This ASIC Report 610 has been released, with some interesting points to note, and questions raised. It largely expands on the reporting component in the ASIC annual report under section 136(1)(ca) of the ASIC Act.
Overall, there has been a decline over the last 8 years in inquiries and reports of about alleged liquidator misconduct. ASIC gives a number of possible reasons – ASIC’s increased supervisory activity? a fall in the number of liquidator appointments? and liquidators’ improved and more timely communication with creditors as facilitated by the 2017 law reform?
Some other points cover gender diversity in the profession, falling numbers and the size of firms. All information relates to the 2017-2018 financial year.
‘Working with liquidators’
Under this heading of ASIC, it might be noted that ASIC does refer to liquidators as its ‘front-line investigators of insolvent companies’; at the same time, ASIC regulates and applies to discipline what are reported as a small number of liquidators for any misconduct.
Liquidator assistance program
In the 2017–18 financial year, ASIC says it
(a) received 1,358 requests under the liquidator assistance program, ‘achieving compliance’, as it says, from 593 individuals with their obligations to assist the IP, and prosecuting 382 individuals for 734 strict liability offences. These resulted in only $1.4 million in fines and costs – how much was in fact paid is not stated; and
(b) received 784 applications for the AA Fund, approving 213 applications and paying $3.3 million to liquidators.
Winding up companies
ASIC ordered the winding up of only 19 abandoned companies where it identified 46 employees owed an estimated $946,417 in unpaid entitlements. ASIC paid liquidators a total of $120,000 from the AA Fund to carry out this work for the 46 employees.
ASIC statutory activities
- received 28 eligible applicant requests for authorisation to seek s 596B summons to conduct public examinations;
- assessed one application from a liquidator for an extension of time to adjudicate on a proof of debt; and
- exercised the power under s 40-111 of Sch 2 to appoint replacement liquidators to a number of companies in external administration following automatic cancellations of the incumbent liquidators’ registrations.
ASIC’s final industry funding invoices for the 2017–18 financial year were issued on 31 January 2019.
Alleged liquidator misconduct
- Reports of alleged misconduct about liquidators were 5% of the total reports ASIC received: see ASIC’s Annual report 2017–18, p. 173.
- Inquiries made to ASIC, and reports of alleged misconduct involving liquidators, totalled 464.
- The average of 322 represented a decrease in reports of alleged misconduct over the 18 months, falling from 401 in 2016.
Compared to 2016, overall reports on average decreased.
Legitimate conduct concerns existed in 8% of matters; these were referred internally for further review— primarily to ASIC’s Insolvency Practitioners team. In other cases, there was either insufficient evidence of misconduct and ASIC ‘helped resolve the inquiry and did not pursue the matter further’.
A decline – why?
In fact, since ASIC started reporting in 2011 there has been a decline in total inquiries and reports of alleged misconduct relating to liquidators.
ASIC gives a number of possible reasons, including change in liquidator behaviour due to ASIC’s increased supervisory activity, a reduction in the number of external administration appointments, improved communication with creditors by liquidators and more timely communication facilitated by law reform.
No 40-100 industry notices
ASIC did not receive any notifications of possible grounds for disciplinary action against a liquidator from ARITA or any other industry body under s 40-100 of Schedule 2 of the Insolvency Practice Schedule (Corporations).
This may be because ASIC has not explained to ARITA or the remaining 13 industry bodies now tasked with this new co-regulatory role what is expected of them.
Show cause notices
ASIC issued a show-cause notice to a liquidator which led to a disciplinary committee, which then determined that the liquidator should continue their registration but undertake an ARITA course. No ‘media release’ was issued, nor, it appears any record of the decision. ARITA is permitted to choose an experienced liquidator to sit on the committee.
Directions to comply
ASIC has issued 12 directions during the reporting period resulting in 11 instances of compliance. What ASIC terms an ‘efficient method of achieving compliance’ either resolved its concerns or advanced its investigation of a matter. ASIC says it does not record when it exercises this power in the register of liquidators, as it is not a disciplinary action as defined in the Practice Rules. Hence, we know little about their use.
ASIC does not report any use of its inquiry powers of liquidators and their firms under s 30B of the ASIC Act
Declarations of independence
ASIC reviewed a total of 30 declarations, of which 10 (33%) were adequate and 20 (67%) inadequate, in ASIC’s view. In the latter cases, ASIC sought further information from the liquidator, which resulted in replacement declarations and/or improvement in firm processes.
ASIC reviewed a total of 17 remuneration reports. Of these, 13 (76%) were assessed by ASIC as adequate and four (24%) were inadequate, compared to 59% adequate and 41% inadequate in the 2016 calendar year. Note that, unlike AFSA, ASIC is given no statutory role in determinations of liquidator remuneration.
ASIC refers to the hearing on 27–30 November 2017 in proceedings brought by liquidators John Sheahan and Ian Lock for the court to fix their remuneration. ASIC intervened. The outcome is now reported. Note that ASIC enlisted over 10 liquidators to assist with expert evidence. See Lock re Cedenco (No 2)  FCA 93.
Of the 710 existing liquidators as at 1 January 2017, 634 renewed their registration (between 1 March 2017 and 28 February 2018).
Attending creditors’ meetings
ASIC attended 22 meetings of creditors as observers. ASIC’s decision to attend may result from its own inquiries or where a third party has raised concerns. Attendance at these meetings has informed the scoping of a project about the conduct of meetings, which ASIC is running in the 2018–19 financial year.
Size, age and gender of insolvency firms
As at 30 June 2018:
- there were 55 female liquidators (8.3%) – two more than at 31 December 2016.
- the average age of liquidators was 50.3 years.
- there were 20,159 companies subject to external administration (including controller appointments).
- 50% of liquidators operate in a firm of 10 or more practitioners.
Many of the liquidators whom ASIC has examined and reported on here would also be trustees in bankruptcy. We assume there is co-ordination and communication between ASIC and AFSA, and generally, in relation to what is uniform insolvency practitioner oversight.
In that respect, this report of ASIC might usefully be compared to the latest trustee regulation report from AFSA, including as to the cost-effectiveness of each regulator.