Feb 252017

Melb Uni
Researchers at Melbourne University have issued their third and final report on investigations into insolvency fraud committed through the use of phoenix companies.

The 162 page report, issued on 24 February 2017, is titled Phoenix Activity: Recommendations On Detection, Disruption And Enforcement.

In the Executive Summary the authors state:

Harmful phoenix activity, left unchecked, has the capacity to undermine Australia’s revenue base and the competitive ‘level playing field’. It is wrong that legitimate business operators, paying taxes, wages and other debts, might be driven out of business by those engaging in harmful phoenix activity. Minimising business distrust caused by harmful phoenix activity can lower the cost of finance and make it more widely available. If less tax revenue is fraudulently avoided, the economy and society as a whole benefit. If fewer employee entitlements are lost as a result of harmful phoenix activity, there is likely to be less reliance on the Fair Entitlements Guarantee, freeing up government resources for other purposes.

What was described in earlier reports as “fraudulent phoenix activity” is described in the final report as “harmful phoenix activity”.

CLICK HERE to read and/or download a copy of the report.

The authors are Professor Helen Anderson, Professor Ian Ramsay, Professor Michelle Welsh and research fellow Mr Jasper Hedges.

Their Phoenix Project (“Phoenix Activity: Regulating Fraudulent Use of the Corporate Form”) “seeks to enhance Australia’s economic stability by determining the best methods of addressing fraudulent use of the corporate form without unduly inhibiting its proper use”. The project was launched in 3 years ago.

Analysis and highlights of the report will be posted here in due course.

“Nudges” may be used by ASIC to persuade company directors to comply

 ASIC, Corporate Insolvency, Forms, Offences, Practitioners Association (IPAA), Regulation  Comments Off on “Nudges” may be used by ASIC to persuade company directors to comply
Jun 132014

A story by Michael Murray of the Australian Restructuring Insolvency & Turnaround Association (ARITA) brings news that the Australian Securities and Investments Commission (ASIC) has commissioned the Queensland University Business School to investigate “approaches that can be used to improve director co-operation with liquidators and director compliance with their statutory and other obligations”.

ASIC appears to be looking for styles of approach that are more scientific and more savvy.

The news story suggests that an approach to be considered is that of the “pure nudge”, the “assisted nudge” and the “shove”.

A “nudge” is defined in a government paper entitled “Influencing Consumer Behaviour: Improving Regulatory Design” (see below) as a change to choice architecture which influences the decision of an individual without restricting, or raising the price of, the set of choices available”.  The paper says that “under certain conditions, some evidence suggests that nudge interventions can be cost-effective relative to more direct or traditional forms of government intervention; used alongside existing regulatory approaches; targeted in influence; and easy to implement.”

ASIC seems to be keen to try the “nudges” experiment. In its April 2014 submission to the Financial Systems Inquiry ASIC recommends that it should have a more flexible regulatory toolkit such as would enable it to intervene in the financial product and service supply chain by way of ‘shoves’ and ‘nudges’ to achieve regulatory outcomes that more effectively meet the needs of investors and consumers. It suggests that simple “nudges” are likely to achieve cost-effective results in many cases.


ARITA’s news story of 6 June 2014 is headed “How Directors of Insolvent Companies [Should] Behave” and says:

“Liquidators will be aware that director compliance can be variable and that non-compliance can ultimately call for prosecution of the directors, adversely distracting liquidators from their duties and imposing costs on creditors. The behavioural economics approach seeks to influence and direct director behaviour in order to promote positive reinforcement and indirect suggestions in order to achieve compliance.

At a simple level, it could be applied to refine the form and content of letters sent by liquidators to directors stating their obligations. Improvement of the report as to the company’s financial position (the RATA) is another coalface example, ARITA research showing that it can be a daunting, unduly complex and difficult document for directors to complete: Peter Keenan, Terry Taylor Scholarship Report 2011. In some circumstances, small changes can give effect to significant behavioural changes.

ARITA sees this research as very worthwhile and it mirrors similar approaches being taken by the Australian government in other areas – see Influencing Consumer Behaviour: Improving Regulatory Design, Office of Best Practice Regulation, Department of Finance and Deregulation. Among many issues, that paper discusses the concepts of a “pure” nudge, an “assisted” nudge and ultimately a “shove”, in seeking regulatory compliance. Such approaches are used by revenue authorities in Australia and internationally. For example, in the UK, a change in the wording of letters sent to those owing income tax was claimed to have resulted in an extra £200 million in tax being collected on time.

ARITA also sees potential for research into the behaviour of directors at the pre-liquidation stage, that is, in managing a failing company that is heading towards collapse – what may usefully be used to prompt directors to take action or seek advice? to have a more real perception of the company’s financial position? to more positively react to possible insolvent trading liability and to the company’s creditors? and many other such issues.

We also see potential for this research to be applied in personal insolvency.

ARITA is monitoring the progress of this research and its outcomes. Any comments or questions? to Michael Murray, Legal Director, ARITA.

Link: Paper from Office of Best Practice Regulation in 2012 “INFLUENCING CONSUMER BEHAVIOUR: IMPROVING REGULATORY DESIGN”
Link: ASIC’s April 2014 submission to the Financial Systems Inquiry

Jul 262013

An Enforcement Outcomes report has been issued by the Australian Securities and Investments Commission (ASIC) for the six months from January to June 2013 (Report 360).

It is the fourth of its type since ASIC abandoned its Prosecution Reports. But unlike those reports – upon which I based my paper, “Convictions for summary insolvency offences committed by company directors” , a detailed comparison of prosecution outcomes over the years 2006 to 2010, including the sections of the Corporations Act under which enforcement action was taken and the fines imposed – the new Enforcement Outcomes reports provide far less information.

In the part of the  latest Enforcement Outcomes report that mentions summary insolvency offences, the reader is simply told that:

“As part of our liquidator assistance program, 249 directors were successfully prosecuted for summary offences concerning a failure to assist an external administrator.” (paragraph 86)

Similar brief references are made in the three previous reports.

So what, if anything, do these limited figures say?

About all we can do is compare the latest figure with those from the previous 18 month period.

In the six months  from July to December 2012 the comparative number of directors successfully prosecuted under the liquidator assistance program was 275. (Report 336, paragraph 91.)

Further comparisons with the two earlier Enforcement Outcomes reports might not be all that meaningful, because those reports give figures on summary “proceedings against” directors rather than the current classification of “successful prosecutions” against directors.  That said, the reports for the six months to June 2012 and for the first six months (to December 2011), put the figures at 196 and 208 respectively  (see Report 299, paragraph 48 and Report 281, paragraph 39 )

But according to ASIC, readers need to be cautious when making comparisons of such data. The Enforcement Outcomes report 360 states (at paragraph 18):

“Comparisons between individual enforcement reports have some limitations. This is because no two enforcement actions are the same. For example, there may be differences in the complexity or seriousness of the allegations. However, over a two-year period, it is possible to identify the types of conduct or sectors that are the focus of ASIC’s enforcement activity in the longer term.”

This statement – minus the final sentence – was also used in the Media Release that accompanied the report.