ASIC’s latest enforcement report – REP 513 ASIC enforcement outcomes: July to December 2016 – says up front that it has a focus on “rogue insolvency practitioners and others who facilitate serious illegal ‘phoenix’ behaviour and improper transactions in the face of insolvency”.
Having opened with that, the report does not quite substantiate the existence or extent of the rogues.
Phoenix
The report refers to:
- in addition to taking enforcement action, ASIC’s aim to ‘disrupt the business models and facilitators underlying illegal phoenix activity using a whole-of ASIC plan and cross-agency collaboration’.
- a ‘proactive approach by focusing on future, rather than past, conduct and concentrating on the construction, labour hire, transport, security and cleaning industries—as they display disproportionately higher levels of corporate failures, which can indicate illegal phoenix activity. ASIC’s surveillance activities target directors with a history of conduct that may constitute illegal phoenix activity, as an indicator for predicting future behaviour’.
- an indicator of illegal phoenix activity is directors failing to assist liquidators by providing books and records and a report as to affairs (RATA) of a company. In 2016, ASIC received 1,476 requests from liquidators for assistance; ASIC says it achieved compliance in 556 matters and undertook 404 prosecutions for failing to provide books and records.
- ASIC’s funding of “a liquidator to pursue litigation against a company that allegedly illegally disposed of its business and assets to a related company prior to the first company’s winding up”.
- that ASIC continues to assist the ATO and the Department of Employment in ongoing operational matters involving alleged illegal phoenix activity. ASIC says it expects those matters to result in formal enforcement action.
Declarations of independence and indemnities
ASIC says it reviewed declarations of independence and indemnities in administrations where illegal phoenix activity might exist. ASIC action resulted in some liquidators resigning their appointment or changing their declarations so that creditors were better informed about referral relationships.
Enforcement
The report refers to a CALDB decision terminating a liquidator’s registration, saying that “indications of illegal phoenix activity existed in the liquidation of one of the three companies” under review; and Federal Court orders prohibiting a Melbourne liquidator from accepting any new appointments for three years.
Melbourne and Monash Universities Report – Phoenix Activity
The ASIC report does not refer to this recent phoenix report – Phoenix Activity – recommendations on detection, disruption and enforcement, of February 2017. That report makes a large number of recommendations concerning phoenix activity, including a director identity number, free ASIC searches, pre-populated RATA’s, and greater exchange of information between agencies. It questions the effectiveness of the various Commonwealth agencies, including ASIC.
As to exchange of information, the Universities report supports the Treasury Laws Amendment (2017 Measures No 1) Bill 2017 now before parliament. One of its provisions amends s 127 of the ASIC Act to allow ASIC to more readily allow the sharing of confidential information with the Commissioner of Taxation. That amendment would apply in relation to disclosures of information made on or after the commencement of the Act, whether ASIC obtained the information before, on or after that date.
Despite yet another new law allowing the sharing of information, it remains the case that there is continued dysfunction between Commonwealth agencies in doing so. This is already apparent between ASIC and AFSA, so much so that the new insolvency law requires ASIC and AFSA to “co-operate” with each other.
Protection of fiefdoms in sadly an inherent aspect of human behavior.
Irrespective of ASIC and the other agencies, the sooner the government considers and acts upon the very good recommendations in the Universities Report, many now having been on the table for some years, the better.
One Response
We found one director that took $800,000 7 days before Liquidator appointed. Assets declared NIL. Liquidator says if this is correct he may not have enough money to prosecute. He was paid from the company the last $20,000 to do the liquidation. Many more problems such as building for wife and after the liquidator was appointed continued the building contract in his own name. In Victoria The VBA only registers a natural person as a builder. So wind the company and start again. So simple. Creditors miss out. Was the wife’s contract commercial. All builders should be made to have separate accounts in the ledger for each project, not put them all in together so no one can separate them. VCAT in VIC stops cases once the company is put into liquidation. There should be insurance on the directors for professional negligence. Also we suspect that the Directors superfund purchased a block of land. Some years later sold it complete with a building. How was this financed? Was the construction never charged?