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12-268MR ASIC releases guidance on insolvency reforms: winding up of abandoned companies and assetless administration fund
ASIC has today released policy guidance on ASIC’s power to wind up an abandoned company under new powers contained in the Corporations Act 2001.
ASIC has also updated its guidance on ASIC’s approach to, and criteria for, funding liquidator investigations, reports and actions from the Assetless Administration Fund (AA Fund).
Deputy Chairman, Belinda Gibson said the release of today’s policy guidance provides clarity to insolvency practitioners and those impacted by corporate insolvencies about how ASIC will use its new powers to apply the funds in the AA Fund to the best effect.
‘The provision of guidance about how we will use our power to wind up companies is important to assist employees of companies that have gone into liquidation and who are owed certain employee entitlements.’
‘We are making clear our approach to facilitating access for employees affected by corporate failures to the Federal Government’s General Employee Entitlements Redundancy Scheme (GEERS).’
‘We have also taken the opportunity to expand our policy to address the use of the AA Fund to assist liquidators wishing to pursue a recovery action where they suspect fraudulent or unlawful phoenix activity. This will further increase the transparency of our approach to enforcement’, Ms Gibson said.
ASIC’s new power to wind up abandoned companies
Issued today, Regulatory Guide 242 ASIC’s power to wind up abandoned companies (RG 242), contains final policy guidance on how ASIC intends to exercise its new power. The guidance, which follows consultation with industry earlier this year (CP 180), also explains how ASIC will prioritise companies for winding up.
Report 310 Response to submissions on CP180 ASIC's power to wind up abandoned companies (REP 310), summarising the submissions received as part of that consultation process, has also been released today.
In developing the final guidance, ASIC has considered how it will exercise this power to facilitate greater access to GEERS.
GEERS is a scheme funded by the Australian Government to assist employees of companies that have gone into liquidation and who are owed certain employee entitlements. However, companies are sometimes abandoned by their directors without being put into liquidation. This can result in employees of the company who are owed employee entitlements being unable to access GEERS.
ASIC now has a discretionary power to order the winding up of an abandoned company where it will facilitate employee access to GEERS.
RG 242 explains that in deciding when to exercise this discretion, ASIC will consider a number of factors including:
- the amount of outstanding employee entitlements claimed
- whether there is another creditor capable of winding up the company, and
- the amount of money available in the AA Fund and how this money would best be used.
ASIC may decide not to reinstate companies that have already been deregistered in order to wind them up later.
RG 242 outlines how a request to ASIC to wind up an abandoned company can be made, how ASIC will assess a request and what will occur next if ASIC does decide to wind up a company. It also outlines the other options available to employees who may be owed employee entitlements if ASIC decides not to wind up a company.
ASIC may appoint a registered liquidator when exercising its power to wind up an abandoned company and will remunerate the liquidator from the AA Fund.
Funding liquidator actions from the AA Fund
ASIC has reviewed its approach to funding liquidators under the AA Fund, as ASIC is now able to fund liquidator actions to recover assets for creditors.
ASIC also updated its guidance on funding liquidator investigations and reports out of the AA Fund. Regulatory Guide 109 Assetless Administration Fund: Funding criteria and guidelines (RG 109) explains ASIC’s approach to funding liquidators to pursue their gatekeeper role of monitoring and reporting on potential misconduct by company officers in assetless administrations.
The AA Fund finances preliminary investigations and reports into the failure of companies with few or no assets. The scope of the AA Fund has been expanded so that it may also provide funds to a liquidator to recover assets in certain circumstances.
RG 109 now includes guidance to liquidators seeking funding to enable them to bring an action to recover assets where fraudulent or unlawful phoenix activity is suspected.
This includes actions to deprive people of the benefits of breaches of duty by company officers, including breaches by former liquidators that have had a sizeable adverse effect on employees, consumers or small business. This may include funding a replacement liquidator to investigate a former liquidator where there are concerns that the former liquidator was complicit in the breach of duty.
The guidance outlines:
- the criteria for assistance from the AA Fund
- how to apply for funding
- our approach to funding liquidator investigations, reports and actions
- what to include in a funded report to ASIC, and
- the liquidator’s rights to request a review of our decision about funding.