ASIC has released its 2023-2024 annual report. ASIC annual reports | ASIC.
Under s 136(1)(ca) of the ASIC Act 2001, it is required report on its activities under Chapter 5 of, or Schedule 2 to, the Corporations Act and related provisions. Various issues raised in the report continue to remain the subject of recommendations by the PJC.
These are some of the insolvency Ch 5/Schedule 2 matters reported.
Registration and discipline
ASIC regulates 642 liquidators who were appointed as external administrators to over 11,000 failed companies during the year.
Although the report refers to “54 actions taken against auditors and liquidators”, the report then clarifies that only 2 were taken against liquidators and 52 against auditors.
There were no disciplinary committees convened to consider matters referred by ASIC. A disciplinary committee convened in a prior year determined a liquidator’s registration should be cancelled, but the then Administrative Appeals Tribunal set that decision aside and reinstated the registration subject to conditions: see Duncan and a committee convened under section 40-45 of the Insolvency Practice Schedule (Corporations) [2024] AATA 609.
ASIC convened 24 committees to consider applications for registration as a liquidator, and registered 17 liquidators, compared with 36 and 29 last year. This year, one application was refused.
Recommendations 11 and 12 of the PJC report were that the proposed comprehensive review of insolvency reconsider the requirements for the registration of small business restructuring practitioners in order to understand the reasons for the limited number of registrations to date; and that the government reform the experience eligibility requirements for liquidators, to address what it suggested was the “inequity of the requirements and the gender imbalance” in insolvency. The report does not give any gender or diversity perspective on liquidators.
Regulation
ASIC says its work in 2023–24 focused on:
“♦ thematic surveillance to improve compliance and inform regulatory guidance
♦ improving data available to the public through our insolvency statistics
♦ engaging with a range of domestic and international stakeholders
♦ updating Regulatory Guides and the Assetless Administration Fund grant guidelines and managing the Reviewing Liquidator Panel and Abandoned Company Panel”.
ASIC says it consulted on updates to three Regulatory Guides:
- RG 217 Duty to prevent insolvent trading: Guide for directors
- RG 258 Registered liquidators: Registration, disciplinary actions and insurance requirements, and
- RG 16 External administrators and controllers: Reporting of possible offences and misconduct.
Misconduct
ASIC says it responded to 11,678 reports of alleged misconduct overall, with failure to provide books and records or reports as to affairs to a liquidator comprising 9%, “insolvency matters” 4%, “liquidator conduct” 3%, and 78% requiring no action. ASIC received 1,423 requests for assistance from administrators in relation to directors’ persistent failure to assist them.
ASIC issued 9 section 30B notices under the ASIC Act to liquidators requiring information or books; compared to 3 last year.
Practitioner reports
ASIC received 7,514 initial reports from external administrators and, of these, 6,658 reported suspected offences by company officers. The remainder were lodged because the return to unsecured creditors may have been less than 50 cents in the dollar. ASIC requested supplementary reports in 1,164 cases. ASIC referred 17% of these supplementary reports for compliance, investigation or surveillance action, compared to 20% in 2022–23.
ASIC says it is reviewing how it can best use the information received from liquidators about the companies to which they are appointed. It is also reviewing how it interacts with industry and, importantly, how it might work more closely with practitioners to address director misconduct.
As to that, recommendation 19 of the PJC Report recommended that the proposed comprehensive review consider whether the current statutory reporting obligations for insolvency practitioners are appropriate including as to the existing reporting thresholds, having regard to their regulatory value and the burden imposed on insolvency practitioners, and the costs on creditors. In the interim, the government and ASIC should consider whether any timely changes can be made to the reporting thresholds, and ASIC’s response to insolvency practitioner reports.
Also, the Senate Economics References Committee report into ASIC’s investigation and enforcement, of July 2024, made a number of recommendations including [3] to address what it said were “the shortcomings in Australia’s system for handling reports of alleged corporate misconduct”. The report suggested that ASIC’s remit was too broad for it to be an effective and efficient agency, and that the government should strongly consider separating its functions between a companies regulator and a separate financial conduct authority. An earlier report had recommended that ASIC’s insolvency functions be hived off into a separate agency; this was not accepted.
Data
ASIC refers to the data it collects from liquidators. The PJC made more particular recommendations about ASIC’s data collection, recommendations 4 and 5.
Assetless Administration Fund (AA Fund)
ASIC reports on its AA Fund, created to “address illegal phoenix activity or other serious misconduct”. The Fund may be used for further investigations and reports by liquidators into the failure of companies with few or no assets, where it appears that a director may be banned, or other enforcement action may result from the investigations and reports; for liquidator recovery actions to undertake legal action to recover assets when misconduct has occurred that resulted in the dissipation of company assets; for the appointment of reviewing liquidators to companies where ASIC suspects misconduct of either the director, the pre-insolvency adviser or the liquidator; and for the appointment of liquidators to abandoned companies pursuant to Part 5.4C of the Corporations Act.
ASIC funded the appointment of 9 liquidators to wind up abandoned companies. In its 2022-2023 annual report, ASIC says it appointed only one reviewing liquidator in that financial year: Reviewing liquidators – under review? – Murrays Legal. There is no reference to numbers in this report.
Further details are found at p 224 of the Annual Report.
PJC recommendations 16 and 18 were that the government consider changes to the AA Fund to ensure that it is achieving its intended policy objectives; and consider options for funding the administrations of assetless companies and the merits of creating a public liquidator for corporate insolvency. Recommendation 13 concerned the remuneration of insolvency practitioners, including the extent to which their public interest work carried out for no or limited pay is sustainable; and the impact of this on all stakeholders in external administrations.
Deregistered companies
Section 601AD of the Corporations Act provides that when a company is deregistered, all of its property vests in ASIC or, in the case of trust property, the Commonwealth. Any identified vested property is accounted for and recorded in a register maintained by ASIC in accordance with section 601AE(5). ASIC says it generally only deals with vested property once an application is made by a third party under section 601AE or section 601AF. ASIC does not consider it practical to value any identified vested property and, consequently, such property is not recorded or disclosed in these financial statements. In 2023–24, the number of “new activities” received decreased to 1,579 and the number of cases finalised decreased to 1,574.
PJC recommendation 10 was that ASIC collect and analyse data from de-registrations, to provide greater visibility of the solvency status of deregistered companies. Concern has been raised about the potential for abuse in the default deregistration process.
Companies and business names registers
The two largest registers – the companies and business names registers – contain the details of more than 3.4 million companies and 2.8 million business names.
In the past year, there were more than 343 million searches of ASIC registers and 3.1 million updates processed.
Effective 23 May 2024, responsibility for the ASIC business registers and related services returned from the ATO to ASIC under a Machinery of Government change. This was an administrative change, but the ways in which people register, search the business registers, and interact with ASIC remain the same.
The ATO will continue to operate the Australian Business Register and director ID register. ASIC remains responsible for enforcing director ID offences.[1] ASIC will collect fees and charges that are expected to contribute around $1.4 billion to Commonwealth revenue annually. ASIC refers to the “possible linking of key data sets such as director ID numbers to the company register”.
ASIC helped facilitate 690,000 new registrations, comprising 304,000 companies and 386,000 business names. It received almost 3.1 million lodgements during 2023–24.
Other
There is no reference to the personal insolvency regulator, AFSA with which ASIC is required to cooperate in limited circumstances: IPSC s 10-5.
As AFSA reports,[2] it covers business-related personal insolvencies – sole traders and partnerships – which it says account for about 40% of Australian businesses.[3] There are also the bankruptcies of company directors, for example resulting from guarantees, or personal tax liabilities.
AFSA says that business-related insolvencies comprise 25% or 3,000 of overall personal insolvencies but they make up three-quarters of system liabilities, or $13.2 billion out of $17.3 billion.
AFSA says that historically, personal insolvencies have followed trends in corporate insolvencies 9 to 12 months later. But this is not so much the case now. While corporate insolvencies grew by 39% in 2023-24, that was well above the increase in personal insolvencies that occurred last year and the anticipated increase this year.
The report also refers to the new Compensation Scheme of Last Resort (CSLR) which can provide compensation of up to $150,000 to consumers who have an unpaid determination from AFCA because the financial institution subject to the determination has become insolvent.
Next
AFSA.
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[1] See 24-058MR ASIC brings first action against a director for failing to have a director identification number | ASIC
[2] AFSA Chief Executive speech at the 2024 AICM National Conference | Australian Financial Security Authority
[3] Cf ASBFEO’s Small Business Data Portal | ASBFEO
