU v Beynon [2013] FCA 390)
• Carlton Sheet Metal Pty Ltd
• Huon Corporation
• Paragon Printing Ltd

The inquiry by the Senate Standing Committee on Economics began on 20 June 2013. Submissions were to close on 21 October 2013. The Committee is due to report by 31 March 2014.