While the ASBFE Ombudsman, ARITA and others are looking at insolvency law reform, including for SMEs, they will no doubt consider some root and branch ideas offered by Professor Helen Anderson, in particular in her 2018 article – Insolvency – it’s all about the money.[1]
Without doing justice at all to her ideas, based on sound arguments, and with my own comments throughout, read on.
Government funding of liquidation
Referring to the on-going ‘antagonism’ by government towards insolvency practitioners as being ‘counter-productive’, Anderson says the government has a choice:
‘either trust liquidators, with appropriate supervision, to be the primary enforcement agents in relation to insolvency-related misconduct, or else bring the function in-house, as a government role’.
One main justification would be to overcome the perception of inadequate performance by liquidators, ‘justified or otherwise’ – the blame for the poor outcomes can be shared. Instead, that antagonism may well be assessed as valuable in assisting the government’s blame game approach.[2]
Whether, as Anderson says, a government liquidator may lack the sort of efficiency, expertise and cost-competitiveness found in the private sector is debatable.
Abandoned companies
The other justification for a government role is to deal with ‘abandoned companies’, which could only be dealt with by a government liquidator.
These companies will often be abandoned because there are no funds to pay the private sector costs of administering them.
For reasons unknown, ASIC stopped publishing relevant figures some time ago. Based on other information given to Anderson by ASIC, she refers to 2016-2017 figures of there being over 37,000 companies deregistered by ASIC for failing to lodge documents or pay fees which
‘dwarfs the number of companies that enter[ed] liquidation – 6,235 companies’ – 5 times as many as those that are put into external administration – ‘a likely ‘black hole’ of director misconduct and unpaid liabilities’.
She describes the losses caused to employees and general creditors by abandoned companies as
‘falling between the cracks. They are neither the concern of liquidators nor of ASIC except in a very limited way.
To the extent that wrongdoing by those who abandon companies is undetected, unprosecuted and therefore undeterred, society as a whole is the loser’.
The cost of that ‘could be justified by the recovery of unpaid taxes and superannuation, and reduced reliance on FEG’.
Widening the Pool of Enforcers – ATO, FWO …
Both the ATO and the FWO have powers to bring actions relating to conduct which takes place around the time of a company’s insolvency, those of the FWO extending well beyond the parties that either ASIC or the ATO currently reach. See my early article The ATO as an insolvency regulator.[3]
Information sharing
While Anderson supports greater authorised confidential information sharing, she also suggests greater sharing of non-confidential information between agencies – the provision of director information by ASIC when ABN applications are made to the ATO; better use of the ABR; and better sharing by ASIC with the FWO and ATO of superannuation non-compliance information.
However, as I have pointed out, sharing of information between silo focused agencies needs more than a change in the law to resolve.
CAANZ, CPA, Law Societies
Anderson refers to the ‘notable lack of involvement’ by professional bodies for accountants, tax advisors and lawyers –
‘some of the most notorious phoenix activity advisors have been lawyers or accountants’.
Rather than concentrating on liquidators as the sole ‘gatekeepers’ of proper conduct during insolvency, ASIC should leverage the accreditation requirements of the legal and accounting professions as a means of deterring and punishing advice leading to director misconduct. ASIC has also yet to promote the ILRA 2016 regulatory roles of the industry bodies.
ASIC searches
It has too often been said, by Anderson – very effectively – and others, that liquidators must pay for ASIC searches –
‘it seems contradictory to expect liquidators to perform this work using the insolvent company’s limited funds, and simultaneously for ASIC to charge them for the documents that are essential to perform it’.
She might have added that it is often the liquidator’s own funds, in assetless administrations.
Open ASIC data base
Apart from liquidators, Anderson supports a free ASIC data base. She quotes the UK government as saying that
“by making its data freely available and free of charge, Companies House is making the UK a more transparent, efficient and effective place to do business”.
Funding
The funding of that is another item that has been recommended over and again – a levy on every new company. In New Zealand it is proposed at $2.50.
‘Because there are just under 2.5 million companies in Australia, providing billions of dollars worth of goods and services, socialising these costs would be barely perceptible’.
Clarification of the liquidator enforcement role
Anderson recommends that the law clarify the liquidator enforcement role; it present, much of it is based on 19th century drafting and expectations. My article at footnote 2 refers.
‘It’s all about the money, and where it is most effectively spent’
Those words are in Professor Anderson’s conclusion, that
‘improvements are not costless. It’s all about the money, and where it is most effectively spent’.
At the moment, we hardly know where or what is spent on insolvency; and as to its effectiveness ….
How good is that.
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[1] (2018) 46(2) Federal Law Review 287-312, [2018] UMelbLRS 6, Helen Anderson.
[2] See my Offence reporting by insolvency practitioners [2019] 20(4&5) INSLB 88
[3] [2007] 19(3) ARITA J 24
