An ASIC media release reports that
“the husband-and-wife directors behind a group of collapsed agriculture businesses linked to a NSW corruption scandal have both been disqualified by ASIC from managing corporations for the maximum period of five years”.
ASIC acted under section 206F of the Corporations Act.
Over $56.8 million owed to unsecured creditors
Reading further down ASIC’s release, it is rather casually mentioned that the directors’ companies owed a combined total of over $56.8 million to unsecured creditors, the companies and directorships going back over 20 years, to 2004.
As ASIC says, with some undue formality and understatement, the directors
“each failed to act properly and meet their obligations as company officers”,
including in bribing a former member of parliament.
With continued formality, ASIC lists their defaults as including failing “to ensure the four companies complied with their statutory obligations to the Australian Taxation Office”; sponsoring a person’s work visa in exchange for a company receiving a financial loan; buying a new car on company money; and, as well, insolvent trading.
Appropriate consequences for such mismanagement
ASIC’s media people say that ASIC’s enforcement action shows that there are “appropriate consequences” for such “mismanagement” and that ASIC continues to take targeted action “to protect the wider public, employees and other businesses against the future mismanagement of companies”, even if much belatedly.
Comment
Little corporate regulation
Alternative messages from the facts provided by ASIC are that there may well be other companies out there, trading for years, accumulating debts in the tens of millions of dollars. In the case of small proprietary companies, which constitute the vast majority of trading companies, there is little corporate regulation.
More tax regulation
However, there is more intensive tax regulation, the ATO having details at any given time of taxpayers’ unmet lodgments or tax payments. The ATO has the potential to be the real insolvency and corporate regulator. Unusually in this case, unpaid taxes were small compared with the overall debts of the companies.
It’s up to creditors
If there is little regulation of small trading companies, then more is imposed on unsecured creditors to look after their own interests – in settling credit terms and taking security – and knowing their customers.
Sunlight as a disinfectant needed
As to the latter, creditors are not assisted by a rather opaque business environment – director IDs are yet to see the light, there is no free access to ASIC or AFSA records, no beneficial ownership register, nor trusts register.
Productivity
Subject to the need to protect the big end of town, such sunlight* reforms would be a very useful productivity measure.
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* Helen Anderson, ‘Sunlight as the Disinfectant for Phoenix Activity’ (2016) 34 Company and Securities Law Journal 257
