ASIC Corporate Insolvency Update - Issue 29

Issue 29, September 2023

Additional information resources for Assetless Administration Fund applications

In Issue 24 of our Corporate Insolvency Update we published the article ‘New resources to assist in Assetless Administration Fund (AA Fund) applications’. The article was a prompt to liquidators and their staff when preparing applications to consider the grant guidelines, substantiation guide and the (then new) user guide for ‘Matters other than Director Banning’ when submitting an AA Fund application through ASIC’s Regulatory Portal.

We have updated that user guide and published two more. These are all accessible on the Assetless Administration Fund webpage and linked below:

• Director Banning User Guide (PDF 3.6 MB)
• Matters other than Director Banning User Guide (PDF 3.5 MB)
• Asset Recovery User Guide (PDF 3 MB)

These guides provide explanations on how to submit an AA Fund application through the ASIC Regulatory Portal and clarify common issues.

We encourage you to promote and share these resources with your staff and colleagues who are involved in the AA Fund application process.

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Reminder on correct completion of vendor forms for Assetless Administration Fund matters

For Assetless Administration Fund (AA Fund) invoices to be processed, registered liquidators must provide the signed vendor form and AA Fund agreement to ASIC in advance. The vendor form must contain the following details on company/business letterhead:

• Liquidator name, firm name, firm ABN, firm address, firm phone number, account contact name, contact number and remittance email address
• External administration (EXAD) details: company name, ABN, address and completed GST questions. If not remitting GST via the company ABN, you must advise why and disclose the remitting ABN details, and
• EFT payment details: bank name, EXAD account name, BSB and bank account number.

Note: The vendor form should be signed by the liquidator and dated.

All ABNs must be active and registered for GST.

Invoice payments are made into the account in the name of the EXAD, pursuant to 65-10 of Schedule 2 of the Corporations Act 2001.

Common errors identified are – forms not being included on the firm’s letterhead, and the ABNs not being active and registered for GST.

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Assetless Administration Fund – Renewal of Reviewing Liquidator panel

Under section 90-23 of Schedule 2 of the Corporations Act 2001, ASIC has the power to appoint a reviewing liquidator to carry out a review into a matter that relates to the external administration of a company. Funding is available from the Assetless Administration Fund for the appointment of reviewing liquidators where illegal phoenix activity or serious misconduct is suspected.

ASIC appointed the first panel of reviewing liquidators in January 2019. We subsequently appointed 12 reviewing liquidators to 25 external administrations when illegal phoenix activity was suspected. The panel was initially due to expire after three years from commencement, but we exercised our discretion and extended the panel to 31 December 2023.

ASIC anticipates publishing the new grant opportunity on Grant Connect in October 2023 and to communicate to all registered liquidators about the opportunity to apply to be on the new panel. ASIC expects to appoint the new panel of reviewing liquidators in December 2023.

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Dealing with property and other assets

A registered liquidator (RL) should ensure their documented policies and procedures deal with the property and other assets of their external administrations. They should also assess whether these policies and procedures align with the guidance set out in APES 330 Insolvency Services paragraph 6 and ARITA’s Code – Insolvency Services – section 6.11.  

Importantly, an RL’s policies and procedures should demonstrate the firm, their partners and employees, and close and immediate families are prohibited from purchasing assets or deriving a benefit from dealing with any assets from any external administration.  

As an example, an RL should ensure that their family members are prohibited from deriving a financial benefit (e.g. commission) from selling any asset or property of an external administration under their control.

An RL must ensure that they take all reasonable steps to prevent themselves from knowingly selling property or other assets of their external administrations to their firm, their partners or employees, or close and immediate families, unless permitted by legislation, or with prior approval from the court. Exceptions apply to RLs appointed to a retail operation with assets available for sale on the same terms as the general public.

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Additional statistics from Initial Statutory Report published

ASIC historically published both a paper-based report and Excel workbooks on the statistical data captured from the old EX01 Schedule B of Regulatory Guide 16 – Report to ASIC under s422, s438D or s533 of the Corporations Act 2001 or for statistical purposes as part of its Series 3 statistical series.

In March 2020 the EX01 was replaced by the Insolvency initial statutory report (ISR) and was moved to the ASIC Regulatory Portal. Data from the new ISR for the 2020, 2021 and 2022 financial years was published in January 2023 in excel workbooks (only) for statistical Series 3.1, 3.2 and 3.3.

We recently published an update of the workbook for Series 3.3 to include the following additional tables:

• Table 3.3.3.2 – identifies reports by type of appointment
• Table 3.3.18.1 – identifies reasons for lodging the report, and also the number of reports alleging offences and those that don’t
• Table 3.3.18.4 – identifies if a matter has been reported to another agency and which agency. It’s a subset for those offences where the alleged offence is ‘under the Act or another Commonwealth or state or territory law not addressed elsewhere in the report’
• Table 3.3.19.1 – identifies whether the RL has or has not obtained the company's books and records; whether the books and records were adequate; and the reasons why they had not obtained all of the records
• Table 3.3.19.2 – identifies the type of records that were missing where all the books and records were obtained, and
• Table 3.3.20 – identifies whether the RL intends to initiate recovery proceedings and what type of proceedings they are going to initiate.

We will be looking to publish currently unpublished extra data for Series 3.3 later this year that addresses and covers areas of interest including:

• the reports of shadow directors
• presence and type of external advisors advising the company pre-appointment
• whether evidence of misconduct exists
• availability of aged creditor lists relating to insolvent trading
• reasons for not reporting insolvent trading (where none reported), and
• whether a public examination was conducted or there is an intention to conduct an examination.

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Apply for early destruction of books – now online

From 31 July 2023, four new transactions were added to the ASIC Regulatory Portal, including Apply for early destruction of books (Legacy Form 574).

To apply for early destruction of books, you will now need to submit your application through the ASIC Regulatory Portal.

For information about the other new transactions, visit the ASIC Newsroom.

We have also updated the existing Regulatory Guide 81 External Administration: Early destruction of books (RG 81) to reflect this change in the lodgement process and provide updated guidance on what we would consider when assessing an application.

If you are currently not using the portal to lodge other transactions, you will need to register for portal access. Once you’ve registered and logged in, you can act for yourself or connect to other entities to act on their behalf.

Visit the frequently asked questions section in our Regulatory Portal for step-by-step user guides to assist you to lodge your transactions.

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Did you know?

Notify ASIC of material contravention of DOCA

Section 445HA(2) of the Corporations Act 2001 (Corporations Act) requires the administrator to notify ASIC of a material contravention (or likely material contravention) of a deed of company arrangement (DOCA) in the prescribed form (if any). This notification must be lodged with ASIC.

No form has been prescribed for this purpose.

In the absence of a current prescribed or approved form being available for use, and due to the low volumes requiring notification, please notify ASIC in writing via mail. For more details, refer to the Where there is no designated ASIC form section at the ASIC webpage, Lodging paper forms. The notification will be recorded against the company record.

Administration returns in a terminated winding up

We refer to our previous articles (Issue 8, July 2018, Issue 11, April 2019 and Issue 25, September 2022) 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).

An example of where the RL should lodge Form 5602 Annual administration return instead of Form 5603 is when the RL has been appointed by the court as liquidator and the appointment is stayed and/or terminated under section 482 of the Corporations Act.

In this instance, 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.

Receiver and manager books and records

On 15 August 2023, ASIC withdrew RG 14 Receivers: Retention of company records.

This regulatory guide related to the retention of a receiver and manager’s records and the requirement to return company records to the directors upon cessation of the receivership. It was withdrawn as it contained limited guidance and states the position that is commonly known in case law and textbooks.

The general position remains that records created by the receiver and manager for the receivership that are not company records should be retained by the receiver and manager. Records that belong to the company, however, should be handed back to the company on cessation.

ASIC Annual Forum 2023

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• ‘Taking Australia’s cyber pulse’: a panel session with Rachael Falk, CEO, Cyber Security Cooperative Research Centre and Air Marshal Darren Goldie AM CSC, National Cyber Security Coordinator, Department of Home Affairs

The full program is now available.

Register now to secure your place. Early bird pricing is available for a limited time.

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Media releases

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

23-251MR ASIC disqualifies straw director for five years

23-240MR ASIC disqualifies VIC director for three and a half years

23-239MR Restaurateur banned for four years

23-225MR Federal Court case against liquidator dismissed

23-219MR ASIC disqualifies Victorian director for three years

23-218MR ASIC disqualifies NSW director for three years after engaging in illegal phoenix activity

23-216MR Former WA director convicted for fraudulently removing company property

23-190MR ASIC disqualifies NSW director for three and a half years

23-189MR ASIC disqualifies Victorian director for four years

23-187MR Liquidator disciplinary committee cancels registration of Richard Ernst Auricht

23-186MR Restaurateur banned for four years

23-185MR ASIC disqualifies Queensland director for maximum five years after engaging in illegal phoenix activity

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Insolvency statistics

Insolvency activity was up 61.7% for the 2022–23 financial year (7,942 EXADs) compared to the previous financial year (4,912 EXADs). Company failures have rebounded to pre-COVID-19 levels (7,937), or even exceeded them slightly, in all appointment types except for court-appointed liquidations, which remained at approximately 47% of its base level activity.

The increase in EXADs continued into the first two months of the 2023–24 financial year (1,773 EXADs), up 26% compared to the same period for the 2022–23 financial year (1,407 EXADs). While it is worth noting that court liquidations have risen to 81% of pre-covid levels in this period, it is too early to determine if this increase will be sustained.

See ASIC insolvency statistics for more information.

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Contacts

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

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