ASIC Corporate Insolvency Update - Issue 23
Issue 23, March 2022
Assetless Administration Fund Grant Guidelines and associated documents
Disclosure of a former company name
Reproducing statistics published by ASIC
Pursuing unfair preferences under ‘mothership’ proceedings
Disclosure of related companies in DIRRIs
Observations from our cyber risk survey
Request Assistance for External Administration Program prosecutions – Court move in NSW
Assetless Administration Fund Grant Guidelines and associated documents
We have recently updated our Assetless Administration Fund Guidelines webpage on the ASIC website, making available the Grant Guidelines and associated documents for each grant opportunity.
You may continue to access the current versions at GrantConnect, or through the PDFs below:
- Director Banning
- Director Banning Grant Guidelines (PDF 283 KB)
- Annexure A — Substantiation Guide to Director Banning Grant Guidelines (PDF 145 KB)
- Annexure B — Director Banning Grant Agreement (PDF 395 KB)
- Matters other than Director Banning
- Matters other than Director Banning Grant Guidelines (PDF 290 KB)
- Annexure A — Substantiation Guide to Matters other than Grant Guidelines (PDF 145 KB)
- Annexure B – Matters other than Director Banning Agreement (PDF 432 KB)
- Asset Recovery
Disclosure of a former company name
When a company’s name has changed shortly before a formal insolvency administration of the company commences, it is important that the company’s former name is disclosed on all public documents and negotiable instruments. This includes all correspondence the registered liquidator (RL) sends to creditors and notices they publish on the Published Notices Website (PNW).
Section 161A of the Corporations Act 2001 sets out when the former name of the company must be included in public documents prepared or approved for release by a liquidator, administrator of the company or a deed of company arrangement, a restructuring practitioner of the company or a restructuring plan, and a managing controller or receiver of property of the company (except with leave of the court).
Including the former name of the company on all public documents assists creditors and other stakeholders to effectively participate and engage with the insolvency process.
Generally, the former name of the company must be included on all public documents and negotiable instruments if the change of name occurred within the six months immediately before the appointment began.
It is an offence of strict liability to fail to comply with the requirements of section 161A. The penalty for not complying with this requirement is 10 penalty units ($2,220) or imprisonment for three months or both.
Guidance is provided on the PNW about how to include the former name of the company in published notices.
All RLs are encouraged to review their processes and procedures to ensure that the company’s former name is included on all public documents if required by law.
Reproducing statistics published by ASIC
ASIC publishes several series of statistics about corporate insolvency in Australia in both table and graphical formats. While these statistics are free to use, if you reproduce these statistics, we expect you to properly attribute the source of the information to ASIC.
These statistics are sometimes reproduced in the media, by professional bodies or registered liquidator firms in their newsletters, and when communicating with clients.
We have noticed that some parties are either not providing any attribution at all or simply stating ‘source: ASIC’.
For example, when reproducing either a statistic, table or graph from our Series 1B Notification of companies entering external administration and controller appointments – weekly, we expect, as a minimum, inclusion of ‘Source: ASIC – Series 1B Notification of companies entering external administration and controller appointments – weekly’.
Proper attribution allows the reader to understand where that information has been sourced from. We have been contacting parties who have failed to attribute ASIC as its source to make them aware of their responsibilities.
See our webpage on copyright and linking to our website for details about when you can and cannot use information published by ASIC and how to properly attribute the statistics used.
Pursuing unfair preferences under ‘mothership’ proceedings
Where there is a common question of law or fact to be determined, the rules of the various courts permit, in certain circumstances, a liquidator to issue a single proceeding against multiple creditors for unfair preference claims. This is referred to as ‘mothership’ proceedings.
The benefits of these ‘mothership’ proceedings include:
- reducing the cost of filing multiple proceedings to recover unfair preferences
- permitting multiple claims to be pursued through the courts in a cost-effective way for the liquidator
- enabling a proceeding to be commenced against a creditor for an unfair preference that would not be commercially viable to pursue if separate proceedings had to be commenced
- minimising the risk of inconsistent judgments which can arise where multiple courts or judges adjudicate on the same issue in different proceedings.
While there are obvious benefits to a liquidator in bringing mothership proceedings, we refer to our recent article, drawing attention to the following 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.’
We consider these comments also apply when a liquidator is considering mothership proceedings to recover unfair preferences against multiple parties.
Registered liquidators (RLs) must only use their powers for a proper purpose and commence court proceedings against a creditor (even as part of a mothership proceeding) if they believe, on reasonable grounds, there is a proper legal and factual basis to bring such action against that creditor. This should include the liquidator having considered all evidence surrounding the payments and what defences are available to the recipient of the payment. It is not adequate to simply have evidence of payment.
RLs may potentially be exposed to cost orders against them personally if the proceedings are held by the court to be without merit and an abuse of process.
Liquidators should be mindful that parties against whom small claims are made might ‘accept the demand as a “fair cop’’’ and pay claims to avoid incurring legal costs – particularly where the amount of the alleged unfair preference claim is small.
In addition, we will consider the merits of any report of misconduct received arising from this sort of activity by registered liquidators and take regulatory action as appropriate.
We note The Hon Michael Sukkar MP issued a media release on 30 March 2022, outlining the Government’s plan to simplify and make fairer the rules governing unfair preference claims. The proposed reforms would be consistent with the unfair preference rules which apply under the simplified liquidation process. For example, a payment or series of payments made to an unrelated creditor are not recoverable as an unfair preference unless the payment(s) is/are made during the three-month period before the liquidator is appointed, and the total of the payment(s) received from the company during this period is more than $30,000.
Disclosure of related companies in DIRRIs
Our recent reviews of Declarations of Independence, Relevant Relationships and Indemnities (DIRRIs) suggest there is still confusion about the expected level of disclosure.
Registered liquidators (RLs) are required to disclose in their DIRRIs relevant relationships with the company or an associate of the company. An associate of a company includes a director or secretary of the company, a related body corporate and a director or secretary of a related body corporate. A related body corporate includes a holding company, a subsidiary or a subsidiary of another body corporate.
When RLs are appointed to a group of companies or related companies RLs should disclose the relationships between each company, each of the company’s directors and the RL(s) in the respective DIRRI for each company. If an RL prepares a combined DIRRI, then the same disclosure is required as if separate DIRRIs were made.
RLs need to make such disclosure irrespective of when the appointments occur – the same day, a few days apart, or at any other time. When RLs prepare a DIRRI prior to the subsequent appointment, they need to prepare a replacement DIRRI for the prior appointment disclosing the relationship(s) with the subsequent appointment and also disclose the relationship with the prior appointment in the DIRRI for the subsequent appointment.
RLs should include in their disclosure, the nature and details of the relationships between each and all of the entities. For each relationship, RLs need to disclose the reasons why those relationships do not result in a conflict of interest or duty.
Observations from our cyber risk survey
We surveyed registered liquidators (RLs) about their cyber security practices in May 2021, which was completed by 282 RLs. Our results were first published in the December 2021 ARITA Journal.
Of the RLs that completed the survey:
- almost all, regardless of firm size, had a reasonable understanding of specific cyber security-based controls
- half had undertaken comprehensive cyber security training in the previous year
- two-thirds were confident in identifying cyber threats
- around two-thirds were very confident in their firm’s ability to resolve a cyber security breach or incident with minimal ramifications
- slightly over two-thirds reported they would rectify a security breach immediately
- less than half fully or partially followed the ISO/IEC 27001 Information Security Management standard to protect their information assets.
Cyber resilience remains a focus area and ASIC’s Supervisory Cyber and Operational Resilience Centre (SCORC) was formed in July 2021 to implement ASIC’s strategy for the supervision of cyber resilience in its regulated populations.
SCORC is engaging with industry groups and professional bodies representing ASIC’s broad regulated populations, to progress a series of roundtables exploring cyber risk in third-party supply chains.
For more information and other useful resources visit the Australian Cyber Security Centre or ASIC’s cyber resilience webpage.
Request Assistance for External Administration Program prosecutions – Court move in NSW
ASIC’s prosecution of Request Assistance for External Administration Program (RAEA) matters initiated in NSW have moved from the Sutherland Local Court.
From 15 February 2022, all RAEA matters will be filed and listed at the Downing Centre Local Court – Level 4, Downing Centre, 143–147 Liverpool Street, Sydney.
Get to know the Registered Liquidators team
ASIC’s Registered Liquidators team is a national team of 27 staff spread across five states. We have a full-time equivalent staff of 23.5, with some part-time staff.
Our team is responsible for important work, including:
- surveillances as a result of reports of misconduct or other intelligence
- administering the Assetless Administration Fund, including appointing liquidators to wind up abandoned companies
- providing insolvency advice to other ASIC teams including about large or strategically important external administrations
- providing insolvency specialist legal services, including dealing with eligible applicant requests and court applications served on ASIC about insolvency matters
- representing ASIC at the AAT in reviews of committee decisions for liquidator registration and disciplinary matters
- dealing with registered liquidator renewal, cancellation and suspension requests
- engaging in various forums to combat illegal phoenix activity
- leading ASIC’s contribution to insolvency policy development and law reform.
Our team consists of experienced industry professionals, including:
- four current or former registered liquidators
- one former bankruptcy trustee
- 16 CA ANZ members and two CPA members
- three current ARITA members, and another 12 have completed the ARITA Advanced Certification (formerly Insolvency Education Program)
- three lawyers, two being members of the Law Institute of Victoria and all three holding practising certificates.
Our team members have an average of 20 years’ insolvency experience, around 10 of which is in ASIC insolvency-related programs. We have worked in small, medium and large practices across all types of corporate insolvency appointments.
Did you know?
Receipts and payments in a small business restructuring appointment
In a small business restructuring appointment under Part 5.3B of the Corporations Act 2001, the company retains control of its funds and day-to-day affairs and, therefore, restructuring practitioners do not need to account for the receipts and payments to reflect daily trading activity as would occur in, say, a voluntary administration or liquidation.
However, restructuring practitioners do need to account in Form 5603 for the restructuring period (the period up to when the restructuring plan is accepted or the restructuring otherwise ends) both the receipt and dispersal of funds provided to the appointee to cover remuneration and/or disbursements during the restructuring, together with any other funds restructuring practitioners control during the period.
Termination of a small business restructuring plan
ASIC Form 5610 Notice of termination of restructuring plan requires the restructuring plan practitioner to include when they were notified by the company that the restructuring plan was terminated, even when all the terms of the plan have been satisfied and the restructuring plan practitioner has made the final distribution to creditors.
The notification requirements for the termination of a restructuring plan when all its terms have been satisfied are different to those when a deed of company arrangement has been wholly effectuated.
Regulation 5.3B.31(1)(a) of the Corporations Regulations 2001 provides that a restructuring plan terminates when the company has fulfilled its obligations under the plan, any other party has fulfilled its obligations under the plan and all admissible debts or claims have been dealt with in accordance with the plan.
Depending on the plan terms, there may be other obligations that arise under the plan apart from payment of the plan contributions and distribution to creditors.
Regulation 5.3B.57(1)(a) requires directors to give written notice of the termination to the restructuring plan practitioner who can then lodge notice of the termination with ASIC. There does not appear to be any legal requirement for the issue of a notice of effectuation by the restructuring plan practitioner to the company.
ASIC Form 5610 was designed based on the requirements of the Regulations and requires the date that the directors provided the restructuring plan practitioner with written notice of the termination of the plan.
PPSR search information
Fully reporting on the outcome of the registered liquidator’s investigations into the company’s affairs is important as it informs creditors about what has happened to the assets of the company and whether further property can potentially be recovered for the benefit of creditors.
Creditors benefit from knowing details of security interests registered on the PPSR even where they do not have a corresponding debt attached.
How to find out what AAF Grants have been made?
All Assetless Administration Fund grants made since 31 December 2017 are recorded in GrantConnect in accordance with the Commonwealth Grants Rules and Guidelines 2017. You need to register as a user on GrantConnect. Once registered, you can search, view and download reports for grant opportunities and grants made from ASIC’s Assetless Administration Fund. The name of the liquidator and amount of each grant are recorded, but the name of the matter is not.
If you have any questions about how to use the site once logged in there are ‘help’ and ‘contact us’ tabs you can access for further assistance.
Media releases
Below are our most recent media releases related to corporate insolvency:
22-063MR ASIC disqualifies former Mider developers for maximum period
22-059MR NSW labour hire director disqualified from managing corporations for five years
22-055MR Former Kleenmaid director sentenced for fraud and insolvent trading
22-036MR ASIC applies to appoint provisional liquidators to Ascent Investment and Coaching Pty Ltd
22-021MR ASIC prosecutes 104 individuals for failing to assist liquidators
22-017MR Queensland director disqualified from managing corporations for 18 months
22-016MR ASIC disqualifies former building and construction industry director
22-014MR Managed investment schemes operator ordered into liquidation
22-013MR ASIC banning and disqualification of former Provident Capital director upheld by AAT
22-009MR Former employment agency director pleads guilty to directors’ duties charge
21-371MR Transport company director banned from managing corporations for three and a half years
21-370MR ASIC disqualifies former building and construction industry director
21-367MR Sydney director disqualified from managing corporations for four years
21-366MR Sydney director disqualified from managing corporations for 30 months
21-365MR Sydney construction director disqualified from managing corporations for five years
Insolvency statistics
ASIC publishes weekly statistics about companies entering external administration and controller appointments (Series 1B) and about all external administration and controller appointments (Series 2B).
Twelve-month rolling average
The 12-month rolling average to 6 March 2022 is up 4.9% on the previous year and down 42.3% on the baseline measure (see Series 1B).
Financial year to date
Companies entering external administration for the financial year to date to 6 March 2022 is up 13.1% for the same period for the previous financial year but still down 43.8% against the equivalent baseline measure (see Series 1B).
Contacts
Email support and contact details for ASIC team members for each state are available on the Contacts page.