While England is still deciding whether to change its system of insolvency practitioner regulation from one of co-regulation by professional bodies to one of direct government regulation, as in Australia, an example of the latter is a recent decision of a statutory disciplinary committee cancelling the registration of a liquidator. The defaults, though serious, were of inattention and delay.
The process
Australia’s liquidators are registered and regulated by ASIC; bankruptcy trustees are separately registered and regulated by AFSA. The courts also have a role in practitioner regulation. Professional bodies have only a limited role.
Disciplinary hearing processes are available to the regulators through the courts, or through independent statutory disciplinary committees.[1] It is a matter of the seriousness of the allegations of misconduct as to which process is used. Court process can be complex and take time. One such matter, commenced by ASIC in 2020, about conduct some years earlier, remains undetermined.[2] Committee processes are quicker, but in both cases, the conduct the subject of the hearings can go back some years.
Auricht
In the case in hand, ASIC came across issues of concern about the remuneration drawings of a liquidator – Mr Auricht, and his failure to lodge documents. ASIC initiated the committee process by issuing Auricht a ‘show cause notice’ asking him to give a written explanation why his liquidator registration should continue. ASIC was not satisfied with the explanation given and, in accordance with the law, ASIC thereupon convened and referred him to a disciplinary committee, comprising a member of ASIC, a nominee of the Minister, and a liquidator chosen by ARITA. Such committees are independent, they must observe the rules of natural justice but are not bound by the rules of evidence.
At the face-to-face hearing Auricht was represented by solicitor and counsel. The committee decided that his registration as liquidator should be cancelled; its reasons were published: see Richard Auricht Committe report and decision (asic.gov.au)
The reasons give a good explanation of the bases of the decision, broadly that Auricht had drawn remuneration without creditor or court approval, had failed to lodge necessary documents with ASIC and ultimately that he was not a fit and proper person to be a liquidator and no longer had the required capacity to perform the functions of a liquidator. The following mentions only some issues from the reasons.
Remuneration
Auricht had been appointed to the insolvent company in question in 2013. Although substantial amounts of his fees had been approved by creditors, fourteen drawings of remuneration had not. While the Committee accepted that Mr Auricht did not deliberately make those drawings without approval, his office systems were not adequate to allow him to ensure only approved remuneration was taken. He eventually obtained court approval for the remaining remuneration, some long time later, in February 2023.
“The Committee considers that a fit and proper registered liquidator, upon discovering that drawings of unapproved fees had been made, would have repaid the funds immediately, sought approval with haste, and implemented new strategies and business systems in order to ensure that the error would not be repeated in future to ensure that no further harm could flow to the specific company involved but also to the profession as a whole”.
Delayed response to regulator
Also, he had not responded promptly to queries raised by ASIC.
“When ASIC wrote to Mr Auricht in August of 2021 Mr Auricht sought an extension of time in which to respond but did not comply with that extension and did not respond to ASIC at all. Mr Auricht agreed that he had prioritised getting the Court approval over responding to ASIC, and yet, Mr Auricht still failed to file for that approval for over a year from when ASIC first asked for an explanation. The failure to respond to ASIC in a timely, fulsome and transparent manner indicates that Mr Auricht does not have the professionalism, diligence, competence and judgement to be a registered liquidator and was not a fit and proper person to be a registered liquidator”.
Failure to lodge
He was also remiss in not lodging documents with ASIC as the law required. One excuse he gave was that he had difficulty with ASIC’s electronic lodgement system.
“Mr Auricht has failed to obtain sufficient skills to allow him to lodge the documents electronically, and his continuing to send documents in by post when he is aware that they are not actually being received as “lodged” has obvious repercussions to the parties interested in the administrations that the lodgements relate to, and also has macro implications for the profession and its regulation as a whole”. [7].
Appeal
Mr Auricht has the right to apply to the Administrative Appeals Tribunal which would conduct a hearing de novo of his challenge to ASIC’s case.
Comment
It is not stated how Mr Auricht’s conduct came to ASIC’s attention and whether there was any undue delay in disciplinary action being taken. The particular company administration involved commenced in 2013, and the remuneration was for the period around 2015. Drawing unauthorised remuneration would not be easy to detect. Also, lodgements with ASIC were overdue for some years.
As the primary regulator, ASIC will generally be informed of any IP misconduct by its own monitoring and investigations. A minor element of co-regulation in Australia exists through the authority of ARITA or one of the accounting bodies, both of which have a supervisory role over their members, to refer misconduct to ASIC. The SA Supreme Court also became aware of the issues when it subsequently approved Mr Auricht’s remuneration.
Consequences
It seems Mr Auricht had few insolvency administrations remaining. He had not taken a new appointment since 2018. Given the cancellation of his registration, any insolvent estates still in his name would need to be reallocated to another IP, if any were to agree to take them.
He was a sole practitioner. As to the regulation of firms, proposed in the UK, see Should the firms of insolvency practitioners be regulated, along with the practitioner? – Murrays Legal
He practised as an accountant. The loss of his registration may have consequences for his professional memberships.
Under Australia’s two regulator system, if Mr Auricht were to have also been a bankruptcy trustee (which he is not), a separate process would have been required to consider his registration as a trustee.
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[1] Corporations Act 2001 Schedule 2 Div 40
[2] Australian Securities and Investments Commission v Bettles [2020] FCA 1568 (28 October 2020) (austlii.edu.au)
