Offence referrals to ASIC by liquidators continue to be contentious and perhaps distracted by the issue of claimed automated decision-making by ASIC itself, although the main issue of law reform remains in focus.
Parliamentary Joint Committee on Corporations and Financial Services
At a 3 November 2023 PJC inquiry,[1] Senator Deborah O’Neill, as chair, referred to concerns raised in the 2023 PJC Report on Corporate Insolvency (of which Senator O’Neill was also chair)
“with regard to the insolvency practitioners: their ongoing reporting and the speed with which reports that took them many hours and days to complete were getting spat back”.
That concern was the subject of recommendation 19 of the 2023 PJC Report including as to the system’s regulatory value and the burden imposed on insolvency practitioners. The PJC further recommended that in the interim, the government and ASIC consider whether any timely changes could be made.
At the 3 November 2023 inquiry, one response from ASIC was that in terms of automated decision-making generally, there are whole-of-government efforts in response to the Robodebt Royal Commission Report, with the government having established the Artificial Intelligence in Government Taskforce to survey and map the extent to which automated decision-making is relied upon to deliver government services and payments.
Distinction between artificial intelligence and automated decision-making
Importantly, ASIC said a distinction needs to be made between artificial intelligence (AI) and automated decision-making.
“Within automated decision-making there are two types: one is where the computer actually makes the administrative decision, so it exercises the legal power, and one is where it’s a human that makes the decision but they’re supported by technology, so part of the information that flows into the making of that decision is automated”.
ASIC explained that it does not use computers to make administrative decisions but it referred to a bill then before parliament “which is seeking to amend the law to permit ASIC to do that”: [see now the Treasury Laws Amendment (2023 Measures No. 1) Act 2023[2]], and that there is much more to come in this field.
Section 533 reports
But ASIC said that while it does not use computers to make decisions, it does use computers to inform decisions that are made by humans, referring to its process for assessing statutory s 533 reports from liquidators.
This is “a scoring system that we’ve had in place for more than 20 years”, that assists ASIC staff to understand, on the basis of the boxes that are ticked and the data that’s put in, whether or not they are things on which it wants to seek a further report.
“There seems to be a lot of teeth-gnashing about the very short amount of time it takes for us to reject these things. I understand that liquidators do put a lot of work into this”.
As Mr Longo said,
“if there is no supporting evidence, that might lead to a very quick decision not to take it on … we get thousands of these a year, and, by their very terms, they say there’s no evidence. It’s an unrealistic expectation of an agency resourced the way we are to take matters of that nature any further in the absence of other circumstances which would justify the commencement of an investigation, which is a very resource-intensive thing to be doing”.
In terms of the interim action under PJC Report recommendation 19, ASIC said it is planning to redesign regulatory guide RG 16 and to provide industry training.
But as Mr Longo also said,
“this is an area for law reform as well. They’re required to file these reports. Very often, there really isn’t any good reason for doing so. In fairness to the profession, they’re under a statutory obligation to do something. The parliament might want to reconsider their need to do so in the first place”.
Comment
This is an aspect that Professor Jason Harris and I raised before the PJC and elsewhere, in terms of liquidators being required to perform public interest tasks the time-costs for which are billed to creditors, and whether those tasks need refining. At the 3 November session, Senator O’Neill referred to
“the time impost, which is money for [liquidators], to comply with the requirements of reporting to maintain their licensing”.
As to ‘maintaining their licensing’, I have elsewhere explained that the requirement to report offences is seen in itself as a regulatory check on the IP – if a court were to make findings about the adequacy of a s 533 report [see Murdaca v ASIC [2009] FCAFC 92], as to bankruptcy trustees’ compliance with offence referrals as being an aspect of AFSA’s regulation of trustees, and also in the UK: see Offence reporting by insolvency practitioners[4] which looks at the history of s 533 and refers to comparable reporting in the UK and NZ, and under the Australian Bankruptcy Act.
But the main point for any more comprehensive insolvency inquiry is the need to reconsider what needs to be investigated and reported, and by whom. “There is something amiss with the law if it has created a situation that is so patently unmanageable …”.[3]
Jason Harris and I wrote about this in Rebuilding the structure of the Australian insolvency system [5] saying that it all needs to be reassessed, including in light of other better detection and enforcement mechanisms, and, as a public interest task, it should be publicly resourced. “Subject to any law reform finding, that may properly lead to a more refined and more co-ordinated risk-based approach to be taken, … using artificial intelligence (AI) and IT resources”.
2023 PJC Report
The government is yet to give its response to the PJC Report, which may explain why present and proposed action is limited to redesigning ASIC’s regulatory guide RG 16 and providing training.
Mr Longo’s comments that while IPs are under a statutory obligation to refer offences, the parliament might want to reconsider their need to do so in the first place, would be relevant if any comprehensive review is decided upon.
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[1] The 3 November 2023 session of the Parliamentary Joint Committee on Corporations and Financial Services into the oversight of ASIC, the Takeovers Panel and the Corporations legislation.
[2] Section 921ZF Assisted decision making
(1) ASIC may arrange for the use, under ASIC’s control, of processes to assist decision making (such as computer applications and systems) for any purposes for which ASIC may make decisions in the performance or exercise of ASIC’s functions or powers under this Division.
(2) A decision the making of which is assisted by the operation of such a process under an arrangement made under subsection (1) is taken to be a decision made by ASIC.
(3) ASIC may substitute a decision for a decision (the initial decision) the making of which is assisted by the operation of such a process under an arrangement under subsection (1) if ASIC is satisfied that the initial decision is incorrect.
[3] (2019) 20(4&5) INSLB 88, M Murray.
[4] (2019) 20(4&5) INSLB 88, M Murray.
[5] (2022) 22(1&2) INSLB 14, Murray and Harris.
