insolvency practitioners

ASIC catalogues where a liquidator failed to perform his duties

ASIC, Checklists and guides, Corporate Insolvency, Duties of External Administrators, External administrators, Insolvency practices, Regulation, Standards Comments Off

Jun 292017

In reporting on the results of an investigation into the conduct of a Victorian registered liquidator operating as a sole practitioner, the Australian Securities and Investments Commission (ASIC) has provided a list of procedures which the liquidator failed to carry out.

The catalogue serves both as a guide to some of the duties that ASIC regards as important, and as a reminder to liquidators.

Extract from ASIC Media Release 28 June 2017

ASIC’s concerns centred on alleged failures to:

conduct pre-appointment independence reviews;

send to third parties adequate ‘Day One’ correspondence;

properly investigate company affairs;

take steps to protect and secure assets in a timely manner;

adequately investigate potential illegal phoenix activities and taxation offences of directors and their advisors;

make sufficient requests of company officers for books and records;

seek prompt assistance from ASIC under the Liquidator Assistance program where the company director or accountant failed to provide adequate books and records;

undertake adequate review of voidable transactions, including unfair preferences and uncommercial transactions;

lodge complete reports with ASIC;

provide creditors with adequate reporting to enable informed assessment of remuneration requests and may have drawn remuneration he was not entitled to; and

comply with legal requirements to document work undertaken.

Not each and every one of ASIC’s concerns were found in all of the external administrations reviewed.

ASIC Commissioner John Price said, ‘ASIC continues its focus on registered liquidators who fail to carry out their legal obligations to carry out adequate investigations and report fully to creditors, including in circumstances suggesting pre-appointment illegal activity.

‘Creditors have every right to expect registered liquidators to act independently and competently – especially given their role as a fiduciary. The community needs to have trust and confidence in the administration of insolvent companies.

‘ASIC will continue to review and take action against liquidators whom ASIC believes fall short of meeting legal and professional standards.’

Law change is significant win for insolvency practitioners

Corporate Insolvency, External administration, Insolvency Law, Insolvency practices, Law reform proposals, Practitioners Association (ARITA) Comments Off

May 082017

Before it is due to come into effect on 1 September 2017, section 60-20 of the Insolvency Practice Schedule (Corporations) (Australia) is to be amended.

Under the heading “Refining the Insolvency Law Reform Act 2016”, the Minister for Revenue and Financial Services has released draft legislation of amendments to the Corporations Act 2001 and Bankruptcy Act 1966.

The professional association representing insolvency practitioners has welcomed the amendments. The Australian Restructuring Insolvency & Turnaround Association (ARITA) says (on its website 5/5/2017):

The section would (have) require(d) external administrators and trustees to obtain consent from creditors prior to related entities obtaining any profit or advantage from any administration or estate – effectively requiring Insolvency Practitioners to seek creditor approval for their own firms to work on an appointment. We are delighted that Treasury have announced draft legislation specifically to resolve this issue. It is now clear that once remuneration is approved, further approval to share that remuneration with related parties (e.g. an Insolvency Practitioner’s firm or partners) is not required …. ARITA has been working very hard behind the scenes on this under strict confidentiality. The draft legislation is on The Treasury’s website for consultation. This is a significant win for the profession, achieved by ARITA.

Illustration of Change to Corporate Insolvency Law

I have set out below an illustration of the changes that are being made to section 60-20 of the Insolvency Practice Schedule (Corporations). Although “interested parties” have been invited to make a submission regarding the draft legislation by 17 May 2017, it is doubtful whether there will be any change to the draft. Continue reading »

Regulating insolvency practitioners: what ASIC aims to achieve in 2016-17

ASIC, Corporate Insolvency, External administrators, Regulation Comments Off

Dec 202016

The Australian Securities and Investments Commission (ASIC) has a business plan to guide its regulation of insolvency practitioners. In 2016-17 two new projects have been added to the ongoing ones. Here is ASIC’s summary of the plan as published recently on its website …

2016-17 ASIC Business Plan Summary by Sector: Insolvency Practitioners

ASIC Key Projects		ASIC Focus
Stakeholder engagement Communicating with industry and individual firms to reinforce and articulate standards and expectations (ongoing project)		⚬ Communicating with stakeholders (e.g. through media releases, journal articles, ad-hoc bulletins, regular newsletters), including in relation to surveillance outcomes, to reinforce and articulate standards and expectations ⚬ Releasing key communications, such as: – Annual report on supervision of registered liquidators – Monthly insolvency statistics – Annual report on insolvency statistics ⚬ Engaging with stakeholders, including meeting with individual firms and industry bodies (such as the Australian Restructuring, Insolvency and Turnaround Association (ARITA), Chartered Accountants Australia and New Zealand, CPA Australia, and Australian Financial Security Authority, and other government agencies such as the Australian Taxation Office, Department of Employment and Fair Work Ombudsman ⚬ Participating in and contributing to the Phoenix Taskforce and the Serious Financial Crime Taskforce
Information for registered liquidators and other stakeholders (new project)		⚬ Working closely with industry to further develop guidance and lift standards of conduct ⚬ Reviewing existing ASIC guidance to reflect law reform and improving existing creditor and other stakeholder information published by ASIC ⚬ Reviewing and improving what information registered liquidators currently report to facilitate the assessment and, where appropriate, investigation of reports of alleged misconduct
Registered liquidators’ independence and remuneration (new project)		⚬ Independence (including referral relationships with pre-insolvency advisors) and remuneration (including adequacy of disclosure and reasonableness); anticipated to continue into 2017-18
Surveillance of high-risk registered liquidators (ongoing project)		⚬ Misconduct resulting from conflicts of interest, incompetence and improper gain
Ensuring compliance with statutory lodgements obligations and publication of notices requirements (ongoing project)		⚬ Reviewing registered liquidator outstanding statutory lodgements and publication of notices (including insolvency and external administration related notices) on the ASIC published notices website to identify systemic non-compliance
Lodgement of annual statements (ongoing project)		⚬ Reviewing all annual statements from registered liquidators to detect non-compliance with the requirements to maintain registration, including identification of potential competence concerns
Transactional reviews (ongoing project)		⚬ Undertaking reviews identified through referrals, and responding to identified concerns including: – inappropriate relationships between registered liquidators and pre-insolvency advisers – inadequate declarations of relevant relationships and indemnities – inadequate remuneration disclosure
Investigate and where appropriate take administrative or court action (ongoing project)		⚬ Investigating and taking action against registered liquidator misconduct, as identified through surveillances and referrals
Policy advice Support development and implementation of key Government law reforms and other initiatives (ongoing project)		⚬ Advising Government on proposed insolvency reforms (including proposed reforms in the Government’s National Innovation and Science Agenda) and implementing the Insolvency Law Reform Act 2016, including engaging with Treasury, industry and professional bodies, introducing new guidance and implementing IT and business process changes ⚬ Delivering an enhanced ASIC Form 507 Report as to Affairs (RATA), including stakeholder consultation, to provide better information to facilitate the conduct of external administrations and improve reporting to creditors ⚬ Liaising with Treasury and industry/professional bodies regarding the Government’s proposals/reforms to facilitate corporate restructure (a ‘safe harbour’ and voiding of ipso facto clauses) from the Productivity Commission (in recommendations from its inquiry report into business set-up, transfer and closure) and the Government’s National Innovation and Science Agenda

Introducing the Insolvency Law Reform Bill 2015

Corporate Insolvency, Insolvency Law, Insolvency practices, Personal Bankruptcy, Regulation Comments Off

Feb 022016

On 3 December 2015 the Insolvency Law Reform Bill 2015 was introduced into Australia’s House of Representatives. The Bill is a newer version of the 2014 draft Bill (Insolvency Law Reform Bill 2014), which was released in November 2014.

Ministerial Summary of the Insolvency Law Reform Bill 2015

The Bill was introduced to Parliament with this speech by Mr Alex Hawke, Assistant Minister to the Treasurer. The following is a copy of his speech. I have added headings to improve readability.
Continue reading »

ARITA publishes tax guide for insolvency practitioners

Checklists and guides, Corporate Insolvency, Insolvency practices, Personal Bankruptcy, Practitioners Association (ARITA), Taxation Issues Comments Off

Jun 112015

Tax Checklist for IPs
The Australian Restructuring Insolvency and Turnaround Association (ARITA), with the help of professional services firm PricewaterhouseCoopers Australia (PWC), has published a tax guidance checklist to assist insolvency practitioners with identifying tax issues and their obligations on taking insolvency appointments. (Publication date 10 June 2015)

The checklist has 57 questions, alerts, recommendations and tasks concerning income tax, goods and services tax, fringe benefits tax, PAYG withholding, and superannuation guarantee.

ARITA suggests that “Members should note that while ARITA will endeavour to ensure that this guidance is kept up to date, tax is an area subject to constant change and the guidance is current, to the best of our knowledge, as at the date included in the footer of the document. Members should ensure that they are always using the most current version of the guidance”.

The checklist is intended to provide assistance and help to insolvency practitioners in the complicated field of tax compliance. There is no suggestion from ARITA that use of their tax guide is mandatory or necessary or even recommended.

Extract from ARITA tax guide

Access to the full guide is available through the ARITA website: CLICK HERE.

Update 14 July 2015:

From ARITA on 13 July:

ARITA has received a number of queries from members regard the relevant PAYG Withholding Rates for dividends paid to employees by external administrators in light of the increase to the Medicare Levy.

On consultation with the ATO, we have been advised that the 2005 Notice of Variation is still current and the 31.5% standard rate still applies and will continue to do so until the notice of variation ceases on 1 October 2015.

The ATO further advises that it is looking to renew the notice but before that occurs will consult with relevant stakeholders, including ARITA and external administrators, about whether changes need to or should be made to the current notice, including any changes to the rates on the notice.

Policy positions of the insolvency practitioners association

Corporate Insolvency, External administration, External administrators, Insolvency Law, Insolvency practices, Official Inquiries, Practitioners Association (ARITA) Comments Off

Mar 052015

A set of “policy positions” on insolvency law and practice has just been issued by Australia’s insolvency practitioners association – the Australian Restructuring Insolvency and Turnaround Association (ARITA).

The policies are titled:

Policy 15-01: ARITA Law Reform Objectives (Corporate)
Policy 15-02: Aims of insolvency law
Policy 15-03: Current Australian corporate restructuring, insolvency and turnaround regime and the need for change
Policy 15-04: Creation of a Restructuring Moratorium (Safe Harbour)
Policy 15-05: Stronger regulation of directors and creation of a director identification number
Policy 15-06: Advocate for Informal Restructuring
Policy 15-07: Reworked Schemes/Voluntary Administration regimes to aid in the rehabilitation of large enterprises in financial distress
Policy 15-08: Extension of moratorium to ipso facto clauses
Policy 15-09: Streamlined Liquidation for Micro Companies
Policy 15-10: Micro Restructuring
Policy 15-11: Pre-positioned sales

ARITA’s 17-page paper – named Policy Positions of the Australian Restructuring Insolvency and Turnaround Association – is the final version of its discussion paper, A Platform for Recovery 2014. It is attached to its submission on 2 March 2015 to the Productivity Commission’s public inquiry into ” barriers to setting up, transferring and closing a business”.

It seems ARITA’s policy positions paper is not yet (mid-day 5/3/15) published as a separate document on ARITA’s website. However, I have created a copy, which is available on my website now.

ARITA’S full 59-page submission to the Productivity Commission is available on its site, as is its useful summary of the key points made in the submission. ARITA says that the policies in the Policy Positions paper form the key basis of ARITA’s submission to the Productivity Commission.

Other link: To the website of the Productivity Commission’s Business Set-up, Transfer and Closure inquiry.

Insolvency law in United Kingdom to help external administrators obtain essential supplies

Corporate Insolvency, External administration, Insolvency Law Comments Off

Feb 102015

In the UK on 9 February 2015 the government issued the following statement by the Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs (Business Minister, Jo Swinson) :

Rescuing struggling but viable businesses out of formal insolvency helps save jobs and improves the prospect of creditors recovering some of what they are owed. The Enterprise and Regulatory Reform Act 2013 introduced new powers to help insolvency practitioners secure essential IT and utility supplies to keep a business going whilst it is being rescued.

I have today laid an Order to ensure that insolvency practitioners can retain the essential supplies they need to save viable businesses. There will be an impact on suppliers in the IT and utility sectors but I believe that by providing strong safeguards to ensure the supplier can have confidence they will be paid, we will ensure that the benefits of this measure far outweigh the
costs. In particular:

1. The supplier will be able to seek a personal guarantee from the insolvency practitioner at any time to give them more certainty that the supplies will be paid for.
2. The supplier will be able to apply to court to terminate their contract on the grounds of
‘ hardship’.
3. Guidance will be issued to insolvency practitioners to urge them to make contact with essential suppliers at the earliest possible time following their appointment to discuss their needs in relation to supply, to ensure that undue costs are not incurred.

The Government’s aim remains to ensure that a balance is struck between ensuring the rescue of viable businesses against the obligations placed on those suppliers that will be impacted by the Order. The proposed changes will have effect in relation to contracts made after 1 October 2015.

The Government consulted on how those new powers should be exercised and whether the safeguards proposed were adequate to ensure that those essential suppliers bound to supply an insolvent business would be paid. A total of 31 responses were received and I am very grateful for the time those respondents took to provide constructive feedback to the consultation. Almost all respondents expressed their support for the aims of the proposals with some suggesting ways to make the safeguards more effective. The draft Order was amended in the light of comments received.

Source: House of Commons: Written Statement (HCWS265)

Press Release: Insolvency Service Essential supplies to be guaranteed during business rescue

The Insolvency Service: Summary of Responses: Consultation on the Continuity of Essential Supplies.

ATO modifies website page for insolvency practitioners

Corporate Insolvency, External administration, Insolvency practices, Payments to ATO, Personal Bankruptcy, Taxation Issues Comments Off

Feb 042015

The Australian Taxation Office (ATO) has modified the section of its website that provides advice and information to insolvency practitioners on the various taxation questions and topics that pertain to them. (Modifications made 29 January 2015.)

The following headings in red are links to the subjects on the ATO page:

Contacting us about insolvency

“How to contact us regarding insolvency matters.”

Online services and forms

“Here you will find the Business Portal FAQ, Voidable transaction claim form, Appointment or cessation of a representative of an incapacitated entity form and Debt insolvency cover sheet.”

Responsibilities

“Administrative obligations of external administrators in both personal and corporate insolvency.”

Disclosure of taxpayer information – insolvent entities

“You may need to access information we hold to help you administer an insolvent estate. The information we disclose varies depending on the type of insolvency administration. Find out how to obtain this information from us.”

Preference payments

“Information for insolvency practitioners seeking recovery of voidable transactions.”

Indemnities for trustees and liquidators

“What trustees and liquidators need to consider when making an indemnity request to the Deputy Commissioner of Taxation.”

Superannuation and insolvency

“Information about how superannuation affects insolvency administrations.”

Reports on our management of insolvent entities

“Independent reviews into our decisions to enforce insolvency.”

Shares and securities

“Claiming capital losses on shares and securities that are declared worthless.”

PAYG withholding

“Pay as you go (PAYG) withholding is a system that collects tax from the payments businesses make to employees and other businesses, so they can meet their tax liabilities. Information is provided here for external administrators and trustees of bankrupt estates to understand what they need to do to meet their administrative obligations under the PAYG withholding system.”

Insolvency industry bodies may request disciplinary action by ASIC against registered liquidators

ASIC, Corporate Insolvency, External administrators, Insolvency Law, Law reform proposals, Practitioners Association (ARITA), Regulation Comments Off

Dec 092014

Under the Insolvency Law Reform Bill 2014 the insolvency practitioners association and the accountants associations are to be granted the right to formally refer registered liquidators who they suspect are guilty of misconduct to the Australian Securities and Investments Commission to consider using its disciplinary powers.

Disciplinary-action The following table sets out the proposed legislation by using extracts from the Bill and related official material.

SUBJECT: DISCIPLINE OF REGISTERED LIQUIDATORS:
POWER OF INDUSTRY BODY TO GIVE INDUSTRY NOTICE

SELECTED EXTRACTS FROM THE DRAFT BILL, PROPOSED RULES, ETC.	SOURCE OF TEXT
Subdivision G of Division 40 provides that an industry body will be able to provide information about potential breaches of the law by a liquidator, and also be able to expect a response from ASIC on the outcome of that information provision. The following industry bodies are proposed to be prescribed bodies: • Australian Restructuring Insolvency & Turnaround Association; • CPA Australia; • Institute of Chartered Accountants in Australia; and • Institute of Public Accountants.	Insolvency Practice Rules Proposal Paper, page 19, para 110
An industry body (prescribed in the Insolvency Practice Rules) may lodge a notice (*an industry notice*) stating that the body reasonably suspects that there are grounds for ASIC to take disciplinary action against a registered liquidator. The industry body must identify the registered liquidator and include the information and copies of any documents upon which the suspicion is grounded. ASIC must consider the information and documents included in the industry notice and take action as follows: • if ASIC decides to take no action ASIC, must give the industry body a notice within 45 business days after the industry notice is lodged; • however, such a notice does not preclude ASIC from taking action based wholly or partly on the basis of information in the industry notice of the following kind: – suspending or cancelling the registration of the registered liquidator; – giving the registered liquidator a show cause notice; or – imposing a condition on the registered liquidator; • if ASIC does take action based wholly or partly on the information included in an industry notice, ASIC must give the industry body notice of that fact. An industry notice is not a legislative instrument. An industry body is not liable civilly, criminally or under any administrative process for giving an industry notice if the body acted in good faith and the suspicion that the body holds in relation to the subject of the notice is a reasonable suspicion. A person who makes a decision in good faith as a result of which an industry body gives an industry notice is not civilly, criminally or under any administrative process for making the decision. A person who gives information or a document in good faith which is included, or a copy of which is included, in an industry notice is not liable civilly, criminally or under any administrative process for giving the information or document.	Explanatory Material, pages 140-141, paras 6.67 to 6.70
An industry body (which will be prescribed in the Insolvency Practice Rules) may give ASIC an ‘industry notice’ stating that the industry body reasonably suspects that there are grounds for ASIC to take disciplinary action in relation to a registered liquidator. ASIC is required to notify the industry body whether or not it has decided to take action in relation to the matters in the industry notice. An industry body is not liable civilly, criminally or under any administrative process if the body acted in good faith and its suspicion in relation to the subject of the notice is a reasonable suspicion. A person who makes a decision in good faith as a result of which an industry body gives a notice is not liable civilly, criminally or under any administrative process. Similarly, a person who in good faith provides information or gives a document which is included in an industry notice, or a copy of which is included, is not liable civilly, criminally or under any administrative process.	Explanatory Material, Comparison of key features of new law and current law, page 125
Notice by industry bodies of possible grounds for disciplinary action Industry body may lodge notice (1) An industry body may lodge with ASIC a notice in the approved form (an industry notice): (a) stating that the body reasonably suspects that there are grounds for ASIC: (i) to suspend the registration of a registered liquidator under section 40-25; or (ii) to cancel the registration of a registered liquidator under section 40-30; or (iii) to give a registered liquidator a notice under section 40-40 (*a show-cause notice); or (iv) to impose a condition on a registered liquidator under another provision of this Schedule; and (b) identifying the registered liquidator; and (c) including the information and copies of any documents upon which the suspicion is founded. ASIC must consider information and documents* (2) ASIC must consider the information and the copies of any documents included with the industry notice. ASIC must give notice if no action to be taken (3) If, after such consideration, ASIC decides to take no action in relation to the matters raised by the industry notice, ASIC must give the industry body written notice of that fact. 45 business days to consider and decide (4) The consideration of the information and the copies of any documents included with the industry notice must be completed and, if ASIC decides to take no action, a notice under subsection (3) given, within 45 business days after the industry notice is lodged. ASIC not precluded from taking action (5) ASIC is not precluded from: (a) suspending the registration of a registered liquidator under section 40-25; or (b) cancelling the registration of a registered liquidator under section 40-30; or (c) giving a registered liquidator a notice under section 40-40 (a show-cause notice); or (d) imposing a condition on a registered liquidator under another provision of this Schedule; and wholly or partly on the basis of information or a copy of a document included with the industry notice, merely because ASIC has given a notice under subsection (3) in relation to the matters raised by the industry notice. Notice to industry body if ASIC takes action (6) If ASIC does take action of the kind mentioned in subsection (5) wholly or partly on the basis of information or a copy of a document included with the industry notice, ASIC must give the industry body notice of that fact. Notices are not legislative instruments (7) A notice under subsection (3) or (6) is not a legislative instrument. No liability for notice given in good faith etc. (1) An industry body is not liable civilly, criminally or under any administrative process for giving a notice under subsection 40-100(1) if: (a) the body acted in good faith in giving the notice; and (b) the suspicion that is the subject of the notice is a reasonable suspicion. (2) A person who, in good faith, makes a decision as a result of which the industry body gives a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for making the decision. (3) A person who, in good faith, gives information or a document to an industry body that is included, or a copy of which is included, in a notice under subsection 40-100(1) is not liable civilly, criminally or under any administrative process for giving the information or document.	Insolvency Law Reform Bill 2014 Exposure Draft, Insolvency Practice Schedule (Corporations), sections 40-100 and 40-105, pages 186 & 187

Financial System Inquiry: insolvency practitioners have their say

Corporate Insolvency, Financial System Inquiry, Insolvency practices, Practitioners Association (ARITA) Comments Off

Sep 032014

The Australian Restructuring Insolvency and Turnaround Association (ARITA) has released its second-round submission (26/8/2014) to the government’s Financial System Inquiry (FSI). ARITA has more than 2,200 members practising in, or interested in, the insolvency and restructuring industry. It’s full 32 page submission can be seen HERE. The Executive Summary from the submission appears below:

ARITA submission Part 1

ARITA-exec-summary-part2

ARITA-exec-summary-part3

Older Entries

Extract from ASIC Media Release 28 June 2017

Illustration of Change to Corporate Insolvency Law

ASIC Key Projects

ASIC Focus

Ministerial Summary of the Insolvency Law Reform Bill 2015

Update 14 July 2015:

Insolvency Practitioners