ASIC Commissioner Professor Berna Collier today outlined ASIC’s increased focus on corporate insolvency in a presentation to the Practical Insolvency and Practice Management conference (PDF) in Sydney.

‘Complementing the government’s announcements in relation to insolvency law reform in March of this year, corporate insolvency in Australia has been identified as a key national regulatory priority for ASIC this financial year’, Professor Collier said.

‘ASIC is currently addressing corporate insolvency through a variety of measures, including through our contribution to insolvency law reform, policy and guidance initiatives and, where appropriate, enforcement action.

‘Our commitment to tackling corporate insolvency, and assisting company directors address financial difficulties early is demonstrated through ASIC’s National Insolvent Trading Program.

‘Through the program, ASIC aims to have company directors actively manage their company’s financial position and seek early advice when financial difficulties arise. As well as reducing the risk of insolvent trading, with its potentially serious impact on creditors and the business community, active engagement by directors in financial difficulties their company is experiencing can improve the company’s overall performance.

‘At the end of its second year of operation, the National Insolvent Trading Program continues to have a positive impact in the market place’, Professor Collier said.

Professor Collier announced that in the 2004/05 financial year as part of the National Insolvent Trading Program, ASIC visited 488 companies suspected of trading while insolvent, including a number of related companies.

ASIC visits companies as a result of information received by the agency from a number of sources, including complaints, market intelligence and referrals within ASIC.

‘Many positive outcomes were achieved by these visits, ranging from companies seeking professional advice or obtaining an accurate financial position, through to restructuring, refinancing or raising further capital’, Professor Collier said.

‘However, some companies visited could not be saved and required the appointment of an insolvency practitioner. It is better if insolvency practitioners are appointed ‘sooner rather than later’, she added.

ASIC’s involvement contributed to the appointment of external administrators ‘sooner rather than later’ to 63 of these companies, which included five listed companies. With ten of these companies, ASIC applied to the court for the appointment of an external administrator.

Prominent companies in the sixty-three include:

• Australian Foods Company Pty Ltd
• Henry Walker Eltin Group Ltd
• Collins Booksellers Pty Ltd
• Sam’s Seafood Holdings Ltd

‘While ASIC prefers directors to take their own action to appoint an external administrator where the company is insolvent or likely to become insolvent, ASIC will not hesitate to pursue its own action if they are unable or unwilling to do so’, Professor Collier said.

Professor Collier said much of the success of the program can be attributed to the use of specialist insolvency staff to carry out the reviews. Since 1 July 2004, Deloitte, McGrath Nicol & Partners, Bentleys MRI, Ferrier Hodgson, Horwath, PricewaterhouseCoopers, and PPB have provided secondments to support ASIC’s own senior insolvency staff.

‘The coming financial year will see the program continue to focus on directors of companies in financial difficulty, as well as focussing on specific industries that are potentially struggling as a result of changing market conditions. For example, we have recently looked at a number of boat building companies in Queensland and building and construction companies in Victoria’, Professor Collier said.

A summary of actions arising from ASIC’s National Insolvent Trading Program (2004/05) is attached to this media release.

Other insolvency initiatives for the current financial year include new guidance for registered liquidators, ASIC’s Liquidator Assistance program and a program of practitioner compliance activities.

Background

Established in July 2003, the National Insolvent Trading Program is a focused approach to dealing with possible insolvent trading before it occurs. It involves a review of a company for the purposes of ensuring compliance by directors of their duties as set out in section 180 of the Corporations Act 2001 (the Act) and directors’ duties to prevent insolvent trading under section 588G of the Act.

The program has received encouraging feedback from directors, company accountants and solicitors, as well as the accounting and legal professions generally, particularly in relation to the secondment opportunities it offers their staff.

End of release

Download a copy of the speech (PDF)

Attachment to MR 05-228: Summary of actions relating to ASIC's National Insolvent Trading Program (2004/05)

A. Insolvent trading program statistics for the 12 months to 30 June 2005

B. Examples of appointments of external administrators to companies following an ASIC visit

• Australian Foods Company Pty Ltd (WA), a grain trading company – ASIC succeeded in a court application to appoint Barry Honey of Honey & Honey as interim Receiver and Manager on 29 October 2004, following a NICU surveillance in August 2004.
• Henry Walker Eltin Group Ltd (NSW) listed mining company – the directors appointed McGrath Nicol & Partners as Voluntary Administrators on 31 January 2005, following a NICU surveillance in December 2004.
• Collins Booksellers Pty Ltd (VIC) based book retailer – the directors appointed Grant Thornton as Voluntary Administrator on 22 April 2005, following a NICU surveillance in early April 2005.
• Sam’s Seafood Holdings Ltd (QLD) listed seafood company – the directors appointed PPB as Voluntary Administrators on 20 May 2005, following a NICU surveillance in April 2005.

C. Examples of positive outcomes following an ASIC visit

• ASIC’s involvement influenced an Australian subsidiary company with an annual turnover of approximately $55 million and employing approximately 400 staff to focus on the recoverability of its work in progress and its impact on the company’s solvency. This led to the restatement of accounts and a reliable letter of support from the overseas based foreign parent.
• ASIC had concerns about the accuracy of one company’s internal management accounts and suggested that the directors engage an insolvency practitioner to review its business. The review highlighted that the financial position was significantly worse than represented by the management accounts and emphasised to the directors the importance of timely and reliable information to enable informed decision making.
• Directors of a building company sought the services of mid-sized chartered accounting firms to assist and prepare up to date cashflows and financial accounts following a review by ASIC. The company was facing cashflow shortages and the accounting advice obtained assisted the company to obtain further bank finance to fund the completion of a major project.
• A flower wholesaler had a growing and profitable business but appeared to be on the verge of insolvency through inadequate cashflow management. After ASIC’s visit, a cashflow projection was prepared based on reasonable sales forecasts. The director also sought drought relief assistance from the Australian Taxation Office via an extended repayment arrangement.