ASIC has announced that it has appointed 15 new members to its Reviewing Liquidator Panel, following the expiry of the 5 year terms of the previous panel members.[1]
ASIC can appoint a registered liquidator to act as a reviewing liquidator to a company in external administration under section 90-23 of Schedule 2 of the Corporations Act (IPSC). ASIC may do this on its own initiative, or on application by a creditor or a company officer, as long as it considers it “appropriate” to do so. ASIC is to specify the matters which the reviewing liquidator is to review and the way in which the cost of carrying out the review is to be determined.
These appointments are funded through ASIC’s Assetless Administration Fund (AAF). When ASIC appoints a member of the panel as a reviewing liquidator, ASIC says it expects the member to inquire, investigate and report on suspected illegal phoenix activity. This includes the conduct of the appointed external administrator where they appear to facilitate or have facilitated the activity through a lack of independence, or by not conducting adequate investigations and reporting both to creditors and ASIC.[2]
Panel members go through a risk assessment by ASIC including through consideration of surveillance/investigation activities or disciplinary actions, or their financial viability and any criminal record. Their own conduct as reviewing liquidators can be the subject of disciplinary action.
The court also may appoint a reviewing liquidator, under s 90-23(6), to review an external administration; this may be any suitable liquidator. Either ASIC or a person with a financial interest in the external administration may apply for such an appointment. The court must also consider it “appropriate” to do so. The court must specify the matters to be reviewed and how the cost of carrying out the review is to be determined.
Appointments by ASIC or by the court cannot relate to remuneration of an external administrator under s 60-5(2). But under s 90-24 the creditors or, in a members voluntary winding up, the members, may resolve to appoint a reviewing liquidator to carry out a review into either or both of the remuneration of, and a cost or expense incurred by, the external administrator.
The role does not apply to Part 5.3B small corporate business restructurings.
Background
These roles were introduced by the Insolvency Law Reform Act 2016 (Cth) (ILRA) consistent with its emphasis on better informing and involving creditors,[3] and improving the regulatory structure. The reviewing liquidator is in effect a delegation to the private sector of regulatory tasks.
Equivalent roles were not created in personal insolvency, with its greater public sector involvement of the Official Receiver and Inspector-General in Bankruptcy in insolvency regulation. Also, the Inspector-General can review a trustee’s remuneration, a role that is expensively reserved to the courts or a reviewing liquidator in corporate insolvency: see AFSA’s Reviewing Remuneration of Trustees and Costs of Third Party Service Providers Inspector-General Practice Statement 16.[4]
ASIC says these reviewing liquidator services aim to promote market confidence in the corporate insolvency regime and support the government’s reforms aimed at combatting illegal phoenix activity.[5]
Numbers
The role is not much used. ASIC set up the panel in 2019, announcing that it had appointed a reviewing liquidator to six external administrations, with 2 more contemplated. ASIC said it considered there were sufficient indicators of possible illegal phoenix activity in those external administrations.[6]
But according to its annual reports, ASIC has appointed only one reviewing liquidator in the last financial year (ASIC Annual Report 2022-2023)[7], and also only one in each year before. Information provided to the 2023 Parliamentary Joint Committee into Corporate Insolvency shows otherwise, that from April 2018 to 30 September 2022, ASIC appointed 11 reviewing liquidators in relation to 23 companies. Of these, 5 were referred for “engagement and [re]education”, 5 for “no further action” because of insufficient evidence or no misconduct being identified, or the age of the matter, and only 1 was referred for enforcement action.
That may indicate a high level of confidence in the corporate insolvency regime and the limited extent of illegal phoenix activity such that there are few issues of concern requiring investigation. Having a panel of 15 may suggest otherwise.
A special purpose liquidator compared
A reviewing liquidator (RL) is to be distinguished from a special purpose liquidator (SPL), the Court’s power to appoint a SPL being found in the Court’s general power under s 90-15(1) to “make such orders as it thinks fit in relation to the external administration of the company”. Section 90-15(3)(c) expressly states that the power in s 90-15(1) includes the power the make an order that another registered liquidator be appointed as an external administrator of the company.
An SPL appointment might be made for non-contentious reasons, for example, to deal with an unanticipated independence concern with the incumbent liquidator. In contrast, an RL is appointed to address some concern.
“While a SPL acts as a liquidator of the company and may be authorised to take steps on behalf of the company in liquidation, such as pursuing claims against third parties, a reviewing liquidator, despite his or her title, is not a liquidator of the company. The function of a reviewing liquidator is only to review and report to the Court on specified matters concerning the external administration of the company, rather than to take any step in the liquidation”: Lewis v Battery Mineral Resources Ltd (in liq) [2021] FCA 963.
The Court in that case gives a useful analysis of the principles guiding the appointment of an SPL and an RL. The Court saw the power to appoint an RL as being an extension of the Court’s supervisory jurisdiction over external administrators and in particular of the power of the Court to inquire into the conduct of a liquidation.
The shareholders’ application was for the appointment of an SPL, or, alternatively, an RL, to investigate the “hasty” sale of the company’s assets during voluntary administration to a secured creditor, and other matters. The Court refused the application. First, the matters of concern involved the voluntary administrators’ commercial decisions to conduct an urgent sale process, to admit a particular entity as a creditor and to recommend an offer to the committee of inspection. It is not the Court’s role to supervise the commercial decision-making of external administrators acting in good faith. Second, the appointment of a reviewing liquidator would have delayed the finalisation of the liquidation, which was not in the interests of the general body of creditors. And third, there was an unexplained delay of over 14 months in making the application.
There is equivalent power to appoint a special purpose trustee in bankruptcy: IPSB s 90-15(3)(c), although the court also has a broader power under s 30 of the Bankruptcy Act: Official Trustee in Bankruptcy [2009] FCA 850; Griffin v Triscott (2004) 183 FLR 1; Boral Montoro Pty Ltd v McLachlan [2007] FMCA 533. See also Goodin, In the matter of Regulated Debtors’ Estates [2023] FCA 1325.
A review?
The number of ASIC’s appointments as reviewing liquidator has been infrequent. The numbers for 2023-2024 should be revealed soon when ASIC complies with s 136(1)(ca) of the ASIC Act by including in its annual report information about its corporate insolvency activities over the year.
The courts’ and creditors’ usage of the role has also been limited.
A review of the reviewing liquidator role might be warranted and was in fact contemplated within a broader review of the ILRA reforms,[8] and now within the broader review of insolvency recommended to the government by the PJC.
=======================================
[1] ASIC Corporate Insolvency Update – Issue 33 | ASIC
[2] Selection criteria are Archived Grant Opportunity View – GO1622: GrantConnect (grants.gov.au)
[3] Nobody expects the reviewing liquidator! Current approaches to contested remuneration, (2019) 20(2) INSLB 25, Sam Kingston
[4] Reviewing remuneration of trustees and costs of third party service providers | Australian Financial Security Authority (afsa.gov.au)
[5] Assetless Administration Fund | ASIC
[6] ASIC Corporate Insolvency Update – Issue 11, April 2019
[7] ASIC Annual Report 2022–23
[8] Ex Memo ILRB 2015 [9.381] “To review the effectiveness of the changes it is proposed that the Treasury, Attorney-General’s Department, ASIC and AFSA undertake a review five years after implementation. The review will assess the impact of the proposal and its effectiveness in meeting its objectives, taking account of any implementation and administrations costs”.
