ASIC Corporate Insolvency Update - Issue 28

Issue 28, June 2023

Assetless Administration funding for warrants to search for and seize assets or books and records

Warrants may assist registered liquidators (RLs) to search for and seize company assets and books and records.

Where appropriate, the Assetless Administration Fund (AA Fund) may provide funding to obtain warrants under section 530C of the Corporations Act 2001 to seize company assets or assist with obtaining and/or preserving books and records.

Funding is available under both the ‘Matters other than Director Banning’ and ‘Asset Recovery’ grant opportunities.

RLs should apply for funding from the AA Fund as soon as possible if they believe the company assets or books are at risk of being moved or destroyed and a warrant may be appropriate. In these circumstances, it is not necessary for the RL to first seek assistance from our Request Assistance for External Administration (RAEA) program.

Where an RL applies for AA funding to obtain a warrant, their application should address what actions they have already taken to take possession of the property or obtain the records and, if the RL has not made a RAEA, outline why not (e.g. because the assets or books are at risk of being moved or destroyed).

RLs should include in their application the information they expect a court would require to adequately consider whether to issue a warrant.

Back to top

Requests for assistance for external administration – tell us everything

As Requests for Assistance for External Administration are getting close to pre-COVID levels, we remind registered liquidators of the importance of telling us about all relevant events and interactions they have had with a subject individual, particularly whether there has been any level of compliance.

This information will affect our decision to bring or discontinue proceedings.

Failing to disclose relevant information can have significant legal ramifications for the prosecution. The prosecution must make certain disclosures to the defence, even if it serves to clear the defendant of guilt or fault, so that the court can determine whether the prosecution has proved its case.

Back to top

Future changes to applications for consent to the early destruction of books

We are continuously working to modernise forms into the ASIC Regulatory Portal.

Early in the 2023–24 financial year, there will be new transactions available online through the ASIC Regulatory Portal.

This includes Form 574 Application for early destruction of books, which will appear as the Apply for early destruction of books transaction.

Once made available in the portal, registered liquidators (RLs) will need to submit this transaction online.

We are also updating existing Regulatory Guide 81 Destruction of books to align with this change including changing the name to External Administration: Early destruction of books.

This change does not impact other ASIC systems and services RLs may currently be using.

Further information about this new service will be available ahead of the release date.

Back to top

Early access to company books and records

During and following the COVID pandemic, there has been an increasing proportion of formal insolvency appointments that have been initiated by directors. This has translated to registered liquidators (RLs) making more Requests for Assistance for External Administration to ASIC.

We encourage RLs to think about proactive and early steps that may assist them to gain access to company books and records – for instance, raising with company officers at the earliest possible point what books and records exist and their whereabouts. 

This may include canvassing these issues and making it clear that books and records should be delivered at initial meetings held with directors to discuss potential appointment to the company.

Discussing the nature of records maintained by the company and future access to those records during the initial discussions with directors would hopefully help to avoid future issues securing access to the books and records, or at the least clarifying at an early touch point what books and records were available and any issues with access or quality. Maintaining appropriate records of such engagements is also appropriate – for example, records of conversations with directors or copies of correspondence exchanged.

Back to top

New statistical series for members’ voluntary liquidations

ASIC recently published Series 5 statistics, a new statistical series that reports on the level of activity for members’ voluntary liquidations. The data includes:

• ACN and organisation name
• the person appointed (lodging party only) and start date
• the industry reported by the liquidator in which the company operated – by the ANZSIC code (by division, subdivision and group)
• state (or territory) of incorporation
• principal place of business (state or territory, area and postcode)
• an indicator for whether the appointed liquidator is a registered liquidator (RL).

The statistics show that RLs are being appointed to approximately 80% of all members’ voluntary liquidations.

The new statistical series 5 will be published quarterly, one month in arrears.

Back to top

 

Reminders and FAQs for Assetless Administration Fund matters

Why do applications for Asset Recovery grants need to detail a link to misconduct?

The Asset Recovery grant opportunity includes an eligibility criterion that ‘the liquidator must have formed a reasonable belief that misconduct has occurred which caused the dissipation of assets’. Often, information about why the liquidator formed this reasonable belief is not included in funding applications. This results in either the immediate rejection of the funding application or delays in assessment.

A user guide for the lodgement of the Asset Recovery grant opportunity will shortly be published. Once published, it will be accessible on the Assetless Administration Fund webpage.

Why is it important to lodge the correct application type?

Lodging the wrong application type may cause assessment delays because the applications are considered by different ASIC teams. For example, ‘Director Banning’ grant opportunity applications are assessed by the Misconduct and Breach Reporting team while ‘Matters other than Director Banning’ and ‘Asset Recovery’ grant opportunity applications are considered by the Registered Liquidators Assetless Administration Team.

While ASIC may consider ‘converting’ an application from one grant type to another, or consider an application in more than one grant type, registered liquidators (RLs) should be mindful to submit an application to the most suitable type of grant opportunity.

Where RLs want ASIC to consider the matter for multiple grant opportunity application types, this should be clearly stated in the application. Flagging this from the outset (and ensuring the application is for the primary intended grant opportunity) will help to ensure that the application progresses in the most efficient manner. When in doubt, please contact ASIC to discuss the matter.

Are there standard amounts for all grant opportunities?

Only the Director Banning grant opportunity is a set amount.

The amount of funding under ‘Matters other than Director Banning’ and/or ‘Asset Recovery’ grant opportunities is not set or standardised. Each matter is funded based on the agreed scope of work to be performed.

There are no standard amounts for specific funded activities (e.g. public examinations, obtaining advice on prospects, preparation and submission of a section 533(2) supplementary report). RLs should turn their minds to the individual activities and tasks within the funded activity scope when preparing their quote for ASIC’s review and consideration.

Back to top

‘Assetless’ eligibility criteria

The Assetless Administration Fund Grant Opportunity Guidelines for the ‘Director Banning’, ‘Matters other than Director Banning’ and ‘Asset Recovery’ grant opportunities all include the eligibility criteria that the liquidation must be ‘assetless’.

Clauses 4.5 and 4.6 of the grant guidelines set out what is meant by ‘assetless’ and how this is determined.

A company is assetless if its net realisable assets are less than a prescribed amount (currently $10,000).

Clause 4.5(b) details costs and other amounts that reduce the gross proceeds from the realisation of assets to calculate the net realisable asset figure, and clause 4.6 details specific exclusions from assets included in the net realisable assets calculation.

Items that reduce the net realisable assets

Registered liquidators (RLs) have asked whether the following items can be deducted when calculating net realisable assets:

Unpaid dividends

Although proceeds subject to a claim by a secured creditor can be deducted from actual or estimated gross proceeds (clause 4.5(b)(ii)), unpaid dividends that the RL expects to pay to priority or ordinary unsecured creditors cannot be deducted from funds held to calculate net realisable assets. This is the case even if the amounts have already been paid out as dividends.

RL remuneration and accrued costs (clause 4.5(b)(iv))

Only the RL’s approved remuneration for work performed up to the date the funding application is submitted can be deducted from gross proceeds to calculate the net realisable assets. Other costs of the liquidation, including invoiced legal costs at the date of lodgement of the funding application, can also be deducted when calculating net realisable assets.

Specific exclusions from net realisable assets

RLs have asked whether the following items are excluded when calculating net realisable assets:

Choses in action (clause 4.6(b))

Only the amount of a chose in action that has not been judicially determined or settled is excluded from calculating net realisable assets.

What 12-month period is relevant for assets not readily realisable (clause 4.6(c))

The period of 12 months referred to in clause 4.6(c) is determined from the date the application is lodged rather than the date the liquidator was appointed.

Back to top

Check your cyber pulse

A cyber attack can disrupt your organisation’s operations and result in financial, legal and reputational harm. With cyber attacks becoming more frequent and complex, does your organisation have the cyber resilience to protect against and recover from an attack?

To see how your cyber capability measures up to your peers, we invite you to complete the ASIC Cyber Pulse Survey.  

The voluntary, multiple-choice survey is suitable for ASIC-regulated entities of all sizes and sectors and is designed to help your organisation assess its ability to:

• govern and manage organisation-wide cyber risks
• identify and protect information assets that support critical business services
• detect, respond to and recover from cyber security incidents.

On completion of the survey, you can opt in to receive an individual report which will provide insights into how you assess your organisation’s current cyber resilience capability compared to your industry peers.

ASIC will also publish a report with key findings from the survey, which will provide sectoral insights, areas for action and the better practices identified.

All information collected will be anonymised before being supplied to ASIC and is not for the purpose of regulatory or enforcement action.

The survey is open and can be accessed by logging into the ASIC Regulatory Portal. Please act quickly to complete the survey and receive your individual report.

For more information about the survey, visit our Cyber pulse survey webpage.

Back to top

Media releases

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

23-167MR ASIC disqualifies NSW director for three and a half years

23-166MR ASIC disqualifies Victorian director for two years

23-138MR ASIC disqualifies Victorian director for three years

23-137MR ASIC disqualifies property development director for five years

23-132MR Former Continental Coal director Ashley Paul D’Sylva sentenced

23-113MR ASIC disqualifies Queensland director for three years

23-112MR ASIC disqualifies restaurants director

23-111MR ASIC disqualifies Victorian director for three years

Back to top

Insolvency statistics

Insolvencies have increased 62.5% for the current financial year to 11 June 2023 compared to the same period last financial year.

Comparing 2022–23 financial year to 11 June 2023 to the equivalent base year period (an average of the three financial years 2017, 2018 and 2019, pre-COVID), we see that insolvencies are down 1.0% on base level.

All appointment types other than court appointed liquidations are now at or above base level. Court liquidations remain only marginally above the lows experienced during COVID.

See ASIC insolvency statistics for more information.

Back to top

Contacts

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

Back to top