ASIC before the PJC – phoenix, DINs, AA Fund and the continuing 3 sins of liquidators

This is a very brief commentary on and extracts from evidence given by Mr James Shipton and others from ASIC before the Parliamentary Joint Committee (PJC) on Corporations and Financial Services – Oversight of the Australian Securities and Investments Commission and the Takeovers Panel, on 16 February 2018.

The full transcript is available here.

Phoenix activity

Directors “who disappear all the time and then pop up again” was a focus of the hearing, with ASIC explaining that it targets

“directors with a history of involvement of failed companies where allegations have been made about illegal phoenix activity, to make sure they know we’re watching what they do. We also undertake surveillance activities aimed at disrupting people who might facilitate phoenix activity”.


ASIC went on to explain that

“enforcement is very important. In thinking about enforcement, we do need to work closely with insolvency practitioners. Insolvency practitioners tend to be at the frontline when they’re investigating the reasons for failed companies. We often provide the funding for them to do that, through something called the Assetless Administration Fund. We also help them prosecute directors when the insolvency practitioner is appointed to a company, gets in and says, ‘Where are your books and records?’ and the director says, ‘Sorry, there are none.’ That can be a very significant impediment in establishing phoenix activity”.

Insolvency practitioners

The committee asked if ASIC ever “audits the insolvency practitioners”. ASIC explained its “surveillance” focus, with the same three concerns that it has expressed for the last 5 years:

“competence, independence and issues around remuneration or improper gain”,

in the context of phoenix activity.

Safe harbour watering down

The Committee expressed concern that the government created, not a defence, but a “safe harbour exclusion” which

“significantly weakened the civil remedies, in respect of insolvent trading”.


“Prefer to hear about you suing them rather than watching them”

The chair said that “just going back to the question about unusual activity, part of your (ASIC’s) answer was that, where you believe that people are actively engaging in phoenix activity, you’re watching them. I think the stakeholders who have probably lost their life savings to the same director a few times over would prefer to hear about you suing them rather than watching them”.

In responding, and as to ASIC’s 2016 eschewing the reporting of its “scalps“, ASIC here offered

“a sample of some outcomes against directors, we’ve taken eight actions against directors for failure to keep books and records and nondisclosure. There have been prosecutions, including jail terms. There’s a fellow called Mr Matthews in South Australia. There have been six other prosecutions for director duty offences. There have been five court decisions against registered liquidators, with sanctions including prohibition, removal and suspension. We’ve had an additional five registered liquidators either being suspended, having their registration cancelled or being admonished by an administrative body that looks at their conduct. We’ve entered into enforceable undertakings with a number of people. We’ve banned 32 directors just in the last year.

… Importantly, and in addition to everything I’ve mentioned, just in the 2016-17 year we prosecuted 419 individuals for failure to keep appropriate books and records, which, as I indicated, can be a key indicator in relation to things”.

Director identity numbers – DINs

The Committee asked

“why have we allowed, year after year after year, the directors’ register to go on without undertaking these identifications so that you can identify people, and those people and those entities associated with them, who constantly seem to be a part of it? My understanding from previous evidence given to this committee is that 80 per cent of phoenixing activity is actually undertaken by the same groups of people”.


A good question. My question is related, why was this deficiency not ever raised by the directors’ group, the AICD?

Outstanding? small bank insolvencies[?]

At the Joint Committee hearing on 11 August 2017, Mr Medcraft offered to provide “a report in the UK last year on looking at this whole issue of small-bank insolvencies”, that appeared to involve “a fixed price so that you can’t what I call ‘rob the grave’”, with a cab rank rule.

It may be interesting to read when it is made available.


A useful process …. More soon.

Photo: Seattle.

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