ASIC’s 2016-2017 annual report has been released.
The following comments focus on the report’s comments on ASIC’s oversight of liquidators at pp 66-68 of the report, including *ASIC’s winding up of 6 abandoned companies, helping 4 employees owed $240k in unpaid entitlements; **ASIC’s funding of 1 liquidator to recover assets and ban 34 directors; ***ASIC finding 3,738 instances of liquidators not lodging documents and publicizing events; and ****the prosecution of 409 directors for failing to assist liquidators.
Some opening comments
Section 136(1)(ca) ASIC Act
As we earlier explained, this new provision, introduced by the Insolvency Law Reform Act 2016 (ILRA), requires ASIC’s annual reports to 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, ASIC must report on the new Schedule 2 introduced by the ILRA that commenced on 1 March 2017. Schedule 2 contains powers of ASIC, IPA, ARITA, CAANZ, CPA, law societies and bar associations to review and report on insolvency practitioner misconduct, powers eagerly when the law was being framed. See for example Division 40 on the discipline of liquidators, section 40-100 on whistleblowing industry notices, and s 127 ASIC Act on the sharing of confidential ASIC information, and more.
While the reporting period was only three months, given the significance of these new powers, one would assume we would have some account of them, or at least of the mechanisms in place to ensure they work.
Most oddly, the ASIC annual report does not refer to those Schedule 2 powers at all.
And there is one passing reference to the personal insolvency regulator, AFSA, with which Schedule 2 requires ASIC to work co-operatively.
The PJC on Corporations and Financial Services monitors and reviews the activities of ASIC and the operation of the corporations legislation. The next PJC hearing is coming up soon. We may hear why, and more.
ASIC comments on liquidators
What, relevantly, does the 2016-2017 report say?
- ASIC continues its emphasis of liquidators’ “gatekeeper” role;
- ASIC has used its winding up powers under s 489EA to appoint liquidators to 6 abandoned companies, so as to help 4 employees owed more than $240,000 in unpaid entitlements;
- While one would not suggest that the report is merely a template, it uses terms first coined several years ago, and repeated in every annual report since, of ASIC’s focus on liquidators’ “independence, competence and efficiency, and improper gain”.
Assetless Administration Fund
During 2016–17, ASIC received over 740 AA Fund applications, the highest number ever, and committed just over $3.43 million. This resulted in ASIC receiving
- 562 banning applications,
- 178 ‘matters other than section 206F – director banning’ applications, 15% more than in 2015–16;
- 6 winding-up “activities”; and
- 1 action for a liquidator to recover assets.
Liquidators funded by the AA Fund assisted in approximately 94% of director bannings (34 out of 36), an 18% increase on last year: see p 186 of the Report.
ASIC says it has acted against illegal phoenix activity through its surveillance and enforcement work, including by “enforcing the law” against advisers, directors and liquidators, and “disrupting [their] collusion”, reviewing liquidator declarations of independence, and through AA funding. ASIC has provided information for small businesses, liquidators and other stakeholders on illegal phoenix activity.
ASIC completed 351 surveillances of insolvency practitioners (of which 49 were “high intensity”) which “resulted in registered liquidators improving their behaviour”. For example, surveillances identified 3,738 instances where liquidators did not comply with statutory lodgement and publication obligations.
The report refers to an application to court for inquiry into liquidators’ conduct, a former Companies Auditors and Liquidators Disciplinary Board suspension of a liquidator for three years, and a similar court order.
ASIC’s comments on director conduct
In passing, ASIC mentions that directors of failed companies must assist liquidators.
In 2016–17, ASIC says it prosecuted 409 directors for 723 offences for failing to assist liquidators.
It is too early to say but this ASIC report is some early indication that the heavy discipline process introduced by the ILRA might end up being a whimper, rather than a bang.
AFSA’s 2016-2017 annual report.