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Friday 7 September 2012

12-218MR ASIC reports on corporate insolvencies 2011-2012

ASIC today published an annual overview of corporate insolvencies based on statutory reports lodged by external administrators for the 2011–2012 financial year.

Report 297 Insolvency statistics: External administrators’ reports 1 July 2011–30 June 2012 (REP 297) provides an insight around the 10,074 reports received over the last year and is part of ASIC’s commitment to providing the public with more information about the nature of corporate insolvencies in Australia.

Profile of Insolvent companies

REP 297 includes comprehensive information about the profile of companies placed into external administration including:

  • industry types
  • employee numbers
  • causes of company failure
  • estimated number and value of a company’s unsecured creditor debts, and
  • estimated dividends to unsecured creditors.

Key data from the report is included in an attachment to this release.

Adrian Brown, Senior Executive Leader of ASIC’s Insolvency Practitioners team, said REP 297 showed that small to medium size corporate insolvencies continued to dominate reports by external administrators to ASIC. Of note, 85% had assets of $100,000 or less, 78.5% had less than 20 employees and 42% had liabilities of $250,000 (or less).

‘Ninety-eight per cent of creditors in this group received between 0–11 cents in the dollar, reflecting the asset/liability profile of small to medium size corporate insolvencies’, Mr Brown said.

Reported misconduct

REP 297 also details how often external administrators report misconduct by company officers, the types of alleged misconduct most frequently reported (both criminal and civil breaches) and information about the number of cases that might warrant ASIC's enquiry.

’Reports lodged by external administrators provide important intelligence and, if received in a timely manner, can alert us to possible misconduct by company officers and lead us to make further enquiries’, Mr Brown said.

‘To ensure timely lodgement, ASIC conducted a compliance project in 2011 to remind registered liquidators to lodge their reports within the statutory timeframe. We will continue to monitor registered liquidator compliance with the Corporations Act 2001.’

In assessing which matters to pursue further, Mr Brown said that ASIC considers, among other things:

  • the nature of the possible misconduct reported
  • amount of the liabilities
  • deficiency suffered
  • availability of evidence, and
  • the advice of the external administrator that the reported possible misconduct warrants further investigation.

‘We also asked external administrators to prepare 738 supplementary reports where company officer misconduct had been alleged. This accounted for 10.2% of the 7,253 reports that were lodged (and alleged misconduct) in the 2011–12 financial year. ASIC assessed and recorded the remaining reports for future intelligence purposes’, Mr Brown said.

Supplementary reports are typically detailed, free-format reports, which set out the results of the external administrator’s inquiries and the evidence to support any alleged offences. Generally, ASIC can determine whether to commence a formal investigation on the basis of a supplementary report. In both 2010–11 and 2011–12, after assessment, ASIC referred 33% and 29% of these cases respectively for investigation or surveillance.

The risk assessment approach to external administrators’ reports and supplementary reports is consistent with ASIC’s broader approach to assessing which matters to pursue for further regulatory action. This includes consideration of:

  • evidence
  • level of harm or loss, and
  • cost versus regulatory benefit.

The report complements data published by ASIC each month on the number and type of corporate insolvency appointments.

Report 297 is ASIC’s second annual report and fourth report since external administrators’ reports could be lodged electronically. ASIC's previous reports are:

Report

Type

Period covered

263

Annual

2010-2011

225

Triennial

2007-2010

132

Triennial

2004-2007

Background

ASIC compiled REP 297 from the estimates and opinions contained in statutory reports lodged with ASIC by liquidators, receivers and managers, and voluntary administrators (external administrators) in the standard format of Schedule B to Regulatory Guide 16 External administrators: Reporting and lodging (RG 16) (Schedule B report). The Schedule B report is designed to gather basic statistical information about corporate insolvencies.

Under the Corporations Act 2001, external administrators must lodge statutory reports for corporate insolvencies as soon as practicable where they identify possible misconduct by company officers, and/or where unsecured creditors are likely to receive less than 50 cents in the dollar on their debts.

The statistics are based on external administrators’ estimates and opinions at the time they are lodged and are, therefore, not an actual account of the outcomes of external administrations. Nevertheless, the statistics provide a broad picture of corporate insolvencies in Australia for the 2011–2012 year. The total number of electronic reports lodged directly by external administrators stands at 97% in 2011–12.

Access to the report’s statistical data, including industry-specific data for the five largest industry classifications and eight years of data comparison from 2004 to 2012, is also available from ASIC’s website.

Attachment to ASIC Media Release 12-218MR: ASIC reports on corporate insolvencies 2011-2012

Profile of companies subject to external administration

 

2011–2012

2010–2011

2009–2010

% of reports involving less than 20 employees

78%

78%

77%

% of reports by industry

24% - Other (business & personal) services

22% - Construction

10% - Retail trade

23% - Other (business & personal) services

23% - Construction

11% - Retail trade

24% - Construction

22% - Other (business & personal) services

10% - Retail trade

% of reports with estimated assets of $100,000 or less

85%

84%

85%

% of reports with estimated liabilities of $250,000 or less

42%

44%

46%

% of reports with an estimated deficiency of $500,000 or less

64%

65%

66%

Causes of company failure

 

2011–2012

2010–2011

2009–2010

% of reports by cause of failure

44% - Poor strategic management of business

40% - Inadequate cashflow or high cash use

33% - Trading losses

44% - Poor strategic management of business

41% - Inadequate cashflow or high cash use

33% - Trading losses

44% - Poor strategic management of business

41% - Inadequate cashflow or high cash use

33% - Poor financial control including lack of records

Estimated dividends

 

2011–2012

2010–2011

2009–2010

% of reports with estimated dividends to unsecured creditors of less than 11 cents in the dollar

98%

97%

97%

Possible misconduct

 

2011–2012

2010–2011

2009–2010

Top 3 alleged possible misconduct

  1. Insolvent trading
  2. Obligation to keep financial records
  3. Care & diligence - Directors’ & officers’ duties
  1. Insolvent trading

  2. Obligation to keep financial records
  3. Care & diligence - Directors’ & officers’ duties
1.

Insolvent trading

2.

Obligation to keep financial records

3.

Care & diligence - Directors’ & officers’ duties

Further enquiry warranted by ASIC

 

2011–2012

2010–2011

2009–2010

% of reports where external administrators had evidence in their possession and believed that further enquiry warranted

12% (1,215 reports)

11% (851 reports)

11% (885 reports)

No. of external administrator supplementary reports requested by ASIC to determine whether to commence an investigation

738

558

600

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Last updated: 06/09/2012 12:00