ASIC today released the results of a review of reports prepared by voluntary administrators.
The reports are a statutory requirement to enable creditors to make a fully informed decision about the future of a company. ASIC reviewed all reports prepared between July 2006 and March 2007 where creditors had agreed to accept a deed of company arrangement (DOCA) proposal.
Where a DOCA is proposed, creditors need to know whether it will result in a better return for creditors than if the company was immediately wound up. Creditors rely on the independence, competence and professionalism of the administrator in preparing the report.
ASIC found that in the majority of reports, administrators either did not undertake an adequate investigation or fully report to creditors on the results of that investigation. This finding does not conclude that had all the information been provided in the report that creditors would have made a different decision on any particular DOCA proposal.
ASIC has suggested eight improvements for administrators to keep in mind when preparing reports to ensure creditors are better informed.
ASIC’s review refers to the Insolvency Practitioners Association of Australia (IPA) Statement of Best Practice, which was current at the time of this review. ASIC notes that the IPA’s new Code of Professional Practice, released two weeks ago, significantly improves the clarity and extent of the guidance provided to practitioners in the area of s439A reports.
Background
The Corporations Act requires an administrator in a voluntary administration to investigate (s438A) and report to creditors (s439A) about the company’s business, property, affairs and financial circumstances.