misconduct – ░░░ 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”.

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

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.]