Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

The high cost of ASIC’s regulation of liquidators, in a deregulatory environment

The proposed annual ASIC ‘industry levies’ imposed on liquidators in Australia, to fund the cost of their regulation, prompts this brief comparison with what Australian bankruptcy trustees pay, and insolvency practitioners in the UK and New Zealand.  This coincides with the Prime Minister’s push for greater deregulation.

ASIC and liquidators

Australia’s corporate regulator, ASIC, has published its draft Cost Recovery Implementation Statement (CRIS) for 2020-21 which outlines ASIC’s estimated regulatory costs for 2020-21 and how these will be recovered as industry levies under the ‘industry funding model’ from those it regulates.[1]  These include company liquidators.  ASIC asks for comment by 13 August 2021. This public process seeks to ensure that ASIC makes no improper gain from the levies that are set given that the cost of these levies is ultimately borne by creditors.

It is proposed that liquidators will pay a minimum levy of A$2,500 plus a variable amount, depending on each liquidator’s share of the total number of their prescribed ‘notifiable events’ that occur each year. This amount is $127, said to be more than 50% above the previous year.  That may be because the cost of ASIC regulating fewer liquidator appointments has risen from A$6.1 million in 2019–20, to over $7.5 million in 2020-2021, when corporate insolvency appointments dropped dramatically.  It should be that ASIC will be providing more detail of its costs that would justify these amounts.  Levies can amount up to A$40,000 pa, and more.

UK and New Zealand

Putting that speculation aside, and by way of only brief comparison, the ICAEW[2] in the UK has published its list of levies for practitioners with a sliding scale such that an IP with a gross annual fee income of £150,001 – £200,000 is paying £2,358,[3] with a fixed smaller amount – around £550 – paid to the government Insolvency Service.

New Zealand imposes NZ$2-300 on its liquidators with regulatory funding from a NZ$1 levy on company registrations. In developing its own CRIS (Cost Recovery Impact Statement), the government rejected the idea of imposing the costs of regulation on liquidators, noting that an annual payment of say NZ$6,000 per practitioner “would not be feasible as a levy of this level would drive some practitioners out of the market. This would harm competition, reduce access to insolvency services and ultimately drive up costs for companies and creditors”.[4]

Co-regulation v direct regulation

These much lower fees may be explained by the fact that both the UK and NZ have co-regulatory systems with IP regulation mainly the responsibility of the local insolvency professional bodies, the ICAEW and the IPA being two in England, and with CAANZ and RITANZ in NZ.

In rejecting that model here, and opting for direct regulation, the Australian government acknowledged that direct government regulation did ‘tend to impose higher compliance costs’ compared with co-regulation.[5]

But not necessarily perhaps.

AFSA and bankruptcy trustees

Another Australian regulator, AFSA, directly regulates bankruptcy trustees, many of whom are liquidators.  AFSA does not seem to separate out its costs of regulating trustees to allow comparison with ASIC but under its CRIS process, levies are not imposed so much on the trustees but rather through a 7% charge on all asset sales made by trustees.[6]  AFSA has just announced that it is seeking no increase in that charge, which has stood since 2015.   As with ASIC, AFSA has seen a significant fall in personal insolvency numbers.

Deregulation

In any event, these moneys will no doubt be well spent by the two insolvency regulators, with so much to do.  ASIC’s regulatory tasks are described in its CRIS, and AFSA has already released its 2021-22 regulatory priorities, and both agencies will be guided and assisted by the July 2021 launch of a new Regulator Performance Guide[7] for all regulators in Australia, released by the Prime Minister’s department as a key part of the federal government’s deregulation agenda.

Note: This is but one aspect of a large comparative review of IP regulation in Australia.  Comments are welcome.

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[1] 21-185MR ASIC publishes Cost Recovery Implementation Statement 2020-21 for feedback | ASIC – Australian Securities and Investments Commission

[2] Regulatory Fees – Insolvency (icaew.com)

[3] A$4,420 approx.

[4] Appendix 3 – Cost recovery impact statement: Regulations to introduce insolvency practitioners scheme fees and levy (mbie.govt.nz)

[5] Explanatory Memorandum to the Insolvency Law Reform Bill 2015 [9.151].

[6] Trustees administered more than A$285 million in receipts in 2018–19, of which asset sales accounted for 54%; these are the most recent figures available.

[7] Regulator Performance Guide and supporting material | Deregulation (pmc.gov.au)

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