ASIC Corporate Insolvency Update - Issue 21
Issue 21, September 2021
Where to access help to deal with stresses caused by COVID-19
Spotlight on cyber: Unsolicited scam email from staff at a national insolvency firm
Importance of switching entities in the regulatory portal
ASIC portals: What, why and when?
Update on ASIC registry services
Options when ASIC requests a supplementary report
Supplementary reports: Complete using the online form
Where to access help to deal with stresses caused by COVID-19
Uncertainty caused by COVID-19 may result in individuals experiencing higher levels of stress and lead to concerns about their financial future.
By the very nature of their work, registered liquidators and their staff are exposed to these issues daily. The following resources are available to help.
Beyond Blue
Beyond Blue operates a program called NewAccess for Small Business Owners.
This is a free and confidential mental health coaching program, developed by Beyond Blue, to give small business owners, including sole traders, the support they need. Through this service, small business owners have access to coaches with a small business background to help them to overcome difficult issues and provide practical skills to manage stress.
Mental Health First Aid (MHFA)
MHFA has developed a new blended online course for financial service professionals. This course is suitable for a range of professionals working in financial service settings, including insolvency professionals, accountants and financial counsellors.
It is based on the previous MHFA course for insolvency professionals (developed as a joint initiative by ASIC, the Australian Financial Security Authority and the Australian Restructuring Insolvency and Turnaround Association) and the MHFA guidelines on helping someone experiencing financial difficulties. The training is delivered through a self-paced eLearning component (typically six to eight hours long) followed by a four-hour, face-to-face, instructor-led session.
The Blended MHFA for Financial Services Professionals course teaches professionals how to assist a co-worker or person in financial distress, who is developing a mental health problem or is in crisis.
Spotlight on cyber: Unsolicited scam email from staff at a national insolvency firm
A member of the ASIC Registered Liquidators team recently received an unsolicited email from a staff member of a mid-sized insolvency firm, which ASIC IT identified as a potential scam or ‘phishing email’.
As soon as we identified the issue, we alerted the firm to the potential cyber risk and asked them to assess and determine their next steps.
On the same day, the firm notified ASIC confirming that it was aware of the phishing email and, in conjunction with their IT team, was taking relevant and necessary measures to protect the firm’s data. In addition, the firm was:
- contacting all affected parties
- alerting their staff to the attack and reminding them to be vigilant when receiving emails
- looking at who might have targeted the firm and what caused the phishing attack to start
- assessing if it was a reportable data breach
- liaising with the firm’s main banking institution to determine whether any possible breaches may have occurred without their knowledge.
We expect all RLs to ensure their firm’s:
- IT and operating systems are sufficiently supported to help prevent cyber attacks
- policies and procedures are regularly reviewed and specify:
- what staff can do to prevent cyber attacks
- how staff must respond if the firm is the subject of a cyber attack
- what RLs must consider if their operating systems are compromised by a cyber-attack (e.g. is it a reportable data breach?).
We suggest all RLs ensure their current professional indemnity insurance policy covers loss suffered by a firm – or a company to which they have been appointed – because of a cyber-attack. We also recommend RLs review their current policy wording and obtain advice about whether additional cover against cyber-attacks is appropriate for their individual circumstances.
Importance of switching entities in the regulatory portal
Registered liquidators (RLs) should advise their staff to ‘switch entities’ to the RL’s name before preparing external administration lodgement forms in the regulatory portal.
When a staff member is completing and lodging an initial statutory report (ISR) or supplementary report under sections 533, 422 or 438D of the Corporations Act 2001 on an RL’s behalf, they must first ‘switch entities’ after logging into the regulatory portal to represent the correct RL on whose behalf they are lodging the ISR or supplementary report.
If the staff member commences an ISR or supplementary report in their own capacity, the staff member’s details are prefilled into the ‘Insolvency Practitioner’ field, and they will be unable to amend these fields to the RL because they are locked.
Consequently, the staff member will be inadvertently referred to in our regulatory portal report lodgement database as the RL of the external administration regarding the lodgement (this does not impact other ASIC databases).
Lodgement of a statutory report by a party other than the RL may raise doubt about the operation of qualified privilege for the statements made in the report.
ASIC portals: What, why and when?
ASIC maintains three portals that registered liquidators (RLs) use to comply with their obligations. We regularly receive questions about why there are three different portals and when to use each one.
The current portals are the:
- Registered Liquidator Portal (the most well-known and used portal)
- Regulatory Portal (the ‘new one’)
- Published Notices Website (commonly referred to as the ‘PNW’).
Each portal has a distinct purpose.
You should use this portal to lodge forms that relate to the external administration of companies and the appointment of receivers and scheme administrators. The forms lodged through this portal usually update an ASIC register such as the Companies Register.
You should also use this portal to lodge forms regarding registration as an RL and to maintain RL details such as name, address, and firm name. Lodgement of these forms updates the Registered Liquidator Register.
You should use this portal to review and lodge industry funding metrics and receive related correspondence from ASIC.
The Regulatory Portal must also be used to lodge Statutory Reports (under sections 422, 438D or 533 of the Corporations Act 2001 (Corporations Act), or Regulation 5.5.05 of the Corporations Regulations 2001 (Corporations Regulations)) and to apply for funding under the Assetless Administration Fund.
While not technically a portal, the PNW is used to publish notices required to be published under the Corporations Act.
We built the website to enable ASIC to provide a publication platform within the required timeframe and to make it accessible to those parties who need access.
The PNW is a standalone website because:
- it is maintained for a specific purpose under Regulation 5.6.75 of the Corporations Regulations
- it needs to be searchable by the public free of charge
- it needs to be available to non-registered liquidators to post notices.
We are often asked why these portals cannot be merged into one. Each portal has a distinct purpose and was developed at different times using different technology platforms. Our current systems do not allow for integration of the portals. However, it is likely that most of the forms and documents currently lodged through the Registered Liquidator Portal will be moved to the new register under the Modernising Business Registers program.
Pursuing unfair preferences
Registered liquidators (RLs) have informed us that recovery of unfair preferences is important because it helps to pay the costs of liquidation and dividends to creditors.
However, stakeholders have told us that some RLs, without appearing to undertake any inquiry to determine whether the substantive elements of an unfair preference can be established, send letters to all creditors who have received a payment from the company during the relevant period. These letters are not for investigative purposes but are demands for repayment of money on the basis that the payment is an unfair preference.
We draw your attention to judicial remarks made by Justice Lee in the matter of Worldwide Specialty Property Services Pty Limited (in liq) v Worldwide Specialty Property Services Pty Limited (in liq) [2017] FCA 687 [at paragraph 68]:
“A liquidator holds an important statutory office. It is a matter of concern that any liquidator would make demands of third parties for the recovery of monies when the liquidator did not have, at the time the demand was made, a proper basis for making that demand. Notwithstanding that [the liquidator] was motivated by the laudable motive of seeking to maximise the recovery of monies for creditors, this is insufficient to justify demands being made in the hope that a third party will effectively accept the demand as a ‘fair cop’. If this is a common practice then, in my view, it should be deprecated. A demand should only be made by a liquidator if the liquidator believes, on reasonable grounds, that there is a proper legal and factual basis to make such a demand.”
The comments highlight that a demand for a voidable preference should only be made by an RL if they believe, on reasonable grounds, there is a proper legal and factual basis to make such a demand.
We have recently updated Information Sheet 45 Liquidation: A guide for creditors to include an overview of defences available to creditors who receive a demand, including that the RL provide:
- details of the payments they claim result in the creditor receiving an unfair preference
- reasons why the payments are unfair preference payments (including the basis on which the liquidator claims the creditor cannot establish a defence)
- supporting evidence to support their claim.
Update on ASIC registry services
We ask registered liquidators and their staff to let us know if they experience any change in the level of service provided by registry services. This will help us implement the Modernising Business Registers (MBR) program and improve customer service.
The government announced the full implementation of the MBR program as part of the 2020 Budget Digital Business Plan. The MBR program will establish the new Australian Business Registry Services (ABRS) and streamline how you register, view and maintain your business information with government.
The ABRS will:
- progressively roll out between 2021 and 2024
- bring together over 30 ASIC registers and the Australian Business Register (ABR) in one place
- introduce the director identification number (director ID) initiative.
The MBR program is being implemented by the Australian Taxation Office (ATO).
On 15 April 2021, ASIC registry staff moved to the ATO, in a Machinery of Government administrative change to assist the Registrar.
The Registrar's role is to lead and implement the MBR program and perform statutory registry functions and exercise powers under the relevant laws.
Options when ASIC requests a supplementary report
ASIC requests supplementary reports based on the information contained in the initial statutory report. We are currently monitoring reports lodged and encourage registered liquidators (RLs) to check if they have any outstanding requests for a supplementary report.
If RLs have outstanding requests for a supplementary report, they should consider which option to take when lodging a supplementary report through the Regulatory Portal:
- Option 1 – complete the report: A supplementary report detailing the alleged misconduct and all current evidence in support.
- Option 2 – apply for funding: If eligible, a timely funding application to ASIC’s Assetless Administration Fund, please see our guidelines.
- Option 3 – request not to lodge a report: A ‘Notice of intention not to lodge an insolvency supplementary report’. Please note that you are required to give reasons for not lodging the supplementary report.
When we request a supplementary report, we encourage RLs and their staff to actively consider whether there is actual misconduct supported by evidence which can be reported in the supplementary report. When requested to submit a supplementary for a group of external administrations, RLs may either:
- submit a supplementary report for each external administration, or
- where a supplementary report covers multiple external administrations, submit the supplementary report in one external administration and submit a notice of intention not to lodge a supplementary report for each of the remaining external administrations.
Supplementary reports: Complete using the online form
Registered liquidators (RLs) required to lodge supplementary reports through the Regulatory Portal are reminded that the previous supplementary report templates have been replaced by the ‘Submit insolvency supplementary report’ form.
The online form must be used and needs to be completed as fully and accurately as possible. Mandatory questions (marked with an asterisk) must be responded to. If necessary, additional documents can be generated, referred to in the report and lodged as annexures.
The lodgement of complete supplementary reports through the Regulatory Portal using the online ‘Submit insolvency supplementary report’ form, with supporting evidence, will improve efficiencies and prevent delays by providing ASIC with the information required to act in response to reported alleged misconduct.
When reports are submitted incorrectly, or are incomplete, we will request RLs to clarify, and/or provide additional information.
When preparing funded supplementary reports, as well as completing the report through the Regulatory Portal using the online ‘Submit insolvency supplementary report’ form, RLs must ensure all tasks included in the Funding Agreements have been attended to and the relevant information is included in the report.
Updates to Information Sheet 29
We have updated Information Sheet 29 External administration, controller appointments and schemes of arrangements: Most commonly lodged forms (INFO 29) to help external administrators, controllers and scheme administrators comply with their lodgement and publication requirements following the introduction of three new types of external administration.
The new external administration types have been in effect since 1 January 2021 and were introduced to help small businesses navigate the impacts of COVID-19.
The revisions to INFO 29 will assist small business owners operating through companies to access the new types of external administration and understand the steps involved. The guidance will also assist creditors exposed to the new types of external administration for the first time and help them understand whether the correct process is being followed.
The guidance was reissued following consultation with the Australian Restructuring Insolvency Turnaround Association.
INFO 29 has been updated to include the following new flowcharts:
- Flowchart 2A: Liquidator in a creditors’ voluntary winding up (simplified liquidation process)
- Flowchart 14: Restructuring practitioner of a company
- Flowchart 15: Restructuring practitioner of a restructuring plan for a company.
Withdrawing AAF applications
Registered liquidators (RLs) must inform ASIC when their circumstances change after they have lodged an Assetless Administration Fund (AAF) application.
Where the circumstances of a liquidation have changed and an application is no longer required or appropriate, please advise ASIC promptly and request for the application to be withdrawn.
To withdraw an application, RLs should submit a request through the Regulatory Portal setting out the reason(s) why the application should be withdrawn. We will then process this request and confirm the outcome in writing.
Some of the circumstances that may require an application to be withdrawn include:
- when the liquidation is no longer assetless
- if the RL recovers the asset(s) or is successful in negotiating a settlement of a claim which was the purpose of the application
- if the RL no longer requires funding as a result of obtaining funding from other parties such as the Australian Taxation Office, the Attorney-General’s Department or other creditors
- if an RL has been replaced as liquidator of the matter (only appointed RLs are eligible to apply for AAF funding)
- if the RL has finalised the liquidation and lodged the relevant forms with ASIC.
If you are uncertain about the process, please contact the assigned case officer.
Media releases
Below are our most recent media releases related to corporate insolvency:
21-158MR Former WA director charged with multiple offences
21-165MR Queensland director disqualified from managing corporations for two years
21-166MR Queensland director disqualified from managing corporations
21-172MR NSW director disqualified from managing corporations for four years
21-175MR Victorian director disqualified from managing companies
21-204MR Victorian director disqualified from managing corporations for four years
21-206MR Victorian director disqualified from managing corporations for five years
21-207MR Queensland director disqualified from managing corporations for four years
21-216MR ASIC prosecutes 124 people for failing to assist registered liquidators
21-219MR ASIC disqualifies director from managing companies for five years
21-229MR WA director disqualified from managing corporations for three years
21-228MR NSW company director disqualified from managing corporations for five years
21-238MR WA company director banned from managing corporations for four years
21-231MR ASIC disqualifies Victorian director from managing corporations
Insolvency statistics
Insolvency activity is up 21% for the financial year to 6 September 2021 compared to the same period in the previous financial year. However, this increase comes off a low base because of the effects of COVID-19, and is 49% down on the base-level equivalent (which is the average of three years pre-COVID).
For more detail, see our Series 1B and 2B statistics here.
Contacts
Email support and contact details for ASIC team members for each state are available on the Contacts page.