ASIC Corporate Insolvency Update - Issue 17

Issue 17, September 2020

Treasurer announces insolvency reforms to support small business recovery

On 24 September 2020, the Treasurer announced the Government's proposal for insolvency reforms to support small businesses recovery. The announcement was accompanied by an insolvency reforms fact sheet

We recommend registered liquidators review Report 645 Insolvency statistics: External administrators’ reports (July 2018 to June 2019) (REP 645), which provides an overview of the nature of corporate insolvencies. REP 645 supplements the monthly insolvency statistics published on our website, which are compiled from reporting by external administrators.

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Updates to Form 5022 following user feedback

On 1 July 2020, we released updates to Form 5022 Outcome of proposal to creditors or contributories following user feedback from the remuneration review project.

To make it clearer for you to complete, we removed the following reasons for lodgement:

  • approval to engage a related party
  • approval to compromise a debt
  • approval to enter into an agreement for more than three months.

We also added new disbursement resolution options after identifying approval of disbursements as the main reason for lodgement in the ‘Other’ category.

When you lodge the outcome of a proposal dealing with remuneration, you will now be asked about the:

  • charging method used (e.g. time-based method)
  • amount of remuneration (time-based and fixed methods)
  • whether it is for past or prospective remuneration (time-based method).

Minor changes have also been made to clarify language and warning messages.

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Accounting for indemnities and remuneration

We are progressively improving our data analytics capabilities and using the insights gained to assist our regulatory activities.

For registered liquidators (RLs), this means we are analysing data received in the various lodgements made.

Recent analysis of information lodged in Form 5603 End of administration return (Form 5603) highlighted a significant number of returns reporting no remuneration was received.

Data analytics from a sample of over 1,300 creditors’ voluntary liquidations reporting that no remuneration was received, showed that 149 were from companies where there was also a DIRRI lodged. The DIRRIs for the 149 companies disclosed there was an indemnity or pre-payment available totalling in excess of $2.3 million, but the corresponding Forms 5603 did not disclose any remuneration paid.

We note ARITA’s Code of Professional Conduct guidance requires:

  • approval of remuneration before it is drawn from an upfront payment or an indemnity
  • money received under an upfront payment or indemnity to be accounted for as funds of the Administration (which includes reporting it in the returns lodged with ASIC).

RLs are encouraged to review documents carefully before lodging with ASIC to ensure that remuneration approved and drawn is accurately reported. This includes ensuring that upfront payments and indemnities are fully recorded in the administration receipts and payments.

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Assetless Administration Fund

When to commence work under an AA Fund Agreement and how to expedite payments

Registered liquidators (RLs) must only commence work under a funding agreement once it has been executed by ASIC.

For ASIC to execute an agreement, a completed vendor form must be provided. Work completed before execution by ASIC will not be reimbursed.

When seeking payment under an agreement, the RL should ensure that:

  • tasks are completed as specified in the terms of the agreement
  • a tax invoice is submitted in accordance with the terms of the agreement
  • supporting documentation is provided with the tax invoice, including:
    • a summary of the work or tasks performed with a description of the tasks completed by the RL and the RL's employees. (e.g. a work-in-progress report from the RL’s firm showing the time spent by each employee and a description of tasks performed)
    • documents to support disbursements claimed.

Payment under the agreement will only occur after the invoice is checked to make sure:

  • it complies with the terms of the agreement (and only includes work completed and in relation to the agreement)
  • all supporting material is provided
  • its details match the vendor form.

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When is a liquidation assetless for the purpose of a funding request?

The Grant Guidelines published on Grant Connect in July 2020 set out how to determine whether a liquidation is assetless and eligible for grant funding under each of the grant opportunities (director banning, other matters, and asset recovery).

Broadly, for a liquidation to be ‘assetless’, the net realisable assets must be less than the amount prescribed in the relevant Grant Guidelines, currently $10,000.

Net realisable assets are the actual or estimated gross proceeds from the realisation of assets, less:

  • actual or estimated direct third-party realisation costs
  • proceeds subject to a claim by a secured creditor
  • petitioning creditor’s cost paid under section 556(1)(b) of the Corporations Act 2001
  • all other costs of the liquidation, including:
    • RL’s approved and unbilled remuneration
    • legal costs
    • costs directly relating to the RL’s preliminary action and/or legal action (for asset recovery matters).

The following items are excluded from the calculation of net realisable assets:

  • director or third-party indemnities to the RL
  • choses in action, which have not been settled or judicially determined
  • assets not readily realisable and that will take longer than 12 months to realise from the date of lodging the funding request
  • specific purpose funding from creditors, directors or third parties.

Refer to the specific Grant Guidelines for complete guidance regarding ‘assetless’.

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Mental health in the time of COVID-19

The COVID-19 pandemic has created several challenges for registered liquidators (RLs) which may affect their ability to perform some of their statutory duties and functions.

Staff illness, physical-distancing practices, government restrictions, new corporate practices to comply with health and safety regulations, and self-imposed restrictions may create increased anxiety, depression and stress amongst RLs and their staff. RLs and their staff are also dealing with stakeholders who are facing added stress, anxiety and depression.

We ask RLs to be mindful of how these factors influence behaviour and carefully consider how they respond to ‘everyday’ challenges when dealing with insolvent businesses. For example:

  • working-from-home arrangements make it difficult to observe changes in staff behaviour
  • creditors, directors and their employees are facing added stresses due to loss of work/work hours and problems faced by their own families and financial circumstances
  • uncertainty around when measures to assist businesses through COVID-19 may be withdrawn.

As professionals, RLs should strive to maintain high levels of integrity, objectivity and impartiality in managing their practice and their conduct on external administrations. RLs are expected to act respectfully and courteously when dealing with anyone who may be suffering added stress and anxiety.

It is important that your communication is honest, open, clear and timely. Be aware that increased stress levels affect your own and others’ (including your staff) behaviour, even over the phone, during meetings and in written communications. Ensure that you deal with conflict early and promptly so that problems can be effectively managed, and stakeholders understand the insolvency processes and their rights. Having an effective complaints management system may be helpful to manage conflict during these challenging times.

We encourage RLs to encourage business owners to seek advice now. Visit the:

  • ASIC website for information on our response to the COVID-19 pandemic.
  • MoneySmart website for guidance on how to make financial decisions during the COVID-19 pandemic.

The following mental health training programs and resources can help RLs, their staff and stakeholders when dealing with conflict and mental health issues:

AFSA Insolvency Mental Health Awareness Program

ARITA Mental Health Training Program

Australian Government - Department of Health

Beyond Blue

Beyond Blue - Support yourself and small businesses: A free learning course for business advisers


Mental Health First Aid Australia

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Tips for making an application to request assistance for external administration

Registered liquidators (RLs) submitting a Request Assistance for External Administration (RAEA) application through the regulatory portal are reminded to:

  • provide the name, telephone number and email address of the person submitting the request (or a preferred contact person)
  • select ‘continuing offence’ at the ‘assistance required’ step of the application only after ASIC has prosecuted the target for the underlying offences and there has been no compliance
  • attach a statement or sworn affidavit to the RAEA for ASIC to consider.

We remind RLs that we will not accept requests by email and paper after 30 September 2020.

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Updates to insolvency resources

To help directors, creditors and employees of insolvent (or soon to be insolvent) companies understand the insolvency process we provide a number of useful resources on our website.

Last month, we updated our insolvency information sheets and related web content to make it easier to navigate and understand. We also provided information for directors of companies affected by the COVID-19 pandemic.

Information sheets are a summary of technical information contained in the Corporations Act 2001 (Corporations Act) about insolvency laws that affect various stakeholders, including duties, obligations, roles, and the effects of insolvency and different types of insolvency administrations. 

If you provide creditors and/or directors with links and/or copies of the following information sheets, you will need to update the links in your letters and/or creditors’ reports where relevant.

INFO 14 Bankruptcy and personal insolvency agreements

INFO 41 Insolvency: A glossary of terms

INFO 42 Insolvency for directors

INFO 43 Insolvency for investors and shareholders

INFO 45 Liquidation: A guide for creditors

INFO 46 Liquidation: A guide for employees

INFO 53 Directors: Obligations to external administrators

INFO 54 Receivership: A guide for creditors

INFO 55 Receivership: A guide for employees

INFO 74 Voluntary administration: A guide for creditors

INFO 75 Voluntary administration: A guide for employees

INFO 84 Independence of external administrators: A guide for creditors

INFO 85 Approving fees: A guide for creditors

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Renewal of registration

We are now over halfway through the second renewal cycle for the registration of registered liquidators since the introduction of the three-year registration period in March 2017.

As part of the process, all applicants need to complete a questionnaire about the insurances they have in place. Note there is a link to the questionnaire in the application form.

To help you complete the questionnaire, we provide clarification on two questions that get the most queries.

Question 10: What is the cancellability of the contract of insurance?

Tip: To be appropriate the policy should ‘not be cancellable by the insurer for innocent non-disclosure or innocent misrepresentation, or by the insured at all’, see RG 258.245 of Regulatory Guide 258 Registered liquidators: Registration, disciplinary actions and insurance requirements (RG 258).

Question 18: How are the costs of defending a claim treated by your insurer?

Tip: See RG 258.248–RG 258.249 to determine whether your policy is a costs ‘in addition’ or ‘inclusive’ policy.

We need time to review your insurance policy and questionnaire, so renewal is not automatic. Lodge your application at least one week before expiry of your existing registration in case we have questions about your policy that may require clarification from your broker.

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NSW-registered vehicle and vessel searches

Transport for NSW has introduced a new procedure for external administrators of companies to obtain information about NSW-registered vehicles and vessels.

Transport for NSW will no longer accept requests for information by letter and have created application forms to request ownership and buyer searches.

You can use the ownership search forms to obtain details of vehicles and vessels currently or historically registered to a company and the dates they were disposed of and, where known, the sale price. You should use the buyer search forms where you already have confirmation of the company’s prior ownership of the vehicle or vessel and wish to obtain the name and address of a buyer from the company.

Where the company has sold a vehicle or vessel to a buyer, Transport for NSW will only release the buyer’s name where that information is contained in a ‘book of the company’ (e.g. a document which the company has either signed or lodged with Transport for NSW). Where the buyer’s name is not contained in a book of the company which Transport for NSW holds, then practitioners may be able to obtain that information through a Government Information (Public Access) Act 2009 (NSW) (GIPA) freedom of information access application. Find out more.

When making a GIPA application you should consider including submissions in the application to support the release of information (e.g. the release of information supports a public interest in the administration of insolvency laws under the Corporations Act).

Visit Transport for NSW to download the application forms and find out more.

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Media releases

Below are our most recent media releases related to corporate insolvency.

20-160MR Former Sydney liquidator charged with dishonesty offences

20-152MR Former director banned for engaging in illegal phoenix activity

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Insolvency statistics

In response to the COVID-19 pandemic, we have been releasing weekly statistics about companies entering external administration (new Series 1B.1 to 1B.6) – and have recently started providing a breakdown by region.

As the year progresses, the significant decline in insolvency activity continues: April (down 33%), May (down 45%), June (down 49%) July (down 51%) and to 23 August (down 63%) on the same months in 2019.

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Email support and contact details for ASIC team members for each state are available on the Contacts page.

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Last updated: 22/02/2024 02:05