ASIC’s “significant element of vexation”

ASIC has failed in an application to have an inquiry conducted into joint liquidators’ conduct – Hurst and Wily – in respect of companies that went into liquidation in 2009, with the last of them being deregistered in 2011.  The liquidators had parted company in 2012, Hurst continuing in another practice without complaint and Wily retiring in 2017. Aspects of ASIC’s case were seen as vexatious.

Such an inquiry – under former s 536 Corporations Act, see now IPSC s 90-10 – must meet an initial threshold test, whether there is sufficient evidence to show than a full inquiry should be commenced.  ASIC did not meet this threshold.

“ASIC’s allegations are essentially of omissions – to make disclosures, to make reports, or to make inquiries – in the context of asset-less administrations, in which there were not available resources to fund substantial inquiries, and those which are propounded as the more serious ones (relating to conflicts and disclosure, and failures to report) are framed in terms of “potential” for conflicts, and the “possibility” of shadow directors and unlawful phoenixing. Although there may be a sotto voce theme in ASIC’s submissions that there may be more to these liquidations than meets the eye, which may emerge on an inquiry, that rises no higher than mere wondering or speculation. Given ASIC’s ample investigatory powers, the protracted and apparently extensive investigation that it has conducted, including compulsory examinations of Mr Wily, Mr Hurst and others, the limited nature of the allegations is striking, and there is no reason to have any degree of satisfaction that more is likely to emerge”.

The allegations were

“not of a strength or nature as would justify an inquiry”.

Delay

ASIC had

“deferred commencing the investigation until its other investigations concerning Mr Wily had terminated, with no adverse action. Ordinarily, one would expect an investigation into a liquidator to deal with all concerns that might impinge on his or her fitness”.

That caused delay in bringing this action.

“Indeed, there is a significant element of vexation in deferring one investigation – in effect, holding it in reserve – until the others had come to nothing”.

The outcome of the delay was that although

“ASIC was alerted to concerns about the liquidations in 2010, it did not commence inquiries until mid-2012, and an investigation was opened only in December 2013. It was mid-December 2016 before these proceedings were instituted”.

A liquidator’s reporting obligations under s 533 Corporations Act

These were discussed, the Judge rejecting ASIC’s contention that the liquidators should have done more.

“… The section does not require a liquidator to report that a company is operating as a group (and/or is being managed by “a common guiding mind or will” as another company), let alone a mere possibility that that is so. They were not matters which the liquidators were required by s 533 to report. Nor does the section impose any obligation to report that there may have been shadow directors. [Even if there were]  (t)he allegation that a person is a shadow director is not easily established, and is not to be inferred merely from the existence of a relationship between companies, or co-ordinated activity between them”.

Reference was also made to the limits on a liquidator’s duty to act under s 545 Corporations Act when there are no funds available.

ASIC was ordered to pay costs.

ASIC v Wily & Hurst [2019] NSWSC 521.

Posted by Michael Murray

Michael is a lawyer and writer on insolvency and reconstruction law and practice, personal insolvency, corporate governance, regulation, government law, and business ethics, among others. He is qualified in law and insolvency, and in criminology and its connected disciplines. Michael is a Fellow of the Australian Academy of Law.