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Wednesday 14 December 2016

16-436MR ASIC reports on corporate insolvencies 2015–16

ASIC today published its annual overview of corporate insolvencies based on statutory reports lodged by external administrators for the 2015–16 financial year.

Report 507 Insolvency statistics: External administrators’ reports (July 2015 to June 2016) (REP 507) is ASIC's eighth report and provides information on the nature of corporate insolvencies, supplementing the monthly statistics that ASIC publishes on its website.

The report summarises information from 9,465 reports that ASIC received from external administrators during the 2015–16 financial year and includes ASIC's response to their reports of alleged misconduct.

An external administrator's role includes investigating company failure and reporting both to creditors and ASIC.

ASIC uses external administrator reports in its work including in reporting to the market on corporate insolvency.

Profile of insolvent companies

REP 507 includes information about the profile of companies placed into external administration, including:

  • industry types
  • employee numbers
  • causes of company failure
  • estimated number and value of a company’s unsecured creditor debts, and
  • estimated dividends to unsecured creditors.

Table 3 summarises key data from the report.

REP 507 shows small to medium size corporate insolvencies again dominated external administrators’ reports. Of note, 86 per cent had assets of $100,000 or less; 79 per cent had less than 20 employees; and 46 per cent had liabilities of $250,000 or less.

97 per cent of creditors in this group received between 0–11 cents in the dollar, reflecting the asset/liability profile of small to medium size corporate insolvencies.

Reporting of alleged insolvent trading and other offences

ASIC released an amended report template for external administrators (Form EX01) in December 2014 to help us improve our reporting. The aim was to:

  • capture more accurate information on alleged insolvent trading offences to provide greater insight into the extent of insolvent trading; and
  • enable ASIC to focus resources on matters that warrant further investigation.

Following are key points concerning alleged insolvent trading based on external administrator reports:

Table 1: Overview of insolvent trading allegations

Alleged Insolvent Trading

Civil Breach

Criminal Breach

No of reports alleging insolvent trading

5,736 reports or 60.6%,

150 reports or 1.6%

No of reports alleging insolvent trading that had evidence to support allegation

4,496 out of 5,736 reports or 78.4%

94 out of 150 reports or 62.7%

Estimated debts incurred after date of insolvency of less than $1million

3,619 out of 4,496 reports or 80.5%

71 out of 94 reports or 75.5%

Estimated debts incurred after date of insolvency of more than $5million

64 out of 4,496 reports or 1.4%

5 out of 94 reports or 5.3%

Top three indicators – grounds for director to suspect insolvency

  1. Non-payment of statutory debts (PAYGW, SGC and GST) (3,439 reports or 76.5%)
  2. Financial statements that disclose a history of serious shortage of working capital, unprofitable trading (2,106 reports or 46.8%)
  3. Difficulties paying debts when they fell due (e.g. evidenced by letters of demand, recovery proceedings, increasing age of accounts payable (1,999 reports or 44.5%).
  1. Non Payment of statutory debts (PAYGW, SGC and GST) (62 reports or 66.0%)
  2. Difficulties paying debts when they fell due (e.g. evidenced by letters of demand, recovery proceedings, increasing age of accounts payable (44 reports or 46.8%).
  3. Financial statements that disclose a history of serious shortage of working capital, unprofitable trading (43 reports or 45.7%)

Allegations of misconduct

REP 507 details how often external administrators report alleged misconduct by company officers and the types of alleged misconduct most frequently reported. In the 2015–16 financial year, external administrators lodged 7,797 reports alleging misconduct.

Our next step (prior to requesting a supplementary report from external administrators or initiating an investigation) is to assess the report of misconduct based on a number of factors, including, but not limited to:

  1. the nature of the possible misconduct reported;
  2. the amount of liabilities;
  3. the deficiency suffered;
  4. the availability of evidence;
  5. prior misconduct; and
  6. the external administrator's advice that the reported possible misconduct warrants further investigation.

After assessing the reports, ASIC asked external administrators to prepare 831 supplementary reports where external administrators alleged company officer misconduct. This accounted for 10.7 per cent of all reports, which alleged misconduct, lodged in the financial year.

Supplementary reports are typically detailed, free-format reports, which set out the results of the external administrator’s inquiries and the evidence they have to support alleged offences. Generally, ASIC can determine whether to commence a formal investigation on the basis of a supplementary report. While only a portion of the offences reported may result in a formal investigation or surveillance, ASIC uses the information for broader intelligence and targeting purposes.

Over the last three financial years, after assessment, ASIC referred, on average, between 17 and 19 per cent of these cases for investigation or surveillance (see table 2 for a breakdown of outcomes).

Table 2: Supplementary reports by outcome

Outcome

2015-16

2014-15

2013-14

Un-actionable

     

No offence

1%

<0.5%

<0.5%

Analysed/assessed for no further action by ASIC

     

Requested further report

15%

17%

14%

Insufficient evidence

41%

43%

39%

No action

24%

23%

28%

Referred for Action by ASIC

     

Referred for compliance surveillance or enforcement

16%

14%

15%

Assist existing investigation or surveillance

3%

3%

4%

Source: ASIC annual report 2013-14, 2014-15 & 2015-16

ASIC considers a range of factors when deciding to investigate and take enforcement action as detailed in Information Sheet 151 ASIC’s approach to enforcement (INFO 151).

Download REP 507

Background

REP 507 is ASIC’s sixth annual report and eighth report since external administrators’ reports could be lodged electronically. Here are links to our last three reports:

  • REP 456 (refer 15-337MR) – Annual Statistics for 2014–2015
  • REP 412 (refer 14-254MR) – Annual Statistics for 2013–2014
  • REP 372 (refer 13-277MR) – Annual Statistics for 2012–2013

Table 3: Summary of key data from REP 507

 

2015-16

2014-15

2013-14

Profile of companies

 

No. of employees affected

79% of reports concerned companies with less than 20 employees

79% of reports concerned companies with less than 20 employees

81% of reports concerned companies with less than 20 employees

Industries with most lodgements

  • ŸOther (business and personal) services (2,889 reports or 31%)
  • ŸConstruction (1,964 reports or 21%)
  • Accommodation and food services (928 reports or 10%)
  • Other (business and personal) services
  • (2,351 reports or 28%)
  • Construction (1,771 reports or 21%)
  • Accommodation and food services (870 reports or 10%)
  • ŸOther (business and personal) services (2,482 reports or 26%)
  • ŸConstruction (2,153 reports or 23%)
  • Accommodation and Food Services (916 reports or 10%)

Assets and liabilities

  • 86% of failed companies had estimated assets of $100,000 or less
  • 46% of failed companies had estimated liabilities of $250,000 or less
  • 85% of failed companies had estimated assets of $100,000 or less
  • Ÿ41% of failed companies had estimated liabilities of $250,000 or less
  • 86% of failed companies had estimated assets of $100,000 or less
  • Ÿ43% of failed companies had estimated liabilities of $250,000 or less

Deficiency

65% of failed companies had an estimated deficiency of $500,000 or less

64% of failed companies had an estimated deficiency of $500,000 or less

65% of failed companies had an estimated deficiency of $500,000 or less

Top 3 nominated causes of failure

  • Inadequate cash flow or high cash use (4,318 or 46% of reports)
  • Poor strategic management of business (4,315 or 46% of reports)
  • Poor financial control including lack of records (3,183 or 34% of reports)
  • Inadequate cash flow or high cash use (3,647 or 44% of reports)
  • ŸPoor strategic management of business (3,518 or 42% of reports)
  • ŸTrading losses (2,836 or 34% of reports)
  • ŸInadequate cash flow or high cash use (4,031 or 41% of reports)
  • ŸPoor strategic management of business (3,975 or 37% of reports)
  • ŸTrading losses (3,078 or 33% of reports

Top 3 alleged possible misconduct

  • s588G(1)–(2) Insolvent trading (5,425 or 57% of reports)
  • s286 and 344(1) Obligation to keep financial records (4,856 or 58% of reports)
  • s180 Care and diligence—Directors’ and officers’ duties (2,739 or 33% of reports)
  • s588G(1)–(2) Insolvent trading (4,856 or 58% of reports)
  • s286 and 344(1) Obligation to keep financial records (3,209 or 38% of reports)
  • s180 Care and diligence—Directors’ and officers’ duties (2,739 or 33% of reports)
  • s588G(1)–(2) Insolvent trading (5,425 or 57% of reports)
  • s286 and 344(1) Obligation to keep financial records (3,466 or 37% of reports)
  • s180 Care and diligence—Directors’ and officers’ duties (2,542 or 27% of reports)

Dividends to unsecured creditors

In 97% of cases, the dividend estimate was less than 11 cents in the dollar

In 97% of cases, the dividend estimate was less than 11 cents in the dollar

In 97% of cases, the dividend estimate was less than 11 cents in the dollar

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Last updated: 14/12/2016 10:41