Too many liquidators failing to provide adequate disclosure to creditors on relationships

 ASIC, Corporate Insolvency, Insolvency Laws, Insolvency practices, Offences, Regulation, Standards  Comments Off on Too many liquidators failing to provide adequate disclosure to creditors on relationships
Jul 242013

When the Australian Securities and Investments Commission (ASIC) released its report on supervision of registered liquidators it bemoaned the fact that its compliance checks had found a 10% increase in inadequate declarations, up from 46.9% in 2011 to 56.3% in 2012.

In the accompanying Media Release ASIC Commissioner John Price was fairly blunt:

“The increase in inadequate declarations concerns ASIC. Liquidators must make full disclosure to creditors when it comes to their independence. Given our guidance, and education programs through the Insolvency Practitioners Association of Australia (IPA), there is no good reason for such a failure rate.”

Under the Corporations Act 2001 liquidators and administrators (other than those appointed by the Court) are required to make written declarations to creditors concerning indemnities they have received and relationships they have, or have had, with certain defined “persons” within the preceding 24 months. Both declarations are to be made and sent to creditors before the first meeting of creditors is held. The Declaration of Relevant Relationships and Declaration of Indemnities are referred to collectively in the insolvency profession as a DIRRI.

Fawlty Dirri


An “inadequate” DIRRI is described in ASIC’s report (para 56) as one which:

(a) fails to disclose a relevant relationship in pre-appointment dealings and/or, where such a relevant relationship has been identified, adequately explain why it does not create a conflict of interest;

(b) fails to disclose all companies involved in appointments to a group of companies, and whether or not circumstances existed between the group entities that may give rise to a conflict and, if so, how the appointees would manage those issues; and/or

(c) is not signed by all appointees.

More detailed guidance on how to make sure a DIRRI is adequate was given to registered liquidators in an email sent to them on 28 June 2013 by Adrian Brown, leader of ASIC’s Insolvency Practitioners Team.

The email extract below is Mr Brown’s description of “seven key areas for improving the likelihood that your DIRRIs do comply with the law, relevant professional standards and the IPA’s Code of Professional Practice.”

“1. Disclose pre appointment dealings/advice

Provide meaningful information about the nature and extent of pre-appointment meetings (regardless of the nature of the meeting or dealing, be it face to face meetings, telephone discussions or email/ other electronic communications) with the company’s directors and any of their advisors.

2. Disclose relationships

Disclose all relevant relationships in accordance with the Act, professional standards and the IPA Code to ensure full disclosure and transparency. We suggest you consider:

· how the relevant relationship might impact your ability to act in the best interests of creditors; and

· whether there is a reasonable chance that creditors might consider that independence is, or appears to be, compromised by that relationship if it were to subsequently come to light.

3. Provide a reason why a relationship does not result in a conflict

Give a reason why you believe each relevant relationship does not result in a conflict of interest or duty. The reasons provided must be specific to the appointment and should not simply be a restatement of example reasons provided in the IPA Code.

Merely stating that a relationship will not affect your independence, or that you received no payment for pre-appointment advice or meetings, is NOT a “reason”.

4. Disclose when appointed to a group of companies

Where the appointment is to a number of companies in a group, the DIRRI should specifically refer to each company and cite a reason why you believe that multiple appointments will not result in a conflict of interest or duty.

You should also consider what steps you must take should you become aware of an actual or potential conflict after the appointment.

5. Disclose external administrations with common directors

Documented conflict checks undertaken pre-appointment should show if you or your firm acted, or continue to act, as external administrator of another company with the same or a common director where the appointment occurred within two years before the new appointment.

Where this occurs, the relationship should be disclosed together with the reason why you believe the new appointment will not result in a conflict of interest or duty.

6. Disclose indemnities and other up-front payments

Disclose full details of the nature and extent of all non-statutory indemnities and up-front payments. This should include stating whether there are any conditions governing the indemnity, including what the indemnity can be used for.

7. Review and sign the DIRRI

It is vital that you carefully review every DIRRI before signing it. All appointees must sign the DIRRI.”

ASIC’s message is taking a long time to get across to some liquidators …

Three years ago (May 2010) Mr Stefan Dopking, then ASIC’s leader of the Insolvency Practitioners & Liquidators Stakeholder Team, wrote to registered liquidators to reveal the findings of its compliance review of DIRRIs in 2009. What ASIC found then was strikingly similar to its findings in 2012, as this extract from Mr Dopking’s letter shows:

“The review identified a number of areas where we believe the adequacy of disclosure needs improvement.  In particular, our general observations are that:

  • a large number of Declarations did  not adequately disclose the nature of the relationships or provide adequate reasons to explain why the disclosed relationships did not result in a conflict of interest or duty;
  • Declarations  did  not  clearly  articulate  whether  the registered  liquidator’s  firm  (i.e. partners or related bodies corporate) was included in the Declaration;
  • the majority of Declarations did not disclose the nature and extent of pre appointment meetings and advice;
  • prior or contemporaneous appointments as external administrators of other companies with common directors were not adequately disclosed in over 20 instances;
  • many Declarations did not provide sufficient information to adequately identify the party providing an indemnity or sufficiently disclose the nature and extent of the indemnity provided;
  • many Declarations were not signed by both joint and several appointees (ASIC is of the  view that each appointee must consider whether any relevant relationships exist that require disclosure and the Corporations Act 2001 (‘the Act’) requires each appointee to sign the relevant Declarations); and
  • it was not evident from the minutes of the meeting of creditors in many cases that Declarations were tabled at the meeting of creditors as required by the Act3. Minutes  of  the  meeting  of  creditors  should  evidence  compliance  with  this statutory requirement.”

The law requiring liquidators to prepare DIRRIs for creditors came into effect in January 2008.

(End of post)

Mystery of ION Ltd $13 million income tax refund continues despite massive report

 Tax debts, Tax liabilities, Taxation Issues  Comments Off on Mystery of ION Ltd $13 million income tax refund continues despite massive report
Oct 212010

The insolvency administrators’ 200 page report on ION Limited and subsidiaries (20/10/10) does not mention the once-anticipated income tax refund of $13 million.

So the mystery – described in my article “Insolvency administration income tax refund held up” – continues.

But then a tax dispute over $13 million could be regarded by some as trivial, compared with the momentous and complex issues addressed in the Deed Administrators’ report.  The report deals with ION Limited and its 17 subsidiary companies.  It was produced after the Deed Administrators had received from shareholders “numerous allegations of misconduct by ION”, and after the Deed Administrators obtained directions/permission regarding the report from the Federal Court of Australia.

The report’s main purpose is described in its introduction:

“In this Report we set out details of the work that has been done to date in relation to shareholder claims and the steps which remain to be taken to enable the Deed Administrators to determine these claims and to distribute funds to creditors. “

The present position in the administrations is summarised as follows:

“Since the initial appointment of the Administrators and the appointment of the Deed Administrators on 27 May 2005, the realisation of ION’s  businesses and assets has been completed. The review of proofs of debt lodged by suppliers of goods and services and by financiers has largely been completed with only a small number of complex claims still in dispute. The only matter of significance still to be concluded is the adjudication of proofs of debt lodged (or to be lodged) by shareholders.”

A taste of the report’s contents can be seen in the main headings in its Table of Contents, namely:


1. Introduction
2. Executive Summary
3. The Fund
4. Who can share in the Fund
5. Calling for and lodgement of Proofs of Debt or Claim
6. Estimated Return to Creditors
7. Updates to Creditors and Creditors’ Committee meetings
8. Purpose of Report
9. The Way Forward


10. Overview of ION Group
11. Overview of Forensic Investigation Process
12. Factual Overview
13. ION’s disclosures regarding Financial Outlook
14. Consequences if tru position disclosed
15. Potentially Actionable Disclosures and Non-Disclosures


16. Introduction
17. Financial Controls
18. Albury
19. Altona
20. Wingfield
21. North Plympton
22. Auckland
23. Kentucky
24. Energy Services
25. ION’s disclosures regarding Financial Outlook
Annexure 1. Pooled and Non-Pooled Entities.

For the full report go to and click on the link to ION Report to Creditors 20 October 2010. For a short version click on the link to Creditor information.

Enjoy the read!

Any information on what happened to the expected income tax refund would be gratefully received.


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