ASIC Report Regulation of the insolvency industry

  • Date:01 May 2010
  • Type:CompanyDirectorMagazine
Michael Dwyer discusses ASIC’s approach to corporate insolvency and regulation of the profession.


Regulation of the insolvency industry


With rising insolvencies flowing from the global economic crisis, a number of company directors may be exposed to an external administration or they may be working through a restructuring or, more commonly, their companies may be creditors of a failed company.

Late last year, Senator John Williams of the Senate Economics Committee moved for a Senate inquiry into the role of liquidators and administrators, their fees and their practices and the involvement and activities of the Australian Securities and Investments Commission (ASIC) before and after the collapse of a business.

ASIC made a submission to the inquiry and appeared before the committee, which is due to report by 31 August.

Here, I discuss some elements of that submission and ASIC’s approach to regulation of the insolvency profession.

ASIC regards corporate insolvency, and the regulation of participants in this area, as a key priority. We have strengthened resources at all levels within ASIC in recognition of the need for increased expertise and understanding of the insolvency profession and the issues arising from corporate insolvencies.

The legislative framework for corporate insolvencies has been evolving. Most notably, amendments were made in 2007, including:

  • The requirement for practitioners to issue a remuneration report;
  • The requirement to issue a Declaration of Independence, Relevant Relationships and Indemnities (DIRRI);
  • Requiring professional indemnity (PI) and fidelity insurance;
  • Providing greater flexibility to the Companies Auditors and Liquidators Disciplinary Board (CALDB); and
  • Strengthening the protection of employee entitlements.

ASIC has implemented a range of new initiatives and programs in response to these reforms (outlined in further detail in our submission), which both seek to facilitate compliance through education and guidance, and facilitate ASIC acting against non-compliance.

While we recognise there is scope to improve industry conduct, and ASIC’s forward program in this area addresses this aspect, we do not have evidence of systemic failure or widespread abuse.

This is not to diminish the harm done to those where there has been misconduct by insolvency practitioners. However, concerns or complaints about the value received by creditors for the volume of fees paid to liquidators, rather than being distributed to creditors, does not mean there is widespread abuse or systemic failure.

In the three-and-a-half years from 1 July 2006 to 31 December 2009, 47,085 complaints and enquiries were lodged with ASIC, of which 1,647 (3.6 per cent) related to insolvency practitioners. Of these complaints:

  • Eight per cent related to excessive fees or inadequate disclosure; and
  • Three per cent related to allegations of fraud.

While recognising this data is not conclusive, ASIC’s forward program responds in a number of ways to facilitate improved conduct and behaviour by insolvency practitioners:

  • Registration: We are reviewing Regulatory Guide 186 External administration: liquidator registration to see if we can strengthen the “fit and proper person” test.
  • Remuneration: While remuneration is primarily a matter for creditors’ committees, creditors, or the courts and there are no fixed scales, ASIC has stepped up its surveillance of remuneration paid to insolvency practitioners. We are also:
    • Seeking to improve information available to creditors about their rights;
    • Issuing regulatory guides on what is reasonable; and
    • Assessing if the industry can use external costs assessors to assist creditors and ASIC in assessing what is reasonable.
  • Independence: We are undertaking further work, including risk-based surveillance, to assess DIRRIs made by practitioners. The more difficult issue will be to assess related party transactions or at least, sales of assets where less than market value may have been realised.
  • PI and fidelity insurance: We have ongoing work to:
    • Assess how this new regime is working; and
    • Improve notification of ongoing, or lapses in PI insurance.
  • Enforcement activities:ASIC remains active in enforcing the law and recently increased resources to improve outcomes. Since 2006, ASIC has achieved 18 outcomes through the courts, CALDB referrals or Enforceable Undertakings, with a number ongoing. Our surveillance and visits to distressed or troubled companies to assess early if they are insolvent is also an important activity in ensuring directors remain proactive in focusing on their obligations.

ASIC is acutely aware of the need for Australia to maintain a strong and reliable insolvency regime and for company directors to have confidence in the law and process. ASIC will continue to use its’ regulatory powers to the maximum extent possible to improve the standards and conduct of insolvency practitioners.


Michael Dwyer
Commissioner
Australian Securities and Investments Commission