Safe harbour adviser becoming liquidator

A liquidator gave pre-liquidation safe harbour advice under s 588GA of the Corporations Act to a company.  The company ended up in liquidation and he then took an appointment as its liquidator.  This breached the rules of independence, including of ASIC and ARITA, because as a liquidator, he would be required to review the advice he gave the company in the safe harbour phase. 

While he argued that this was a one-off and that he had an unblemished professional record, ASIC nevertheless convened a discipline committee which, after a hearing, decided he should be publicly admonished.  On application to the ART, the Tribunal removed the requirement for publicity. 

FQGW and A committee convened under section 40-45 of the Insolvency Practice Schedule (Corporations) [2025] ARTA 218 (17 March 2025)

The Committee decision

The Committee made its decision on 19 October 2023 in the following terms:

1. 1. That [the Applicant] should continue to be registered under IPS s40-55(1)(a).

1. 1. That [the Applicant] should be publicly admonished or reprimanded under s40-55(1)(e); and

1. 1. That ASIC should publish the fact of the decision, and this report, pursuant to s40-55(1)(h).

The Committee had said that:

Making this report public ensures that the reasons for this decision are not the subject of inaccurate speculation and will serve the dual purposes of educating the profession in general on the topic, as well acting as a personal deterrent to ensure that to the extent [the Applicant] may not understand his obligations under the relevant professional standards, he will educate himself further and will ensure that such a mistake is not repeated ever again.

The ART decision

The ART said that

“in almost all conceivable circumstances where an insolvency practitioner has provided advice in the context of Safe Harbour engagement, they would necessarily find themselves in a conflict of interest should they go on to act as liquidator. [It was] hard to imagine how someone of the Applicant’s extensive experience could fail to identify what appears to be an obvious conflict of interest. The fact that he did only serves to reinforce the need for registered liquidators to be reminded that they must carefully consider their circumstances when accepting liquidation appointments generally, and particularly so when they have already provided pre-insolvency advice of one form or another”.

Since the Committee’s decision was handed down the Applicant liquidator had undertaken and completed a range of professional development courses focusing on issues of conflicts of interest and independence; together with his lawyers’ assistance developed a range of practice tools which are expected to focus his mind when assessing independence; and undertaken to no longer engage in safe harbour advice appointments.

The Applicant would have undoubtably expended significant time, energy and funds in addressing the concerns of ASIC. The steps he appears to have taken in correcting his mistake, seeking legal advice about implementing practical preventative measures and undertaking extensive remedial professional education courses was illustrative of the seriousness with which he took his previous failings.

The Tribunal stands in the shoes of the committee

Under section 105 of the Administrative Review Tribunal Act 2024 (Cth) (‘ART Act’), the Tribunal was required to consider the liquidator’s application for review and make a decision affirming, varying or setting aside (and thereafter substituting or remitting) the decision of the Committee. The Tribunal, in doing so, under section 54 of the ART Act, is entitled to “exercise all the powers and discretions” that were conferred on the Committee.

The principles governing the scope of the Tribunal’s general task on review include (as compiled and confirmed by the High Court [citations omitted] in Frugtniet v ASIC [2019] HCA 16; 266 CLR 250 at [14]– [15]):

1. • that the Tribunal’s jurisdiction requires it to re-exercise the functions of the original decision maker subject to the same general constraints as the relevant statutory regime imposes upon the original decision-maker;
   • that the question for determination by the Tribunal is whether the decision is the correct or preferable decision; and
   • that the Tribunal is to consider the material before it rather than simply what was before the original decision-maker and, depending on the nature of the review, this can include evidence of events which have occurred after the date of the original review.

That is, the Tribunal’s task in this case was to stand in the shoes of the Committee and determine, in the context of the regulatory regime, which of the outcomes identified under section 40-55 of the IPSC would constitute the correct or preferable decision in respect of the liquidator having regard to his conduct.

The Tribunal’s reasoning and its decision, not to publicise

The main question was whether the regulatory objectives of ASIC might be satisfied by some lesser response than publishing the committee’s decision in full which would, in effect, identify the Applicant.

In the course of its reasons and as part of considering what orders under section 40-55 of the IPSC would constitute ‘the correct or preferable decision’, the ART sought to focus upon:

1. • the abundance of case law and regulatory guidance that highlights the central importance of a liquidator’s independence;
   • the critical need for a liquidator to properly appraise and avoid both perceived and actual conflicts of interest;
   • the likelihood that conflicts will arise in circumstances where a liquidator, having provided advice to a company which purports to provide safe harbour protections under section 588GA, subsequently accepts an appointment as liquidator;
   • the clear and unambiguous published guidance of ASIC and ARITA in respect of liquidation appointments following the provision of safe harbour advice;
   • the need for even the most honest and experienced of liquidators to carefully assess their independence prior to taking on appointments; and
   • the potentially serious regulatory consequences that may flow should a liquidator fail to appropriately identify such a conflict.

These were relevant because in considering whether general deterrence mandated that the Committee’s decision needed to be published, the ART drew the following conclusions:

(a) the Applicant’s extensive unblemished record and lengthy experience should operate as a reminder and a cautionary tale that even the most experienced of practitioners must remain vigilant to conflicts when taking liquidation appointments;

(b) there is a regulatory need for ASIC to educate its community of liquidators about independence in the context of Safe Harbour engagements;

(c) such regulatory need would be equally satisfied by publication of an anonymised version of reasons as they would be by full publication of the Committee’s decision; and

(d) lastly, with ASIC’s statutory objectives being adequately met, the imposition of an additional hardship upon the liquidator (by way of reputational damage) would be unnecessary and beyond the requisite response.

The reputational damage that the liquidator would suffer, as slight a hardship as that may ultimately be, was slightly more pronounced having regard to his long unblemished professional record, his contrition, the remedial measures he had since undertaken and the relatively recent introduction of the Safe Harbour provisions.

“The needle may have fallen differently should any of these elements have been absent”.

Comment

In March 2023, I explained various issues concerning the identification of persons subject to disciplinary outcomes in Liquidator discipline outcome – reasons unknown – Murrays Legal

I think the decision in this matter was fair.  The regulatory message about independence could be conveyed without naming the individual.