It is interesting to compare the rather muted reaction to millions of dollars missing from three insolvent estates in Sydney with the extreme reaction, over 15 years ago, to the criminal misconduct of Mr Stuart Ariff, a sole practice liquidator from Newcastle. While we don’t need a repetition of the media hysteria that we had over Ariff, there are some present queries to raise about the regulators’ and accounting bodies’ actions.
Ariff in 2008
Ariff was deposed as a liquidator and was convicted, and jailed, for criminal conduct.[1] That set in train a Senate inquiry, as to the adequacy of ASIC’s powers and regulation, and the standards of the industry, and its 2010 report then led to the regulatory reforms introduced by the Insolvency Law Reform Act 2016 (ILRA).
Along the way there was populist media comment as to the low standards of insolvency practitioners and the need for close oversight, one ‘journalist’ seeing the industry as “spiralling out of control” unless regulatory action was improved.[2] Those regulatory reforms commenced in 2017 and, given their significance and context, were to be reviewed by ASIC and AFSA five years after implementation, in 2022.
Three cases in 2024
In contrast to Ariff, in 2024, we have had three registered practitioners making off (in one case, allegedly) with millions of dollars, with one already in jail.
- Former liquidator Mr Peter Amos has been sentenced to 4 years (2 non-parole) for his criminal conduct to the extent of nearly $3m.
- An amount of $1,130,877.63 has been ordered to be paid by a Part IX corporate debt agreement administrator (Sam Pos Pty Ltd, now in liquidation) and its director for misuse of Part IX debt agreement moneys.[3]
- And it seems that bankruptcy trustee Mr Paul Leroy is yet to be located to be served with February 2024 court process concerning missing moneys, with a further adjourned hearing date of 21 February 2025.
While there has probably been some adverse reporting of these matters, it is nothing like the same reaction given to Mr Ariff.
That may be because of a maturing of the perception of insolvency practitioners and their roles, assisted by the ILRA reforms, and more informed debate and explanations of the tasks involved, the limited funds, and the significant public interest roles assumed.[4] The 2023 PJC Report also gave a better understanding of the work of an IP; in fact no real concerns were raised by the PJC about the standards of IPs or of IP regulation.
That is not to say that missing millions are not a serious issue, but that a more strategic and constructive response is required. In reality, the occurrence of such frauds among insolvency practitioners does not appear to be that common.
In perspective, in 2022–23 (the 2024 figures are not yet available), bankruptcy trustees administered over $290m in receipts and over $287m in payments; debt agreement administrators paid out over $240m in dividends. There are no available figures for liquidators but they would be comparable.
Post-mortem review required?
The ILRA reforms gave broader powers to ASIC and AFSA, and enlisted ‘industry bodies’ including ARITA, CAANZ and CPA in practitioner regulation.
The new law is explained in Bodies everywhere — the role of professional bodies in regulating insolvency practitioners — (2018) 19(5) INSLB 94, Murray. Bodies everywhere — the role of professional bodies in regulating insolvency practitioners — (2018) 19(5) INSLB 94.pdf Murray
However the 2022 review never proceeded.[5] But while these practitioner defaults are not the best way to initiate a review, they do present an opportunity to prompt a post-mortem assessment of the effectiveness of the ILRA reforms. This would be assisted by the fact that both personal and corporate insolvency regulation is involved. Even though the ILRA introduced parallel regulatory regimes, each of ASIC and AFSA take different regulatory approaches. The PJC heard of inadequacies in reporting regulatory statistics, including that they do not allow an assessment of ASIC’s performance compared to AFSA.[6]
A review would also allow an appraisal of the accounting bodies’ claimed regulatory processes – CAANZ’s quality review framework involving inspections of members’ files,[7] and CPA’s Best Practice Program which was launched in January 2022 and which replaced the Quality Review Program, which had been in operation since 1994. Both these programs seek to ensure high standards of conduct of their members. Both are industry bodies under the ILRA reforms.
The main question for any review is how the moneys came to be missing in each case without coming to the regulators’ and industry bodies’ attention via the processes put in place by the ILRA or adopted by the industry bodies. In particular, the three current cases have some common and concerning features.
The disclosure of the alleged/misconduct in each of the three cases relied upon other agencies or persons, rather than through any proactive regulatory processes available to the insolvency regulators under the ILRA reforms, or to the relevant industry bodies. That led to action against Amos being taken by the Serious Financial Crime Taskforce and the DPP, against Leroy by the replacement trustees, and against Sam Pos by the Inspector-General in Bankruptcy.
Amos
Amos is said to have taken money from 2016 to December 2022. ASIC says that its eventual investigation was a collaboration between ASIC and the ATO under the Serious Financial Crime Taskforce.[8]
ARITA says it was alerted by one of its members leading to it lodging a s 40-100 industry notice with ASIC in October 2021. It then terminated Amos’ membership on 22 August 2022, for his failure to properly respond to ARITA’s conduct inquiries.
On 13 December 2023, CAANZ belatedly suspended Amos. We don’t know whether CAANZ reviewed Amos’ files between 2016 and 2022 under its quality review framework.
Leroy
The deregistration of bankruptcy trustee Paul Leroy is said to have been activated after his employer reported allegations of misconduct to AFSA. On 2 February 2024, AFSA terminated his registration on another ground, lack of insurance cover, with ARITA acting soon thereafter, and CPA on 7 August 2024. A February 2024 application to the Federal Court is being taken not by the Inspector-General but by the trustees of the estate from which the moneys were allegedly taken.
We don’t know whether Leroy was reviewed under CPA’s Best Practice Program.
Sam Pos Pty Ltd (in liq)
As to Sam Pos, AFSA says it received a tip-off highlighting allegations of financial mismanagement. Its inspection in February 2023 identified issues with record management and risk controls, let alone a missing $1.3m.
The Personal Insolvency Professionals Association has a code of conduct but appears to have no relevant role in regulation.
The real powers, of the regulators
While each of these referral processes, including tip-offs, is a useful regulatory tool, they raise the question whether, had these not occurred, the regulators should through their own regulatory powers and processes introduced by the ILRA have found out about these matters.
In the case of AFSA, this might have been through the fact that it is “an intelligence-led regulator [using] intelligence and data-driven insights to inform our supervisory intensity”. It has extensive trustee regulatory powers in Schedule 2 and examples of its stated approaches are found in its practice statements.[10]
As to ASIC, it told the PJC that [8.31] it undertakes regulation of insolvency practitioners through various means listed in the report, including exercising ASIC’s registered liquidator regulatory powers under Schedule 2.
APES 110
An overlay is that the regulators have the support and benefit of accountants’ professional responsibilities to tip-off under the APES 110 NOCLAR obligations.[11] The extent to which any members of the industry bodies bound by APES 110 and dealing with each of these three practitioners knew of the defalcations would be an interesting line of inquiry, in particular concerning Amos’ 6 year period of misconduct.
Next
Whether action is being taken to recover missing moneys in each case is not yet on the record;[12] nor what criminal proceedings, if any, apart from Amos, are being brought.
With over $200m held by trustees, we would like some comfort that there is not some further theft of moneys awaiting some random tip-off. We should be clearer about that and what might have gone wrong in relation to the regulation by ASIC and AFSA, and by the relevant industry bodies, when they report.
As to the future,[13] reliance on desk audits and the deterrence of penalties is rather ‘last century’. Internet based recording and monitoring may be the way to go. As to the accounting industry bodies, it may be that their assistance is no longer required.
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[1] ASIC v Ariff [2009] NSWSC 829
[2] For coverage of the issues at the time, see The Eye — Reform of practitioner regulation — (2012) 12(5) INSLB 106, M Murray; The Eye — a miscellany of insolvency issues current and upcoming — (2011) 11(5) INSLB 86, M Murray; and Is Ariff an aberration? — (2009) 10(2) INSLB 30, Chris Symes.
[3] Official Trustee in Bankruptcy, in the matter of Sam Pos Pty Ltd (in liq) [2024] FCA 1350.
[4] Keay’s Insolvency, 11th ed, ch 1; ASIC v Bettles [2023] FCA 975
[5] The Ex Memo to the Insolvency Law Reform Bill 2015 [9.377] refers to a Treasury/Attorney-General’s Department – ASIC/AFSA review five years after implementation.
[6] At [6.51-6.52] referring to the submission of Dr C Robinson.
[7] See CAANZ Professional Standards, Regulation and Conduct | For the financial year ended 30 June 2024
[8] ARITA notes criminal charges against former member Peter Amos
[9] blank.
[10] For example, Inspector-General Practice Statement 11 – Monitoring and inspection of bankruptcy trustees and debt agreement administrators and Inspector-General Practice Direction 15 – Debt agreement administrators’ guide to proper accounts.
[11] APES 110 Code of Ethics for Professional Accountants (including Independence Standards), section 260, Responding to non-compliance with laws and regulations.
[12] Ex-liquidator Peter Amos gaoled · Insolvency News Online
[13] Generally, as to corporate practitioners only, see Legal and Ethical Standards in Corporate Insolvency, Elizabeth Streten, Routledge, 2024.
