ASIC is tasked with registering and supervising liquidators who accept formal appointments as external administrators of companies in Australia, to ensure compliance with the law as well as with generally accepted professional standards, practices and principles.
Released by ASIC on 14 February 2019, REP 610 ASIC regulation of registered liquidators: January 2017 to June 2018 (Report) details ASIC’s efforts in supervising registered liquidators from January 2017 to June 2018.
All inquiries and reports of alleged liquidator misconduct are received by ASIC’s Misconduct and Breach Reporting team, which conducts an initial assessment of the inquiries. The matter may then be referred internally for further review—primarily to ASIC’s Insolvency Practitioners team, or to another team within ASIC to support an existing surveillance or enforcement action.
Complaints made to ASIC
During the reporting period, there were 464 reports to ASIC of alleged misconduct of external administrators, which amounted to 5% of all complaints received by ASIC in 2017-18. Although higher than the previous year’s number of 3%, ASIC maintains that these figures cannot be compared because of ASIC transitioning to a new complaint platform, which allows for more detailed submissions and multiple issues reported for the same matter.
While the majority of complaints were resolved through education of the registered liquidator or the complainant (usually a creditor), 56 of the 464 reports were suggestive of serious and deliberate breaches of the Corporations Act. Examples of this conduct include failing to properly investigate and report to creditors and ASIC, selling assets to related parties at undervalue, accepting appointment as external administrator when there is an actual or perceived conflict of interest, or making claims for excessive remuneration.
In 2017-18, ASIC referred four matters for formal investigation or enforcement actions against liquidators and finalised 11, however, four of these were closed due to insufficient evidence of an offence. Outcomes of the formal investigations or enforcement actions included one cancellation of registration as a liquidator, one criminal conviction (for dishonest use of position with the intention of gaining an advantage for himself), and one application for a court inquiry into the conduct of two Sydney liquidators under s536 of the Corporations Act (now see s90-10 of the Insolvency Practice Schedule (Corporations)).
In the current regulatory climate following Commissioner Hayne’s final report of the Financial Services Royal Commission, which included strong criticisms of ASIC’s enforcement policies, ASIC has adopted a mantra of ‘why not litigate?’ (see our previous article here). In the wake of the Report’s release, ASIC Commissioner John Price stated:
‘It is important that registered liquidators can fulfil their obligations to creditors and members of failed companies. We work closely with practitioners to help them discharge their obligations to investigate possible misconduct and… where necessary, prosecute non-compliant directors.’
With it likely that registered liquidators and directors will be subject to greater scrutiny in this new climate, and should therefore be vigilant to ensure compliance with all relevant provisions of the Corporations Act and associated Regulations, creditors and other stakeholders should also be aware of their rights when a company is in liquidation.