ASIC Corporate Insolvency Update - Issue 19
Issue 19, March 2021
Each Assetless Administration Fund (AAF) application is assessed against the relevant Grant Opportunity Guidelines for the stream the application was submitted (director banning, other matters, and asset recovery). We consider the applications against eligibility and assessment criteria including an overall consideration of ‘value with money’.
Despite your application’s eligibility, you are at risk of it being rejected if you have not:
- requested assistance from ASIC for books and records (RAEA) in situations where it is appropriate to make such a request
- demonstrated there is likely to be evidence available to prove allegations of misconduct
- addressed all assessment criteria
- considered or clearly articulated the alleged misconduct
- provided (despite it being reasonably available) full information to support the alleged misconduct
- responded to our requests for further details and/or clarification of information within requested timeframes
- provided quotes and signed agreements for applications that have merit for funding within requested timeframes.
All applications should be made as though you are telling the ‘story’ for the first time. Do not rely on previously lodged documents or simply attaching existing reports without context or direction.
Although we will gather more information where appropriate, providing complete information will help us to decide and expedite an outcome.
Remember, ASIC takes into account the time elapsed since the misconduct occurred.
When assessing the application, we may contact the liquidator to:
- seek clarification regarding matters raised in the application
- obtain a more detailed understanding of the matter
- discuss the level of funding sought.
We ask that registered liquidators respond to requests for information within the timeframes specified at all stages of the application process. If a matter becomes too old, we are unlikely to approve funding.
Registered liquidators now send more documents to creditors and others in electronic format and also attach a variety of documents to ASIC lodgements which become publicly available. It is therefore important to protect your privacy, and that of others such as employees and directors, when creating or modifying electronic documents, including Word documents, Excel spreadsheets and Adobe PDF files.
Certain information is automatically generated and stored within that file (commonly known as ‘metadata’), and some applications also track changes or additions to a document that appear as ‘tracked changes’, comments or annotations.
Depending on your individual application or document settings, some of this metadata may not be visible to you but is visible to others.
This data could include the details of a person who has made changes to the file or comments made when reviewing the document. Some of this data may include personal information, such as names or email addresses.
We expect registered liquidators will ensure that electronic files are appropriately clean and personal information is not inappropriately disclosed.
ASIC does not review each lodged document available on our registers for unauthorised personal information. We obtain and are provided with certain information in compliance with legislation, and this information can be made available. If we become aware of inappropriate disclosure you are likely to be required to relodge an appropriately clean document.
You should also be mindful that electronic documents sent to creditors may inadvertently contain unauthorised personal information and should be carefully reviewed before sending.
After we have expressed interest in funding a matter, we need your help to determine what level of funding is required and why.
You can improve the quality of your cost estimate and minimise funding delays if you:
- explain what type of investigations you propose to do. We often receive cost estimates describing the core task as ‘to undertake investigations’. This is inadequate for us to consider what you plan to do with the AAF funding. Below are examples of the detail of investigations you might provide:
- sample tracing of bank transactions
- interviewing individuals (name who you want to interview and why)
- conduct public examinations (name who you want to examine and why)
- analyse specific types of documents (and detail the expected volume and type).
- ensure the cost estimate reflects the scope of the investigation by:
- providing any relevant documents to support your cost estimate (your firm’s charge rates, quote from lawyer, listing of anticipated disbursements, etc.)
- not including a cost estimate to investigate offences or matters outside of the scope.
- nominate appropriate staff to perform the work, considering their skill set and hourly rate.
If you provide your cost estimate in Excel, we can consider it faster and avoid unnecessary delays.
A registered liquidator (RL) who has adopted the simplified liquidation process is not eligible for funding under the Assetless Administration Fund (AAF).
This is due to the eligibility criteria outlined in the various grant opportunity guidelines on Grant Connect (director banning, other matters, and asset recovery), specifically the requirement for a report under section 533(1) of the Corporations Act 2001 (the Act) to be lodged in order to be eligible for funding from the AAF. The report of misconduct lodged by a liquidator of a simplified liquidation process is made under regulation 5.5.05 of the Corporations Regulations 2001 (and not under section 533 of the Act).
If serious misconduct is identified following adoption of the simplified liquidation process, we encourage the RL to engage with our Insolvency Practitioners team.
Request assistance for external administration (RAEA) applications are useful for reasons beyond their primary objectives of seeking compliance for production of the ROCAP, the recovery of records, to have officers assist the liquidator or to prosecute individuals for non-compliance with these obligations.
We recently disqualified Daniel Adin Flynn, an officer of five failed companies, for three years and six months for failing to assist liquidators following applications lodged through the RAEA program.
The largest contributing factor when disqualifying Mr Flynn were 10 convictions recorded against him for failing to comply with his obligations to assist the liquidator.
We also relied on a supplementary report lodged by the liquidator of PVLT Mildura who was funded through the Assetless Administration Fund.
Mr Flynn’s disqualification was assisted by the RAEA applications and subsequent convictions.
Our Insolvency Practitioners team is not responsible for nominating registered liquidators (RLs) for court appointments. Instead, this occurs through ASIC’s Office of Enforcement.
ASIC can nominate or select RLs for appointments by:
- applying to court for an appointment as part of an enforcement action – in this case, ASIC’s Office of Enforcement is responsible for nominating registered liquidators for court appointments
- making an appointment to an abandoned company – ASIC can only appoint RLs who are members of ASIC’s Abandoned Company Liquidator Panel
- making an appointment to fill a vacancy in office – ASIC has exercised this power in rare circumstances. ASIC does not maintain an RL panel for filling vacancies in office and will consider the circumstances of each matter when deciding on a suitable replacement.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 was enacted in February 2020 to help combat illegal phoenix activity.
The last of these reforms commenced on 18 February 2021 and prohibits company directors from improperly backdating their resignation or leaving a company with no directors.
From 18 February 2021, the resigning director or the company will need to notify ASIC of a director resignation within 28 days. Where we are not notified within 28 days, the effective resignation date will be the document lodgement date. For example, if a director resigns on 1 March 2021 and does not notify ASIC of their resignation until 1 August 2021, we will record their resignation as 1 August 2021 on the corporate register. To fix an earlier date, the company or director must apply to ASIC or the court.
Applications to ASIC should be made within 56 days of the claimed resignation date and to the court within 12 months of the claimed resignation date.
We previously highlighted the importance of explaining to creditors the method proposed to recover the cost of the industry funding model (IFM) levy from external administrations.
The ARITA Practice Statement PSI 7 Disbursements and Expenses outlines several options when a registered liquidator (RL) is contemplating the recovery of the ‘per event metric cost’ from administrations, including:
- increasing the hourly rates to cover the increased overhead cost
- charging a fixed remuneration amount for the estimated IFM levy
- claiming the administration cost to be recovered as an internal disbursement approved by creditors.
Once a method has been determined, creditors must be provided with enough information to decide whether the amount is reasonable in the circumstances of the external administration.
When the method of recovering the IFM levy is approved via a proposal without a meeting, we request registered liquidators, wherever possible, avoid selecting the option ‘other’ on Form 5022 when reporting on the type of resolution sought from creditors and consider whether the resolution concerns remuneration or disbursements.
If you have a general registered liquidator (RL) inquiry, we advise you to email RLqueries@asic.gov.au so we can direct your inquiry to the appropriate team member.
Some examples of inquiries you might send to this address include:
- help with error messages you cannot decipher when lodging forms – including Forms 5602 and 5603. First, refer to the guides to these forms. If you still need help, it saves time to send a screenshot of the error message along with the workbook.
- checking what form to lodge in particular circumstances.
- how to update details with ASIC in all required places when changing firms, so you comply with your statutory obligation to ensure the details on the professional register are correct.
- if you lodge or identify that another RL lodged a Form 5603 in error – advise us of the reasons why deregistration should not occur. If deregistration has already occurred, you should seek legal advice about making an application to court to reinstate the company.
You should not email this address for:
- fee waiver requests – these need to be applied for. Only consider emailing us if your request was declined and you believe there are grounds for the request to be reconsidered.
- form lodgements – we do not process forms which are emailed, they are lodged via the registered liquidator or ASIC regulatory portals. If you must lodge a form in paper it has to be through the standard channel as an original signature is required.
The correct address for creditor correspondence is firstname.lastname@example.org
- Visit the ASIC Corporate Insolvency Update webpage.
- Add your search term to the search bar in the top right corner, e.g. 5022.
- Refine the search results by selecting ‘newsletter’ on the left pane.
You can report concerns about registered liquidator conduct via our website.
Reminder: You must include the former name where a company has changed its name within six months. This is an important statutory requirement (section 161A of the Corporations Act 2001) and highlighted in Issue 15.
We continue to see instances of notices lodged on the published notices website (PNW) where the former company name is not identified.
Reminder: When lodging a notice of appointment on the PNW please ensure the state of incorporation is accurate and as identified on the company search, which may differ from your office or the company’s principal place of business
Reminder: Carefully consider the industry selection in Form 505. For example, we commonly see electricians and plumbers classified as ‘Electricity, gas, water and waste services’ instead of ‘Construction’ and ‘Other (business and personal) services’ is overused and often inaccurate. For more information, refer to Issue 10 and use the ABS search to help identify the correct industry classification.
In response to the COVID-19 pandemic, in April 2020 we commenced publishing weekly statistics about companies entering external administration or controllership for the first time (Series 1B.1 to 1B.6). We recently commenced publishing weekly statistics about all insolvency appointments (Series 2B Notification of all external administration and controller appointments).
The 12-month rolling average to 7 March 2021 is down 47.7% on the prior year while the financial year to date to 7 March 2021 is down 53.9% for the same period for the previous financial year (see our Series 1B.1 to 1B.6 for more detail).
We are reviewing how we prepare the statistics in light of the impact of COVID-19 on insolvencies persisting for over 12 months.
Requests for assistance external administration
IFM metrics for RLs
Comments/feedback on this newsletter
Registered liquidator queries (matters other than specified above)
Request for publicly available data (for a fee)
Assetless Administration Fund
Note: The IP Legal email is for notification of court proceedings required to be served on ASIC under the court rules and eligible applicant requests only.
Victoria & Tasmania
Yvan Dang (Snr Accountant)
Direct: (03) 9280 3405
New South Wales & ACT
Carl Sibilia (Snr Manager)
Direct: (02) 9911 2994
Adrian Furby (Snr Specialist)
Direct: (07) 3867 4840
Adrian Saggers (Snr Manager)
Direct: (08) 9261 4065
South Australia & NT
Hywel Thomas (Snr Accountant)
Direct: (08) 9261 8573
Assetless Administration Funding (other than director banning matters)
David Rose (Snr Manager)
Direct: (03) 9280 3291