ASIC’s 2018 annual report – insolvency, what to expect

An interesting aspect of ASIC’s forthcoming 2018 annual report will be its review of the operation of the changes brought in by the Insolvency Law Reform Act 2016 (ILRA), in particular those in Schedule 2 to the Act. 

Under s 136 of the ASIC Act, 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, apart from its general remit in relation to the external administration of companies under Chapter 5 of the Corporations Act, ASIC must report on the new laws in Schedule 2 introduced by the ILRA.  The significant changes from ASIC’s perspective, given its on-going concerns about insolvency practitioners, were the regulatory changes that commenced on 1 March 2017.

ASIC did not report under s 136 on this in its 2017 annual report – even more reason to expect a more fulsome report this time: see ASIC’s 2016-17 Report – insolvency practitioners.

ASIC’s regulation of liquidators

Section 136 gives ASIC the opportunity to explain:

  1. the exercise of its new role in relation to the registration of insolvency practitioners, an opaque process except where a matter goes on the public record as was the case in Mansfield – see Registration of a liquidator, on conditions – Mansfield [it is not known if those conditions have yet been met].
  2. the maintenance of the register of liquidators under s 15-1, again, a rather opaque listing that should be improved;
  3. the exercise by ASIC of its powers under Schedule 2 in relation to the discipline of liquidators (Division 40) for example as to:
  • any directions not to accept further appointments (s 40-15),
  • any show-cause notices (s 40-40),

and in particular how ASIC is handling

  • any ‘whistleblowing’ industry notices lodged by ARITA, CPA and the other industry bodies (s 40-100) and to what extent ASIC is sharing confidential information with those bodies (s 127 ASIC Act).

Information-gathering powers

Under s 136(2A) of the ASIC Act, ASIC must also report on the number of times that ASIC has used a prescribed information-gathering power, which includes its new power, introduced by the ILRA, under s 30B and reg 8AAA, to request a liquidator to provide, for example, the firm’s policies and procedures about how its partners conduct their insolvency administrations.

Co-regulation efficiencies

While ASIC does not formally regulate ARITA, CPA, IPA or CAANZ, let alone the legal bodies, the arrangement is that they and ASIC now collectively co-regulate insolvency practitioners: see Bodies everywhere — the role of professional bodies in regulating insolvency practitioner [2018] INSLB. ASIC’s regulatory efforts should be lessened because of the co-regulation provided by these industry bodies, and its costs reduced.

While Australia’s arrangements are not at the level of industry body responsibility and involvement as in the UK and NZ – the latter’s latest costings would require a NZ$2.50 fee on each company registration to meet the cost of IP regulation – ASIC should acknowledge the reduction in its burden of IP regulation that the ILRA has introduced.

That will be the subject of another report expected soon, ASIC’s website ‘dashboard report’, under s 138 ASIC Act.

In this 2018 annual report, ASIC’s regulatory protocols with these bodies will therefore be of interest. I have earlier noted that 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 transparency of process, procedural fairness and consistency in decision making.

AFSA

The annual report should also 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, its 2018 report may well also cover its administration of the new law, and its protocols with the industry bodies, one limited approach being AFSA’s February 2017 MOU with ARITA.

ARITA, CAANZ, CPA and IPA

While there is no statutory obligation, the insolvency profession will be interested to see from the annual reports of the industry bodies how each is administering the new regulatory laws – for example, the number of industry notices issued under s 40-100, and in what circumstances; how they are handling any confidential member information provided to them by ASIC, and AFSA; and what processes they each have in place to both protect and also regulate their members, and at the same time ensure procedural fairness.

Stay tuned.

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