ASIC’s 2017 annual report – what to expect in insolvency regulation

Report 532 ASIC’s regulation of registered liquidators: January to December 2016 is a rather dense and detailed report which explains what work ASIC has been doing in its regulation of company liquidators. But ASIC’s 2017 annual report will be of more interest for the insolvency profession.

The 532 Report

“details the supervisory, enforcement, stakeholder liaison, policy and educative work ASIC undertook in its commitment to continue improving regulation of the insolvency and restructuring sector”.

It gives the standard listings of the practitioner file reviews ASIC that conducts; reports whether liquidators have missed putting any of the required publication of notices on ASIC’s website; comments on the “401 reports of alleged misconduct” of which 68% (272) were misguided; and informs us of the commencement of only six formal investigations, and so on.  The Report has over 40 tables and graphs.

Liquidators’ independence, competence and remuneration remain key focus areas for ASIC, as they seem to have for the last several years. 

This is all about 710 liquidators administering over 22,000 mostly SME insolvencies. The attention to the Report given by ASIC could perhaps have been better spent reporting on ASIC’s oversight of insolvency misconduct itself.

ASIC says its next report will cover the 18-month period from 1 January 2017 to 30 June 2018, which will therefore not appear until 2019.

ASIC’s 2017 annual report

However the more interesting publication is due soon – ASIC’s next annual report for 2016-2017, which must appear by October 2017.

Under new s 136(1)(ca) of the ASIC Act, introduced by the Insolvency Law Reform Act 2016 (ILRA), that annual report must include

“information about the activities that ASIC has undertaken during the period in exercise of its powers, and performance of its functions, under Chapter 5 of, or Schedule 2 to, the Corporations Act and any provisions of that Act that relate to that Chapter or Schedule”. 

That is, it must report on the new laws introduced by the ILRA that commenced on 1 March 2017.   

While the reporting period will extend for only three months, that is enough to give ASIC the opportunity to explain the progress made in relation to the exercise of its new powers under new Schedule 2 to the Corporations Act – the discipline of liquidators (Division 40), the handling of whistleblowing industry notices by ARITA, CPA and other ‘industry’ bodies (s 40-100), and the sharing of confidential information with those bodies (s 127 ASIC Act).

While ASIC does not formally regulate ARITA, CPA, IPA or CAANZ, let alone the legal bodies, in terms of their regulation of their members, ASIC is now in a co-regulatory arrangement with each and must assess and potentially rely upon referrals of misconduct, and share confidential information with them.  In fact, ASIC’s regulatory program would need to accommodate the regulation provided by these industry bodies, and potentially reduce its own efforts.  In its annual report, ASIC’s regulatory protocols with these bodies, and its requirements in relation to maintenance of confidentiality, and standards of industry notices, including as to procedural fairness, will therefore be of interest.   

A useful precedent for ASIC is the UK Insolvency Service’s review of the recognized professional bodies – ICAEW, IPA and others – and how effectively they regulate their members, and at the same time provide procedural fairness and consistency in decision making. 

AFSA

The annual report will also need to cover ASIC’s co-operation with AFSA, now a statutory requirement under the new law: s 10-5.  Both regulators administer essentially the same trustee and liquidator registration and regulation laws. Indeed, although there is no comparable requirement for AFSA’s annual report, it may well also cover its administration of the new law, and its protocols with the industry bodies. AFSA’s February 2017 MOU with ARITA is not to the point.

AFSA’s equivalent to Rep 532 is its Personal Insolvency Practitioners Compliance Report 2015–16. Both ASIC and AFSA will need to co-ordinate these reports in the future, covering as they do largely the same group of insolvency practitioners, under largely the same harmonised laws.

A change of tone?

ASIC has acknowledged that it is “changing its narrative” in its annual reports.  This was in response to a question asked of ASIC by a parliamentary committee about the

“tendency of Australian regulators to manage their success in enforcement” by long “lists of civil actions, prosecutions, fines and undertakings and so on”.

In response, ASIC said it would be giving a more positive message in its annual reports. 

That approach does not seem to have been extended to Report 252, though that is not an annual report.

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