to retain control of the business, property and affairs while developing a plan to restructure with the assistance of a small business restructuring practitioner; and
to enter into a restructuring plan with creditors.

Industry participants have suggested that a company’s current business insurance may be voided following the appointment of a restructuring practitioner, leaving the company and its directors exposed to potential under-insurance in the event an insured risk occurs.

Registered Liquidators are encouraged to consider this issue and take reasonable steps to bring this to the attention of company directors who may be considering proposing a restructuring plan so they may make inquiries of their insurer before appointing a restructuring practitioner.

Clarifying approval mechanisms for entering into agreements longer than three months

Registered Liquidators (RLs) cannot put proposals to creditors without a meeting under s75-40(1) of Schedule 2 Insolvency Practice Schedule (Corporations) (Schedule 2) to approve an agreement on behalf of a company if the agreement lasts longer than three months. RLs are required to either convene a meeting of the Committee of Inspection (COI)/creditors or go to Court (except in a simplified liquidation – refer to section 506(1A)(c)).

Section 477(2B) of the Corporations Act 2001 (Corporations Act) requires that creditors must pass a ‘resolution’ to approve entering into such an agreement, which is defined in section 9 as a resolution passed at a meeting of the creditors.

RLs are encouraged to review their current external administration files to identify instances where they have used section 75-40(1) of Schedule 2 [proposals without a meeting] to approve proposals under section 477(2A) and section 477(2B) and take steps to rectify any invalid approvals.

Section 477(2B) does not apply to Assetless Administration Fund (AAF) agreements because under section 477(2C), s477(2B) does not apply to an agreement entered into on the company’s behalf if the costs and expenses under the agreement are paid out of money paid by ASIC on behalf of the Commonwealth. Accordingly, the AAF cannot fund a liquidator the cost of seeking approval to enter into an AAF funding agreement.

RLs should also be aware that ASIC does not consider that remuneration paid to an RL under an AAF funding agreement requires approval from the Court, the COI or the creditors (whether at a meeting or by a proposal without a meeting).

Notifying ASIC of inaccuracies in lodged information

It is important that information recorded on ASIC’s registers and the information available to creditors and other stakeholders is accurate and not misleading.

Under section 35-5(1) of Schedule 2, where a Registered Liquidator (RL) becomes aware that information included in a Form 908 Annual liquidator return, Form 5602 Annual administration return or Form 5603 End of administration return is or becomes inaccurate in a material particular, they must notify ASIC of the inaccuracy by lodging Form RL31 Notice of inaccuracy in a return within 10 business days after the RL could reasonably be expected to be aware that the event has occurred.

RLs must also lodge Form 492 Request for correction to correct the inaccuracy in the relevant form.

During a recent review of an external administration, ASIC identified inaccuracies regarding the categorisation of remuneration in the voluntary administration and liquidation periods in the Forms 5602 lodged. The categorisation error suggested the RL had overdrawn remuneration during one of the periods, when in fact they had not. ASIC notified the RL of the inaccuracies and asked the RL to notify ASIC and amend the inaccuracies in the relevant Forms 5602. The RL promptly lodged Forms RL31 and Forms 492 for each of the incorrect Forms 5602 to correct the remuneration figures reported.

The liquidator of a company should only lodge Form 5603 when the affairs of the company have been fully wound up

We refer to our previous articles (Issue 8, July 2018 and Issue 11, April 2019) regarding lodgement of Form 5603 End of administration return.

Registered Liquidators (RLs) of a company in liquidation should only lodge Form 5603 when the affairs of the company have been fully wound up (see definition of ‘end of administration’ in section 5-5 of Schedule 2).

Some common examples of where the RL should not lodge Form 5603 as liquidator of the company, and may instead be required to lodge Form 5602 Annual administration return, are set out below.

Example 1

The RL is appointed liquidator by the court and their appointment is stayed and/or terminated under section 482 of the Corporations Act

The RL will need to:

electronically lodge a partial year Form 5602;
electronically lodge Form 505 Notification of appointment or cessation of an external administrator; and
paper lodge the original stamped court order with a Form 105 Cover page for office copy of a court order, selecting section 482(5) as the type of court order (Form 567).

Example 2

The RL is appointed liquidator and is subsequently replaced by another RL by order of the court and/or resolution passed by creditors

If the RL is a sole appointee, they will need to electronically lodge a partial year Form 5602 covering the period from their appointment date (or the anniversary date if the appointment has been for more than 12 months) to the date they are replaced; and electronically lodge Form 505; or
If the RL is a joint and several appointee, and the replacement RL is from the same firm, they won’t need to lodge a partial year Form 5602, but will need to electronically lodge Form 505.

Example 3

The appointment transitions from one type of liquidation to another, such as transitioning from members’ voluntary liquidation to creditors’ voluntary liquidation

The RL will need to:

electronically lodge a partial year Form 5602 for the member’s voluntary liquidation; and
electronically lodge Form 5011 Copy of minutes of meeting, attaching the minutes of meeting of creditors; or

paper lodge the original stamped court order with a Form 105, selecting s470(2)(a) as the type of court order (Form 560); and

electronically lodge Form 505.

Example 4

The RL retires or leaves a firm and another RL replaces them as the sole liquidator (note for joint appointments the ongoing appointee continues to lodge forms in the normal course)

The RL will need to:

electronically lodge a partial year Form 5602;
electronically lodge Form 505; and
if the replacement RL is appointed by court order, paper lodge the original stamped court order with a Form 105, selecting section 481(5) as the type of court order (Form 565).

Example 5

The RL retires as a special purpose liquidator (SPL) and a general-purpose liquidator remains appointed

The retiring SPL will need to:

electronically lodge a partial year Form 5602;
electronically lodge Form 505; and
if the SPL retired by order of the court, paper lodge the original stamped court order with a Form 105, selecting section 481(5) as the type of court order (Form 566).

In each of these examples, the company's affairs may not have been fully wound up, so the RL should lodge a partial year Form 5602 and not Form 5603.

We recommend that the remaining or incoming RLs check that the outgoing RLs have lodged Form 5602 instead of Form 5603.

We have previously provided guidance in Information Sheet 29 External administration, controller appointments and schemes of arrangement: Most commonly lodged forms (INFO 29) that ASIC’s expectation is that a RL should not resign as liquidator where a receiver or controller remains appointed.

If the RL has lodged or identified that another RL has lodged Form 5603 in error, please email ASIC at RLQueries@asic.gov.au.

If a RL lodges an office copy of a court order to stay a winding up indefinitely; or terminate a winding up; or wind up a company; they must lodge the stamped court order with a Form 105 by post to Australian Securities and Investments Commission, PO Box 4000, Gippsland Mail Centre VIC 3841.

Supporting documents with funded supplementary reports

The purpose of supplementary reports (under section 533(2) of the Corporations Act) (reports) is for the liquidator to explain the outcome of their investigations and their views about the allegations of misconduct they have made.

The liquidator is best placed to tell ASIC what their investigations have uncovered and what their opinion is from their investigations. Their opinion is based on information and documents received by the liquidator in the course of their investigations.

We have noticed an increase in reports where RLs include:

irrelevant or duplicate documents
documents without any explanation about why they were included or what the liquidator wants ASIC to extract from them
documents without reference/cross-reference to the matter they purport to relate to.

These situations result in the liquidator being required to undertake additional work to provide explanations leading to delays in processing and progressing reports and withholding payments to the liquidator (if it is a funded report).

We remind RLs that reports should clearly identify which document is being referred to and where that document is contained within the annexures.

Report on company activities and property (ROCAP) Version 2

When the ROCAP was released in November 2018, ASIC said it would consider industry feedback after a period of use and release an updated version.

ROCAP Version 2 has been published and is based on feedback from:

Registered Liquidators (RLs) and their staff
small group consultation sessions with RLs and software providers
director testing.

ASIC considered all feedback received and incorporated that feedback into Version 2, where possible.

For all new external administrations post 1 August 2022, please ensure you issue ROCAP Version 2 for the director/officer to complete.

A three-month transition period applies to allow RLs and software providers time to adjust their processes and procedures.

The ROCAP Version 2 comprises:

Part A (Form 507), including Form 507A and Part A appendix tables
Part A instructions
Part B, including Part B appendix tables
Part B instructions.

Part B and its tables should not be lodged with ASIC because it may contain confidential information provided by the director/officeholder. Lodging Part B places it on the public record and may result in a breach of the Privacy Act 1988. You should ensure that your checklists and internal systems reflect this, so that your staff know not to lodge Part B with ASIC.

If you inadvertently lodge Part B, you will need to electronically lodge Form 106 Request to withdraw a lodged document to remove the lodged Form 507. A new Form 507 will have to be lodged without Part B.

Does a director of a company in liquidation need to apply for a director ID?

There are no separate requirements for directors of companies in external administration. If they are eligible officers of a company, they will need to apply for a director ID in accordance with the prescribed timeframes.

Information on who needs to apply for a director ID and when they will need to apply can be found on the Who needs to apply and when section of the Australian Business Registry Services’ (ABRS) website, which also contain useful Director ID scenarios.

Dividends paid in a restructuring plan

On completion of a restructuring plan, the restructuring plan practitioner is required to lodge a Form 5603 End of administration return (Form 5603) with ASIC.

We have been actively monitoring restructuring processes to gain insight into how they are being used in practice and to identify any emerging issues.

In a number of instances, restructuring plan practitioners have not disclosed the dividends paid to creditors in the dividend table section of their Form 5603 even though the payments to individual creditors are properly disclosed in the detailed receipts and payments section.

In instances where we identified an issue, we contacted the restructuring plan practitioner to alert them of the oversight and requested them to correct their Form 5603. To ensure information is correctly lodged we request that restructuring plan practitioners review all forms prepared by their staff prior to lodgement.

ASIC has provided guidance to users of our Excel templates on how to complete both Form 5602 Annual administration return and Form 5603 End of administration return. We are currently reviewing both guides to enhance the guidance provided to users of the Excel templates.

Avoid creating duplicate creditors’ voluntary liquidator roles on the Company Register

Our work to improve our published statistics includes checking our data for completeness and accuracy.

We are contacting liquidators where we have identified duplicate creditors’ voluntary liquidator roles on the Company Register.

Duplicate roles are created when a Registered Liquidator (RL) first lodges Form 509D Notice of special resolution to wind up company (which creates the creditors’ voluntary liquidator role when the appointment transitions from a voluntary administration or deed of company arrangement), and then lodges Form 505 and selects ‘Add a new appointment’ rather than ‘Confirm/change an existing appointment’.

When lodging Form 505 online where the Form 509D has already been lodged, the liquidator’s name should already be showing as a current appointee to the company. Therefore, you should confirm an existing appointment rather than adding a new appointment.

RLs who lodge Form 505 at the same time as Form 509D should first lodge Form 505 and then Form 509D to avoid creating a duplicate appointment.

These tips are provided as notes to Step 2 of the Flowchart 7: Voluntary administration or DOCA to a creditors’ voluntary winding up.

ASIC Annual Forum 2022: Registrations open

ASIC’s Annual Forum is back for the first time since 2019.

Registrations are now open for the ASIC Annual Forum and Annual Dinner on 3–4 November. The Annual Forum is ASIC’s premier event for the financial services and markets sectors and brings together regulators, industry and thought leaders from Australia and abroad, and the theme for this year is New Directions.

Join us in Sydney as we explore how the finance sector has evolved in recent years. Hear from over 40 prominent speakers discussing key issues, trends and essential topics such as superannuation, wholesale market conditions, climate change, crypto, AI and data, enforcement priorities and the regulatory toolkit and more.

The Annual Forum and Annual Dinner will be held at the Hilton Sydney and cannot be attended virtually. Early bird ticket discounts are available until 29 September 2022 and group discounts are also available.

For more information and to register, visit ASIC Annual Forum 2022.

Media releases

Below are our most recent media releases relating to corporate insolvency

22-247MR ASIC disqualifies NSW director for five years

22-246MR ASIC disqualifies NSW director for one year

22-242MR Former Victorian company director charged with fraud and breaching directors’ duties

22-229MR Victorian director disqualified from managing corporations for five years

22-228MR ASIC disqualifies NSW director for two years

22-221MR WA director charged with fraudulently removing company property

22-209MR ASIC prosecutes 73 individuals for failing to assist registered liquidators

22-192MR Alleged shadow director sentenced to six-month good behaviour bond

22-190MR ASIC disqualifies former hospitality industry director for two years

22-179MR Construction industry director drops appeal against four-year banning

22-171MR Disciplinary committee decision - Nicholas Crouch

22-164MR ASIC disqualifies construction industry director for five years

22-163MR ASIC disqualifies former restaurant director for four years

22-162MR ASIC disqualifies New South Wales building and construction industry director for two years

Articles of interest

ASIC warns small businesses to be vigilant about payment redirection scams

Cyber risk: Be prepared

Insolvency statistics

ASIC currently 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 28 August 2022 is up 26.1% on the previous year and down 30.8% on the baseline measure (see Series 1B).

Financial year to date

Companies entering external administration for the financial year to date to 28 August 2022 is up 78.7% for the same period for the previous financial year but still down 8.9% 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.