ASIC today published its annual overview of corporate insolvencies based on statutory reports lodged by external administrators for the 2016–17 financial year.

Report 558 Insolvency statistics: External administrators’ reports (July 2016 to June 2017) (REP 558) provides information on the nature of corporate insolvencies, supplementing the monthly statistics that ASIC publishes on its website.

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.

Key points

• There was a material decline in reports received during the 2016–17 financial year (down 17.9%) reflecting the overall downward trend (down 18.4%) in external administration appointments for 2016–17
• Small to medium size corporate insolvencies dominate external administrators’ reports. Of note, 84% had assets of $100,000 or less; 79% had fewer than 20 employees; and 43 per cent had liabilities of $250,000 or less.
• 96% 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.
• ASIC requests supplementary reports from practitioners
  (819 in 2016–17) where a report meets certain thresholds (see Annexure 2).
• Over the last three years on average fewer than 20% of supplementary reports received resulted in ASIC taking further action, generally due to the lack of sufficient evidence or because ASIC considered no further action was required.
• Practitioners advised that they had either commenced or were contemplating initiating recovery actions for insolvent trading for 1,516 reports, compared to 4,878 reports alleging a civil breach for insolvent training.

Annexure 1:  Reporting of alleged insolvent trading

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

Table 1: Overview of insolvent trading allegations

Annexure 2: Allegations of misconduct

REP 558 details how often external administrators report alleged misconduct by company officers and the types of alleged misconduct most frequently reported. In the 2016–17 financial year, external administrators reported alleged misconduct for 6,558 reports out of the 7,765 lodged, or 84.5%.

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:

• the nature of the possible misconduct reported
• the amount of liabilities
• the deficiency suffered
• the availability of evidence
• prior misconduct, and
• the external administrator's advice as to whether the reported possible misconduct warrants further investigation.

After assessing the reports, ASIC asked external administrators to prepare 819 supplementary reports where external administrators alleged company officer misconduct. This amounted to 12.5% of all reports that alleged misconduct lodged in the financial year.

Supplementary reports are typically detailed, free-format reports, that 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 17-19% of these cases for investigation or surveillance (see table 2 for a breakdown of outcomes).

Table 2: Supplementary reports by outcome

Source: ASIC annual report 2014-15, 2015-16 & 2016-17

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).

Annexure 3: Profile of insolvent companies

REP 558 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.

Background

REP 558 is ASIC’s seventh annual report and ninth report since external administrators’ reports could be lodged electronically. Here are links to our last three reports:

• REP 507 (refer 16-436MR) – Annual Statistics for 2016–2017
• REP 456 (refer 15-337MR) – Annual Statistics for 2014–2015
• REP 412 (refer 14-254MR) – Annual Statistics for 2013–2014

Table 3: Summary of key data from REP 558