The Federal Court's decision in Australian Securities and Investments Commissions v McDermott, in the matter of Conalpin Pty Ltd (in liq) [2016] FCA 1186, is the latest reminder of the standards expected of insolvency practitioners by ASIC and the Courts.

ASIC commenced a claim against the Liquidator seeking orders that he be banned from acting as a liquidator. ASIC submitted that the Liquidator failed to act independently, free of actual, apparent or potential conflicts of interest or with the appropriate degree of care and diligence required of a registered liquidator, administrator and deed administrator.

The Liquidator was criticised for amongst other things;

  1. not properly investigating a proof of debt submitted by a creditor in a voluntary administration and subsequently allowing that creditor to vote its full debt in support of a DOCA proposal;
  2. accepting an appointment as liquidator to a company (A) which had earlier agreed to fund the employee entitlement of company B. The liquidator was the deed administrator of B. As liquidator of company A, the Liquidator had to consider if the payments made by company A into B's DOCA were voidable transactions; and
  3. failing to provide creditors with adequate information about his fees and remuneration.

As a result of the complaints made by ASIC, the Liquidator (by agreement with ASIC) was prohibited by the court from accepting new appoints for a period of 3 years and made to undertake an advanced certification course with ARITA. The Liquidator was also removed from a number of existing appointments and ordered to pay ASIC's costs of the proceeding.

This decision is a prime example of the broad supervisory jurisdiction the court has over the conduct of persons in control of a corporation's affairs, including but not limited to, the conduct of liquidators.

The case is a reminder to all insolvency practitioners of the oversight taken by ASIC and its preparedness to prosecute practitioners whose conduct is said not to comply with the Act or the ARITA Code of Conduct.

Insolvency practitioners should:

  1. remain independent from referrers and free of actual, apparent or potential conflicts of interest; 
  2. ensure that they lodge timely reports with ASIC of suspected misconduct by officers or former officers of companies in accordance with s 438D of the Act (for administrators) and s 533(1)(d) of the Act (for liquidators); 
  3. provide adequate remuneration reports which are tailored to the circumstances of the particular administration or liquidation so that creditors can make an informed assessment about the reasonableness of the remuneration sought; and
  4. obtain informed creditor approval prior to drawing down on any remuneration, and if later found to have been drawn down improperly, repaying the remuneration and obtain fresh approval from creditors. 

The consequences to insolvency practitioners for not paying close attention to their obligations under the Act and the ARITA Code of Conduct can be severe and costly.