reports by liquidators – ░░░ INSOLVENCY INTERFACE

A blip or not? Trends in corporate insolvency statistics part ways.

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

Dec 052013

For the first time in six years the number of initial investigation reports filed with the Australian Securities and Investments Commission (ASIC) by external administrators has not risen in line with the increase in the number of companies entering external administration.

There could be several reasons for this variation, or it may simply be a blip. Next year’s statistics will be interesting.

The chart below, prepared exclusively for this blog using ASIC statistics, compares the trends from 2007/08 to 2012/13 in the numbers of corporate insolvency appointments, companies entering external administration and Schedule B investigation reports filed with ASIC.

ASIC does not appear to have commented publicly on the variation.

The following extracts from ASIC’s Report 372 (October 2013) give some general information about Schedule B reports:

“Liquidators, receivers and voluntary administrators (external administrators) must lodge reports under the following sections of the Corporations Act:

(a) s533 (by a liquidator);
(b) s422 (by a receiver); and
(c) s438D (by a voluntary administrator).

External administrators must lodge a report with ASIC as soon as practicable:

(a) when they suspect an offence under an Australian law, or instances of negligence or misconduct relating to the company to which they are appointed; or
(b) in the case of a liquidation only, when unsecured creditors are unlikely to receive more than 50 cents in the dollar dividend.

Changes to the Corporations Act introduced a statutory time limit on the lodgement of a s533(1) report by a liquidator appointed after 31 December 2007. A liquidator must lodge a report as soon as practicable and, in any event, within six months after it so appears to the liquidator that any of the conditions in s533(1)(a), (b) or (c) apply. No statutory time limit was introduced under s422 or 438D.”

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“The statistics in this report (on Schedule B investigation reports) do not directly correlate with the monthly statistics for ‘Companies entering external administration’ and ‘Insolvency appointments’ on ASIC’s website due to the time difference in lodgement of external administrators’ reports …. External administrators are not required to lodge reports where the pre-conditions of s422, 438D or 533 of the Corporations Act are not met.”

Insolvency statistics: Reports to corporate regulator by liquidators: trend in insolvency deficiencies

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

Nov 252013

This chart, prepared exclusively for this blog, shows the trend in the number of Schedule B investigation reports filed with the Australian Securities and Investments Commission (ASIC) by external administrators of insolvent corporations from 2007/08 to 2012/13 and the trend in the estimated minimum deficiency that all these corporations, taken together, are said to have incurred.

The primary data has been published by ASIC in annual reports titled, “Insolvency statistics: External administrators’ reports”.

My analysis shows that during 2012/13 the external administrators who filed Schedule B reports electronically reported deficiencies which, taken together, total an estimated minimum of $7.8 billion spread over 9,254 companies. This compares with deficiencies totalling at least $7.3 billion spread over 10,074 companies in 2011/12, and deficiencies totalling at least $6.1 billion spread over 8,054 companies in 2010/11. A deficiency is the amount by which liabilities owing by a company exceeds the value of its assets. In other words, it is the amount that creditors are expected to lose.

When completing the initial external administrator report (Schedule B), the external administrator selects from a predetermined set of options for qualitative questions, and ranges for quantitative questions. There are over 30 questions on the form.

One of those questions requires the external administrator to make an estimate of the company’s deficiency and report the result by selecting the range into which it falls. For this question there are seven ranges specified by ASIC. All ranges (except the top) have both minimum and maximum amounts. For the purposes of this analysis I have taken a conservative approach and used the bottom of the range. For example, where 2,473 companies are reported to have an estimated deficiencies in the range $50,001 to $250,000, I have used a total deficiency for that range of $123,652,473, i.e., 2,473 by $50,001. The same principal has been applied throughout my calculations. The total estimated deficiency in this chart is, therefore, the minimum or bottom of the range.

Of its compilation reports – the latest of which is Report 372 – ASIC says they have been “compiled from the estimates and opinions contained in statutory reports lodged with ASIC by liquidators, receivers and voluntary administrators (external administrators’ reports) in the format of Schedule B to Regulatory Guide 16 External administrators: Reporting and lodging (RG 16) (Schedule B report).”

In its Disclaimer ASIC says: “In compiling the statistics in this report, ASIC has relied on the information in the external administrators’ reports lodged electronically with ASIC. Other than as discussed in Section B of this report, ASIC has not verified or sought to confirm the accuracy of any information in the external administrators’ reports lodged electronically. Accordingly, the statistics in this report cannot be construed or relied on as representing a complete and accurate depiction or statement about the matters or events to which the statistics relate.”

Most reports of director misconduct are shelved

ASIC, Insolvency Laws, Offences, Regulation, White collar crime Comments Off

Nov 042010

89% of the initial offence referral reports sent to Australia’s corporate regulator by liquidators and other external administrators end up consigned to oblivion. Of the remaining 11%, approximately 66% receive a similar fate.

This data is revealed in the latest annual report by the Australian Securities and Investments Commission (ASIC), tabled in Parliament on 28 October 2010.

Unfortunately ASIC’s annual report does not offer any explanation for the result, which is that the vast majority of offence allegations are dropped or rejected.

It would be instructive to know, for example, whether a lot of statutory reports of “misconduct and suspicious activity” are badly prepared, inadequate or unjustified; and/or whether ASIC regards a lot of the alleged misconduct and offences as minor or trivial.

The official ASIC analysis chart – “Statutory reports 2009-10” – is shown below, after my own description of what the chart means. (This is my second post on this subject.)

What the ASIC chart means

In the 2009/10 financial year ASIC received 9,074 reports from liquidators, administrators and receivers (external administrators). Of these 6,509 (71.7%) contained allegations of “misconduct or suspicious activity”.

Normally ASIC does not act upon an external administrator’s allegations of misconduct or suspicious activity unless the allegations are supported by a detailed report by the external administrator.

ASIC refers to this detailed report as a supplementary report, since typically it supplements or expands upon an initial report by the external administrator.

Usually a supplementary report is put together at the request of ASIC.

In 2009/10 ASIC received 5,748 initial reports alleging misconduct or suspicious activity. Presumably all of these were “analysed and assessed”. Out of these 5,748 reports ASIC selected 11% (632) as worthy of further attention by way of a supplementary report.

The end result for the other 89% of initial reports (5,116) was to be “recorded”. This probably means that nothing worth mentioning was done about them.

The same fate befell 66% of the 761 supplementary reports alleging misconduct or suspicious activity. Of the other 34%, ASIC referred 23% (175) “for compliance, investigation or surveillance” and referred 10% (76) “to assist existing investigation or surveillance”. ASIC concluded that 1% of the reports (8) did not actually identify offences.

There is no data in the chart on how many reports by external administrators led to prosecutions for offences.

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The ASIC chart

ASIC’s notes to chart

“Initial reports are electronic reports lodged under Schedule B of Regulatory Guide 16. Generally, ASIC will determine whether to request a supplementary report on the basis of the initial report. Supplementary reports are typically detailed free-format reports, which detail the results of the external administrator’s inquiries and the evidence to support the alleged offences. Generally, ASIC can determine whether to commence a formal investigation on the basis of a supplementary report. “

ASIC ‘s official summary

“Liquidators, administrators and receivers (external administrators) are required to report to ASIC if they suspect that company officers have been guilty of an offence or, in the case of liquidators, if the return to unsecured creditors may be less than 50 cents in the dollar. As part of our response to the GFC (Global Financial Crisis), ASIC committed to increasing action on reports alleging misconduct from insolvency practitioners, following a 25% increase in insolvency appointments in 2008-09. This year, a significantly increased proportion of supplementary reports (33% compared with 24% in 2008-09) were referred for compliance, investigation or surveillance. Fewer reports failed to identify any offence.”

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The comments and materials contained on this blog are for general information purposes only and are subject to the disclaimer.