ASIC Corporate Insolvency Update - Issue 31

Issue 31, March 2024

Where to send your inquiries

Email support for registered liquidators (RLs) can be found on the ASIC Corporate Insolvency Update Contacts page on our website. RLs can also send their inquiries to RLqueries@asic.gov.au.

RLs are reminded that the RLqueries@asic.gov.au email address should not be used for:

• fee waiver requests – these need to be applied for. Only consider emailing us if your request was declined and you believe there are grounds for the request to be reconsidered
• lodgement of forms – forms should be lodged via the Registered liquidator portal or ASIC regulatory portal. We do not process forms which are sent by email. If you must lodge a form in paper it has to go through the standard channel (i.e. by post) because an original signature is required.

Some other common emails and inquiries we receive include:

• ASIC response to insolvency initial statutory reports under section 422, section 438D and section 533 – RLs and any nominated staff should review their emails on or around the lodgement date for the response from ASIC. If a response cannot be located, please submit an online inquiry form 
• creditor correspondence – where ASIC is a creditor, RLs should send their correspondence directly to epaymentenquiries@asic.gov.au
• providing copies of forms posted to ASIC – as noted above, we do not process forms which are emailed
• general lodgement queries – RLs should refer to Information Sheet 29 External administration, controller appointments and schemes of arrangement: Most commonly lodged forms (INFO 29) for guidance.

Tip: General RL inquiries may have already been addressed in previous issues of the ASIC Corporate Insolvency Update. Before emailing us, RLs and their staff should search the newsletter by:

• visiting the ASIC Corporate Insolvency Update webpage
• entering your search term into the search bar at the top right corner, e.g. 5022
• refining your search results by selecting ‘newsletter’ on the left pane.

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Renewal of registration by a registered liquidator – applicable fees

Under section 20-70 of Schedule 2 – Insolvency Practice Schedule (Corporations) of the Corporations Act 2001, registered liquidators (RLs) may apply to renew their registration by lodging an RL05 Application for renewal of registration by a registered liquidator (RL05).

We remind you that early lodgement of your RL05 results in a lower application fee.

When lodging your application, the current fees are:

• $1,720 if lodged more than one month before the renewal date
• $1,920 if lodged within one month before the renewal date.

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Charging administration levies

We have become aware that some registered liquidator firms are charging a percentage fee based on remuneration claimed. This fee has been described variously as recoupment of technological infrastructure, general office overheads and other indirect costs. This additional fee or levy is stated as being a certain percentage of remuneration to be approved.

In some instances, the firm explains what the fee represents but doesn’t explain how the fee percentage was calculated or how the fee relates to remuneration or the particular administration.

Section 60-5 of Insolvency Practice Schedule (Corporations) Schedule 2 of the Corporations Act 2001 (Schedule 2) provides that ‘An external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator (see section 60-10)’.

Where the percentage fee is treated as remuneration, and considering the statutory requirement for remuneration (above), the legal basis for charging such an administration fee is doubtful. Our view is that such charges are usually considered overheads and should be included in the hourly rates charged for staff as referred to in Information Sheet 85 Approving fees: A guide for creditors (INFO 85).

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Reminder to respond to creditor inquiries

One of the complaints we receive from creditors is that registered liquidators (RLs) have not responded to their inquiries over a period of time.

We remind RLs that it is important to maintain clear, timely and transparent communication with creditors. You should:

• have effective communication strategies in place to let stakeholders, including creditors, understand the insolvency process as well as their rights
• deal with conflicts early and promptly so that problems can be managed effectively
• have an effective complaints management system in place
• conduct staff training around complaints management and handling creditor requests.

By improving your communication with creditors, you will be able to better meet creditors’ needs and help manage their expectations as many creditors do not understand insolvency processes and relevant laws. This can also prevent complaints being lodged with ASIC.

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Reporting statutory interest in Form 5602 and Form 5603

ASIC is reviewing data collected from registered liquidators (RLs) in some of our forms, including Form 5602 Annual administration return (Form 5602) and Form 5603 End of administration return (Form 5603). This is so that we can publish additional timely, high-quality and granular data.

We identified that some RLs incorrectly recorded statutory interest as a dividend to unsecured or priority creditors. This resulted in dividends paid to these classes of creditors of more than 100 cents in the dollar.

Statutory interest should be disclosed as a deferred dividend in the Details of Dividend section in Form 5602 and Form 5603. A dividend to unsecured creditors or any class of priority creditor should not exceed 100 cents in the dollar.

After sharing our observations, it appears some insolvency software used by RLs treat statutory interest as a dividend to creditors and not separately as a deferred dividend. We understand the software providers are addressing the issue.

We would like to express our gratitude to the RLs who responded to our inquiries.

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Deeds of company arrangement involving a creditors’ trust

When registered liquidators (RLs) are considering a proposed deed of company arrangement (DOCA) or a proposed variation of a DOCA (collectively, a DOCA proposal) involving a creditors’ trust, they can refer to Regulatory Guide 82 External administration: Deeds of company arrangement involving a creditors’ trust (RG 82).

RG 82 covers ASIC’s interpretation of administrators’ obligations under the Corporations Act 2001 as well as the general law, particularly the information that we consider material to creditors that should be disclosed when a DOCA proposal involves a creditors’ trust.

RG 82 was updated on 17 December 2018 to account for changes under the Insolvency Law Reform Act 2016. We noticed some RLs are still using or referencing the May 2005 edition of RG 82 in their report to creditors or on their website. To ensure you are using the most up-to-date edition of a regulatory guide, please refer to the Regulatory guides page on our website.

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Schedule 3 penalties

We previously asked registered liquidators to review their template notices and directors’ pack to ensure they refer to up-to-date penalty amounts as stated in Schedule 3 of the Corporations Act 2001.

We know that out-of-date references can be caused by saved or favourite links to the Corporations Act. To avoid this occurring, we recommend RLs update their saved or favourite links to the Corporations Act and/or clear caches.

Please see the latest Schedule 3 penalties.

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Supervise third-party contractors

A registered liquidator (RL) can engage the services of third parties that have the expertise to assist them with the orderly conduct of an external administration (EXAD). In doing so, the RL is responsible for the third party’s conduct and behaviour.

RLs may find themselves breaching legislation and/or licence conditions and/or codes of conduct to which either the company in EXAD or the third party is subject.

To ensure RLs fulfil their duties and functions properly, they must adequately supervise any third-party contractors they have engaged to assist with an EXAD, ensure they hold appropriate licences/registrations and comply with the requirements of those licences or registrations.

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Simplified liquidations – lodging initial statutory reports

ASIC reviewed 68 initial statutory reports (ISRs) lodged where the registered liquidators (RLs) selected they were lodging in their capacity as liquidator where a simplified liquidation (SL) process had been adopted. This review showed that only 23 of these reports were where a liquidator had adopted an SL process, noting most were lodged under section 533(1) not regulation 5.5.05. Forty-one reports appeared to be in matters where the SL process had not been adopted. We wrote to the RLs who lodged these ISRs to understand whether this was due to misclassification of the type of external administration (EXAD) in the ISR or whether an SL process was adopted and no notification had been lodged. Responses received to date indicate most were misclassifications in the ISR.

ASIC has subsequently implemented business rules to the lodgement process of ISRs effective from 15 March 2024 to mitigate internal inconsistencies in reports lodged.

An SL process is a streamlined process for companies that meet relevant eligibility criteria, including having liabilities of less than $1 million. It only applies to creditors’ voluntary liquidations (CVLs) where the event that triggered the start of the winding up occurred on or after 1 January 2021 and where the liquidator has formally adopted the SL process.

Unlike in a CVL, when the SL process is adopted, there is no requirement for RLs to provide an ISR to ASIC when the expected dividend to unsecured creditors is less than 50 cents in the dollar.

A liquidator who has adopted the SL process is only required under regulation 5.5.05 of the Corporations Regulations 2001 to provide an ISR to ASIC if:

1. in the opinion of the liquidator, there are reasonable grounds to believe conduct constituting an offence under a law of the Commonwealth or a state or territory in relation to the company may have occurred, and
2. that conduct has, or is likely to have, a material adverse effect on the interests of creditors or a class of creditors as a whole.

There is no reason to incur costs in preparing and lodging an ISR in liquidations where the SL process has been adopted unless the specified conduct threshold as set out above is reached.

We remind RLs to ensure they have proper processes in place to verify the accuracy of an ISR before making a lodgement, including whether the correct EXAD appointment type is selected.

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Media releases

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

24-049MR Former Continental Coal Company Secretary sentenced

24-035MR ASIC disqualifies NSW director for maximum five years after failure of seven companies

24-004MR Liquidator disciplinary committee imposes conditions on registration of Steven Naidenov

24-003MR ASIC disqualifies two more Canberra property developers

23-347MR Former registered liquidator pleads guilty to dishonest conduct

23-346MR ASIC’s annual corporate insolvency statistics shows COVID-19 impact on small business

23-334MR Former Continental Coal and Citation Resources director Peter Landau sentenced

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Insolvency statistics

The lift in insolvency activity continues into the first seven months of the 2023–24 financial year (6,610 external administrations (EXADs) as at 29 February 2024), up 36.1% from the same period of the previous financial year (4,854 EXADs). If this trend continues it is expected that appointments will be more than 10,000 for the financial year; a figure last seen in the 2012–13 financial year.

The increase in EXADs follows the 61.7% increase in the 2022–23 financial year (7,942 EXADs) from the 2021–22 financial year (4,912 EXADs). Company failures also rebounded to pre-COVID-19 levels (7,937) during the last financial year.

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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