ASIC Corporate Insolvency Update - Issue 16

Issue 16, June 2020

 

Independence

Pre-appointment checks under pandemic conditions

As social restrictions ease across the country, we remind registered liquidators (RLs) of the importance of undertaking proper pre-appointment independence checks irrespective of the communication medium adopted.

Before the restrictions, it was normal for RLs to meet with directors and advisers in person at an office or workplace to discuss the company’s position and future. When restrictions were imposed, in-person meetings were no longer possible resulting in the rise of virtual meetings. You may have also held discussions over the telephone without seeing the director or adviser.

Regardless of the meeting or discussion format, it is vitally important that RLs conduct proper pre-appointment conflict checks to ensure they are, and will be seen to be, independent. Former methods of conducting these checks may not work in the current environment and may need to be adapted or changed. Where possible, you should speak with the director either in person (if permitted and safe to do so) or virtually. RLs should not just rely on email and telephone contact as it is not possible to properly determine who you are dealing with.

Do not rely solely on contact with an adviser without contacting the director yourself. Untrustworthy advisers may seek to take advantage of the restrictions in place and ‘shield’ the director from you – thus masking possible true intentions.

Independence of RLs remains vital in the economic recovery process.

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Remuneration

When you have reached your capped fees and seek further approval

Our compliance projects revealed that registered liquidators (RLs) can improve their remuneration reports to creditors when seeking further fee approval. This may occur where a previously approved amount has been exceeded, and can be particularly messy when the resolutions include overlapping periods of past and future fees, and where the RL fails to adequately explain or reconcile total fees claimed.

Quality remuneration and creditor reports tell a story about what the RL has accomplished and how (if) the tasks performed will contribute to a return to creditors. Where RLs have exceeded prior capped fees, additional remuneration requests are supported by a descriptive explanation of why further work was/is required. This is particularly important when creditors receive no or reduced return from the external administration.

Providing relevant information that explains a claim for remuneration over and above that previously approved is more likely to be passed by creditors. The standard remuneration reporting template of itself is unlikely to help creditors assess whether the claim for additional remuneration is reasonable.

It is disappointing to see some reports simply seeking additional capped amounts without any thoughtful reference to previous fees approved. Some reports even have overlapping time periods, making it extremely confusing for creditors to understand what the additional fees are for. It is important to ensure that creditors understand what has happened, what needs to happen and how the charges previously anticipated may change.   

Creditors want to know why you have or want to spend more time on a task than what was initially estimated, presented and approved. It is natural for anyone to question unexplained charges, especially when they lead to a smaller or no return.

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Assetless Administration Fund

ASIC Regulatory Portal and the AA Fund

All applications for Assetless Administration (AA) funding transitioned to the ASIC Regulatory Portal (the portal) on 30 March 2020. As at 1 June 2020, the number of funding applications made were:

• director banning – 84
• matters other than director banning/serious misconduct – 17
• asset recoveries – 6.

While it’s too early to compare application numbers for the previous periods, it appears that lodgements are increasing, possibly demonstrating a favourable uptake of the new portal.

We are aware that applications have been made where the incorrect application type was selected (e.g. where a matter other than banning has been lodged as a banning request or vice versa). Therefore, the lodgement figures above are approximate due to these incorrect applications. It is important to carefully consider the type of application you intend to submit before starting, as later questions specifically relate to each application type. Submitting an incorrect application means relevant information is not provided and you will need to withdraw and relodge a new application by selecting the correct application type.

To help us assess your application:

• where prompted, be sure to include the name of the RL’s firm, ABN and the ABN of the company subject to the application
• when addressing the question surrounding alleged misconduct, ensure your answers are not vague.

Tip: Use substantiation guides to help. New grant guidelines (accessible via GrantConnect) will include a substantiation guide.

Each of the three types of funding (previously contained in Regulatory Guide 109) are set out in the below individual grant guidelines:

• Director Banning Grant Guidelines
• Other Matters Grant Guidelines 
• Asset Recovery Grant Guidelines 

To access the grant guidelines and template grant agreements (grant documents) for each type of grant, you need to register as a user on GrantConnect. If you have issues with registration or accessing the grant documents, please contact the GrantConnect Help Desk. ASIC is unable to assist you with any questions regarding GrantConnect.

• Print and review the application so you see a complete overview of the application to be submitted
• After receiving the ‘allocation acknowledgement’ message from an ASIC case officer, please respond with the requested information in a timely manner – a quick reply to this message will help fast-track the process.

Note: This message will come from the regulatory portal and will be received by the RL and the submitter of the application.

Common questions

• Why is the navigation sequential only? The form is set up so that subsequent questions are conditional on the answer to earlier questions. There are specific questions associated with the majority of key areas in the application. Validation of the form occurs on every page. Allowing you to navigate back at any point could invalidate any answered questions.
• How do I save, print or review a draft application? Your application is saved in the portal as you progress through the form. If you wish to review your draft file, you have the option to review it online, create a PDF or print it out. The instructions are on our webpage, Reviewing, printing, saving and converting transactions to PDF.
• Where can I get more information? Other information on the ASIC website includes how the application transactions work along with other FAQs which are periodically updated.

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Will ASIC lodge a proof of debt for deregistered companies?

Ordinarily when a company is deregistered, all property the company held on trust belongs to the Commonwealth and all non-trust property of the company vests in ASIC.

We do not normally know why a deregistered company may have become a creditor of a company in liquidation, so we will not lodge proof of debt (POD) forms on behalf of deregistered companies. Former directors and/or members must instead reinstate the company if they wish the company to assert its interest and lodge the POD. Alternatively, if the deregistered company was a trustee, then we would not object to the new trustee lodging the POD.

It is a matter for registered liquidators to seek their own legal advice if in doubt. If you decide that money is payable to the deregistered company, then you should notify ASIC’s Unclaimed Monies Unit by email at unclaimed.lodging@asic.gov.au. Any party wishing to claim those funds would need to obtain ASIC’s claim requirements by emailing unclaimed.money@asic.gov.au.

Correspondence or questions about a deregistered company should be sent to property.law@asic.gov.au with the name and ACN of the deregistered company included in the subject line.

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Request Assistance for External Administration (RAEA)

External Administrator Assistance Program (formerly the Liquidator Assistance Program) can be accessed via the ASIC Regulatory Portal (the portal).

We encourage registered liquidators to use the portal to request assistance as these requests are allocated to an action officer faster than applications lodged through other channels. Over 50% of requests have been lodged through the portal since it started operating on 30 March 2020.

While we are still accepting email and paper requests for assistance, we will stop accepting requests by these methods after 30 September 2020.

Submitting a request has been streamlined – just look for the ‘Request Assistance for External Administration’ option in the portal and complete the information required. Do not forget to include your case officer’s contact number and email address.

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Importance of completing historical searches

Registered liquidators (RLs) should consider a director’s previous company roles, which could indicate their involvement in illegal phoenix activity.

This can be as simple as obtaining an ASIC current and historical personal name extract on a director, which may show they:

• have previously been a director of a company with a similar name
• are currently a director of a company with a similar name operating potentially the same business
• have been a director of other companies that have been wound up.

Further investigations may then be needed to determine whether the director has engaged in illegal phoenix activity.

If further investigation is warranted, and the company is assetless, the RL could consider applying for funding from the Assetless Administration Fund.

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Committee decisions and media releases

• Registered liquidator disciplinary decisions
• 20-142MR Disciplinary Committee cancels liquidator Amanda Young’s registration
• 20-125MR Directors disqualified for engaging in illegal phoenix activity
• 20-106MR ASIC disqualifies company directors
• 20-081MR ASIC permanently bans financial adviser and disqualifies company director
• 20-071MR Former director disqualified after transferring business and leaving insufficient assets to pay creditors

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Insolvency statistics

As a result of the COVID-19 pandemic, we commenced releasing weekly statistics of companies entering external administration (new Series 1B.1 to 1B.4). There continues to be a material decrease in insolvency activity, April 2020 (down 33%) and to 31 May (down 45%) on the same months in the prior year.

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