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Tuesday 22 November 2011

11-263MR ASIC report provides overview of corporate insolvencies

ASIC today published an annual overview of corporate insolvencies based on statutory reports lodged by external administrators for the 2010–2011 financial year.

Report 263 Insolvency Statistics: External administrators’ reports 1 July 2010 – 30 June 2011 (REP 263) includes comprehensive information about the profile of companies placed into external administration, including industry types, employee numbers, the causes of company failure, the estimated number and value of a company’s unsecured creditor debts and estimated dividends to unsecured creditors.

In addition, the report details the frequency with which external administrators report misconduct by company officers, the types of alleged misconduct most frequently reported (both criminal and civil breaches) and information about the number of cases that might warrant further enquiry by ASIC.

Key findings and data included in the report follow as an attachment to this release.

Mr Adrian Brown, Senior Executive Leader of ASIC’s Insolvency Practitioners team, said the data in REP 263 had broad relevance for the insolvency profession, creditors, academics, the Australian Government and other interested stakeholders. ‘This is one of ASIC’s initiatives to address the need for better insolvency statistics identified by the Senate Inquiry in its September 2010 report’, Mr Brown said.

Mr Brown noted that the reports lodged by external administrators also provided an important intelligence and assessment tool for ASIC, acting as a ‘first alert’ about possible misconduct by company officers and focus for further enquiry.

In assessing which matters to pursue further, ASIC considers, among other things:

  • the nature of the possible misconduct reported;
  • amount of the liabilities;
  • deficiency suffered;
  • availability of evidence;
  • prior misconduct; and
  • the advice of the external administrator that the reported possible misconduct warrants further investigation.

REP 263 notes that, as a result of ASIC’s risk assessment, we asked external administrators to prepare supplementary reports in 558 (9.8%) of the 5,670 reports for 2010–11 where company officer misconduct was alleged. The remaining reports were assessed and recorded for future intelligence purposes.

Supplementary reports are typically detailed, free-format reports, which set out the results of the external administrator’s inquiries and the evidence to support the alleged offences. Generally, ASIC can determine whether to commence a formal investigation on the basis of a supplementary report. In both 2009–10 and 2010–11, after assessment, we referred 33 per cent of these cases for investigation or surveillance.

The risk assessment approach to external administrators’ reports and supplementary reports is consistent with ASIC’s broader approach to assessing which matters to pursue for further regulatory action, which includes consideration of:

  • evidence;
  • level of harm or loss; and
  • cost versus regulatory benefit.

REP 263 is ASIC’s third report since external administrators’ reports could be lodged electronically.

ASIC’s previous reports are Report 225 Insolvency statistics: External administrators 1 July 2007-30 June 2010 (REP 225), covering external administrator reports lodged in the financial years 2007–08, 2008–09 and 2009–10 and External administrators: Schedule B statistics 1 July 2004–30 June 2007 covering external administrator reports lodged in the financial years 2004–05, 2005–06 and 2006–07.

The report complements data published by ASIC each month on the number and type of corporate insolvency appointments.

Background

ASIC compiled REP 263 from the estimates and opinions contained in statutory reports lodged with ASIC by liquidators, receivers and managers and voluntary administrators (external administrators) in the standard format of Schedule B to Regulatory Guide 16 External administrators: Reporting and lodging (RG 16) (Schedule B report). The Schedule B report is designed to gather basic statistical information about corporate insolvencies.

Under the Corporations Act 2001 (the Act), external administrators must lodge statutory reports for corporate insolvencies as soon as practicable where they identify possible misconduct by company officers, and/or where unsecured creditors are likely to receive less than 50 cents in the dollar on their debts.

The statistics are based on external administrators’ estimates and opinions at the time they are lodged and are, therefore, not an actual account of the outcomes of external administrations. Nevertheless, the statistics provide a broad picture of corporate insolvencies in Australia for the 2010–2011. The total number of electronic reports lodged directly by external administrators stands at 97% in 2010–11.

Access to the report’s statistical data, including industry-specific data for the five largest industry classifications and seven years’ of data comparison from 2004 to 2011, is also available from ASIC’s website.

Attachment to ASIC Media Release 11-263MR: ASIC report provides overview of corporate insolvencies

Profile of companies subject to external administration

 

2010–2011

2009–2010

2008–2009

% of reports involving less than 20 employees

78%

77%

75%

% of reports by industry

23% - Other (business & personal) services

23% - Construction

11% - Retail trade

24% - Construction

22% - Other (business & personal) services

10% - Retail trade

23% - Other (business & personal) services

23% - Construction

12% - Retail trade

% of reports with estimated assets of $100,000 or less

84%

85%

86%

% of reports with estimated liabilities of $250,000 or less

44%

46%

52%

% of reports with an estimated deficiency of $500,000 or less

65%

66%

72%

Causes of company failure

 

2010–2011

2009–2010

2008–2009

% of reports by cause of failure

44% - Poor strategic management of business

41% - Inadequate cashflow or high cash use

33% - Trading losses

44% - Poor strategic management of business

41% - Inadequate cashflow or high cash use

33% - Poor financial control including lack of records

43% - Poor strategic management of business

38% - Inadequate cashflow or high cash use

34% - Poor financial control including lack of records

Estimated dividends

 

2010–2011

2009–2010

2008–2009

% of reports with estimated dividends to unsecured creditors of less than 11 cents in the dollar

97%

97%

97%

Possible misconduct

 

2010–2011

2009–2010

2008–2009

Top 3 alleged possible misconduct

  • Insolvent trading
  • Obligation to keep financial records
  • Care & diligence—Directors’ & officers’ duties
  • Insolvent trading
  • Obligation to keep financial records
  • Care & diligence—Directors’ & officers’ duties
  • Insolvent trading
  • Obligation to keep financial records
  • Care & diligence—Directors’ & officers’ duties

Further enquiry warranted by ASIC

 

2010–2011

2009–2010

2008–2009

% of reports where external administrators had evidence in their possession and believed that further enquiry warranted

11% (851 reports)

11% (885 reports)

9% (691 reports)

No. of external administrator supplementary reports requested by ASIC to determine whether to commence an investigation

558

600

309

Last updated: 22/11/2011 12:00