ASIC Corporate Insolvency Update - Issue 10
Issue 10, December 2018
Clarification added 5 December 2019
As the Form 531 referred to below is neither a prescribed form nor an approved form, ASIC cannot require disclosure of the information specified in the form and a lodged DIRRI that contains the information specified in s60 will comply with the requirements of the Act.
This also means that there is no requirement of law to name individual (natural person) referrers in the Form 531.
However, there is no legal impediment to the voluntary provision of information in the DIRRI about the name of a non-natural person referrer, together with the other information requested in the Form 531.
We encourage practitioners to provide this information voluntarily, as this allows us to efficiently process key information about the lodged DIRRI.
The requirement to lodge Declarations of Independence and Relevant Relationships and Declarations of Indemnities (DIRRIs) has been in place for more than a year now. We've noticed inconsistencies with the way external administrators are disclosing the referrer on the Form 531.
Examples of disclosures for the same referrer include:
- Joseph Bloggs of Bloggs Accountants
- J Bloggs of Bloggs Accountants
- Bloggs Accountants
- Joe Bloggs
- J Bloggs
- Mr Bloggs
- Company accountant
We ask that in the Form 531 you provide the person's full name and the firm/business they work for, so in the example above it would be 'Joseph Bloggs of Bloggs Accountants'. The DIRRI should not only include this information but also their relationship with the company.
It's our view that a natural person generates a referral and therefore a company or firm cannot of itself refer a matter to you (e.g. Bloggs Accountants is not the referrer of the work). An exception would be where the referral is from an online source, which should be noted as such.
Also, we believe that generally the director of a company cannot refer themselves to you. The director decided to contact you for some reason and you should disclose that reason in your DIRRI. Examples may include someone else told the director about you (in which case disclose who that person is), the director may have looked you up via an internet search or other online means or the director may have encountered you on another external administration.
Reminder to lodge
Some registered liquidators (RLs) are not lodging their DIRRIs with ASIC when required by the Corporations Act 2001.
We recently wrote to over 50 RLs requesting they lodge outstanding DIRRIs or provide an explanation why they had not lodged them.
We will continue to monitor DIRRI lodgements and from 1 January 2019 we may take further action against RLs, such as issuing 'Directions to comply with a requirement to lodge documents' if they have outstanding DIRRI lodgements.
To assist with your lodgement obligations, we provide the following information about what DIRRIs you should be lodging and when.
A voluntary administrator must make their DIRRI as soon as practicable after being appointed. They must give a copy to as many of the company’s creditors as reasonably practicable at the same time as they give those creditors notice of the meeting referred to in s436E: s436DA(2) and (3) of the Corporations Act 2001.
A voluntary administrator must lodge a copy of their DIRRI with ASIC ‘as soon as practicable’ after making the DIRRI, in all voluntary administrations commencing after 1 March 2017: s436DA(4A) of the Corporations Act 2001.
We believe 'as soon as practicable' should not be more than two business days of signing it.
Creditors' voluntary liquidation
A liquidator must make their DIRRI and give a copy of the DIRRI to as many of the company’s creditors as reasonably practicable within 10 business days after the day of the meeting of the company at which the resolution for voluntary winding up is passed: s506A(2) of the Corporations Act 2001.
A liquidator must lodge a copy of their DIRRI with ASIC ‘as soon as practicable’ after making the DIRRI, in all creditors’ voluntary liquidations commencing after 1 September 2017: s506A(3) of the Corporations Act 2001.
We believe ‘as soon as practicable’ should not be more than two business days of signing it.
Issues experienced with lodging outstanding Forms 531
We are aware that some RLs have been unable to lodge outstanding Forms 531 via the Liquidator Portal in circumstances where the external administration is finalised and there is no current external administrator role, and/or the company is not in external administration status.
We intend to resolve this issue with an upgrade in early 2019.
In the meantime, we created a temporary solution and have contacted the affected RLs to ensure lodgement of the outstanding Forms 531.
In our previous update, we emphasised the importance of Registered Liquidators (RLs) providing information to creditors to help them understand the remuneration they are seeking. The same applies in relation to disbursements. RLs should provide sufficient, meaningful and clear disclosure about disbursements to creditors including:
- a summary description of the disbursements
- the basis and method of calculation
- the total amount you are seeking reimbursement for
- why the expenses were necessary.
Importantly, ask yourself:
- is the claim for payment a disbursement or does it represent remuneration?
- is the disbursement reasonable, necessary and properly incurred?
- will the claim for payment result in you directly or indirectly deriving a profit or advantage from the external administration?
- is creditor approval required?
Reimbursement of out-of-pocket costs
An external administrator should be very careful incurring costs payable from the external administration – as careful as if they were dealing with their own money. Their remuneration report must also include information on the out-of-pocket costs of the external administration.
Out-of-pocket expenses (or disbursements) can be categorised into:
- external services or costs such as legal fees, valuation fees, travel, accommodation and search fees
- internal services or costs such as photocopying, printing and postage.
Disbursements charged at cost do not require prior creditor approval however the external administrator should disclose information about these costs after the event
To recover overheads and similar costs an external administrator might charge internal costs at a rate higher than actual cost. Before being reimbursed, the external administrator will need to obtain creditor approval where he/she charges costs at a rate higher than cost.
When seeking approval of out-of-pocket expenses, the external administrator must send creditors/committee members a report setting out:
- a summary description of the out-of-pocket expenses
- the basis and method of calculation
- the total amount the external administrator is seeking reimbursement for
- why the expenses were necessary.
An external administrator may ask creditors/committee members to approve reimbursement of out-of-pocket expenses for expenses already incurred or an estimate of expenses to be incurred.
If an external administrator has not yet incurred the expenses, a maximum limit (‘cap’) should be placed on the amount that he/she may incur and be reimbursed for.
ASIC has the power under section 90-23 of Schedule 2 of the Corporations Act 2001 to appoint a Reviewing Liquidator to carry out a review into a matter that relates to the external administration of a company. The government has provided $3.1 million over three years through the Assetless Administration Fund to fund appointments of Reviewing Liquidators where illegal phoenix activity is suspected.
ASIC is in the final stages of establishing the Reviewing Liquidator Panel of suitably qualified and experienced RLs. ASIC expects the Reviewing Liquidator to inquire, investigate and report on suspected illegal phoenix activity including the conduct of the appointed external administrator where he/she appears to facilitate or has facilitated the activity through a lack of independence, or by not conducting adequate investigations and reporting to creditors and ASIC.
ASIC expects to commence appointing Reviewing Liquidators soon.
You can find answers to questions raised about Reviewing Liquidators at the recent Regional Liaison Meetings in the Q&A section of this publication.
On 1 November 2018, ASIC released the ROCAP – Report on Company Activities and Property, to replace the RATA. A three-month transition period commenced 1 November 2018, allowing you and software providers time to adjust.
However, for all new EXADs post 1 November 2018, we encourage you to provide the ROCAP to the director/officer to complete. This ensures that directors and external administrators benefit from the ROCAP from an early date.
Lodging the ROCAP
You can lodge the new ROCAP, (and the old RATA received for matters prior to 1 November), in the Liquidator Portal (see FAQ).
Please ensure you:
- do not lodge Part B with ASIC as it may contain confidential information provided by the director/officeholder. Lodging Part B places it on the public record and may result in breaching the Privacy Act 1988.
- change your checklists and internal systems so that your staff know not to lodge Part B.
If you inadvertently lodge Part B, please contact ASIC's Customer Contact Centre on 1300 300 630 immediately.
Thank you to those who provided feedback. Please continue to send your feedback to ROCAP@asic.gov.au so that we might benefit from your experience as you receive completed forms from directors. We continue to monitor and collate feedback that will help inform future versions of the ROCAP.
In considering feedback, we would reiterate that the form:
- reflects 'best practice' forms design implemented by an experienced external consultant;
- is aimed at the directors and others who complete the ROCAP; noting that they have vastly different levels of knowledge and understanding to comprehend what the form requires of them. Using behavioural design principles in its layout, style and language greatly assisted this; and
- aims to provide external administrators with the information necessary for them to comply with their duties and obligations.
The external consultant worked with ASIC and used feedback from a group of industry stakeholders, both in the initial stages of the form’s development and at the end of the process.
Questions and answers to issues raised by Registered Liquidators (RLs) s regarding their IFM metrics.
Q – Why do I have a multiple 'appointment' metric for the same appointment?
A – ASIC's systems create duplicate roles (and metrics) where RLs or their nominated staff use multiple forms that create or confirm an appointment.
- VA or DOCA transitioning to CVL – Forms 509D and 505 are both required lodgements and the first form lodged creates the CVL role. Lodging a Form 505 first can avoid a duplication issue, or if lodged second, select 'confirm' an existing appointment rather than 'new appointment'.
- All controller appointment types - Forms 504 and 505 are both required lodgements at the start of the appointment. If the role type or security details don't match, ASIC’s system will create separate roles.
Please note RLs and their nominated staff can at any time view their list of appointments online in the Liquidator Portal.
Q – What should I do if I identify a duplicate role?
A - Lodge a Form 492 Request for correction or contact the ASIC call centre on 1300 300 630 to remove the duplicated role. Don’t lodge a Form 505 to cease, as a separate appointment will remain on ASIC's register and therefore be included as a metric.
Please note that when we prepared your IFM metrics for verification, we made efforts to remove duplications where liquidations have the same start date.
The Insolvency Practitioners Legal Team deals with court applications under Chapter 5 of the Corporations Act 2001 that applicants must serve on ASIC, and these are:
- Release of a liquidator and deregistration of the company – s480
- Power to stay or terminate a winding up – s482 and s90-15 of Schedule 2 – Insolvency Practice Schedule (IPS)
- An applicant needs to include details of the liquidator’s position in relation to the termination or stay of winding up or whether the applicant has served the liquidator with the application.
- Deregistration of a company – s509(2)
- Court inquiry into external administration – s90-10 of Schedule 2 – IPS
- Orders in relation to external administration – s90-20 of Schedule 2 – IPS
- Notification by liquidators that they’re conducting public examinations – rule 11.3 of the Federal Court (Corporations) Rules 2000
- Include the timing of production and/or public examinations and names of the proposed examinees. If any of the examinees is a registered liquidator, include copies of the originating process and supporting affidavits.
If an applicant requests ASIC’s response in relation to any other insolvency related court application not required to be served on ASIC, the applicant must provide the reasons for requiring ASIC’s response at the time of service.
Timing of notification
Rule 2.8(3) of Federal Court (Corporations) Rules 2000 (Supreme Courts have equivalent court rules) requires parties serve on ASIC, a reasonable time before the hearing of the application, a copy of the originating process or interlocutory process, and supporting affidavit for various applications under the Corporations Act 2001.
We have seen an increase in applications that require ASIC’s urgent attention where the applicant has given no or too little notice. In these circumstances, ASIC is unable to consider the application. Generally, we are unable to respond to court applications where the applicant gives us less than two weeks’ notice, particularly if the applicant is not required to serve the court applications on ASIC.
Applications for eligible applicant status to conduct a public examination – s596A & s596B
Since 4 July 2018, a fee of $468 applies to all applications by persons requesting authorisation from ASIC for eligible applicant status. Once we receive a request, we will raise an invoice for payment.
The applicant must provide specific information as part of the application:
- confirming the relationship with the company and that there is no conflict of interest
- the reason(s) for the proposed public examination;
- why it is for the benefit of the corporation, its creditors or contributories and is not an abuse of process;
- why the matters proposed to be examined fall within the examinable affairs of the company; and
- where relevant, details of any current or anticipated court proceedings against any officers or related entities of the company. All documents should be lodged by post addressed to:
- ASIC, PO Box 4000, Gippsland Mail Centre, VIC 3841 or electronically by sending them to IP.Legal@asic.gov.au.
Forms 505 and EX01 require an industry classification and we encourage you to always refer to the Australian Bureau of Statistics search facility to improve the accuracy of the industry classification selected.
The accuracy of industry information provided in these forms is important as many stakeholders including government, academics and industry bodies use it to understand the impacts and drivers of insolvency on different industry sectors.
We provide the following as an example of how using the ABS search facility will improve the accuracy of the industry classification selection.
In FY18, Registered Liquidators (RLs) classified 139 external administrations as being in the Gas, Water and Waste Services industry. Our review of these classifications suggested that RLs should only have included 22 of these matters in the Gas, Water and Waste Services industry. Over 60% of the balance were plumbers, electricians and solar panel installers. If the RLs, had used the ABS search facility, they would have classified the external administrations as being in the Construction industry. Other more accurate classifications included:
- Professional, scientific and technical services
- Other services
- Financial and insurance services
- Wholesale trade
- Retail trade
- Transport, postal and warehousing
A tip for using the ABS search facility is to simplify the search – if you’re looking for 'solar panel installation' just enter 'solar' for more choices, or part words 'tech' instead of technology.
Under s70-40, creditors can request information from an external administrator where that information is relevant to the external administration. This section does not restrict the information requested to 'company books and records'. We are aware of instances where external administrators have refused to provide information from their own files (e.g. workpapers, work in progress reports, invoices, etc) on the basis that the information requested was not 'company records'.
Reviewing Liquidator Q&A
Q: Will the Reviewing Liquidator appointments only relate to phoenix matters?
A: Yes. But the findings may not result in enforcement action, it may be the case that the Reviewing Liquidator reports that all appropriate investigations and actions were carried out or there is an educational outcome for the Registered Liquidators (RLs) and/or their staff.
Q: How can a matter be brought to ASIC's attention to consider the appointment of a Reviewing Liquidator?
A: Anyone can approach ASIC directly with details of their concerns including any evidence they think will assist ASIC decide to appoint a Reviewing liquidator. ASIC also receives intelligence from cross-agency data/information sharing, information from RLs and from reports of misconduct.
Q: Where is the funding coming from to appoint the Reviewing Liquidators?
A: Funding for ASIC to appoint Reviewing Liquidators is from the Assetless Administration Fund, which the Government increased by $3.1m over three years to 30 June 2021. The amount funded will depend on the complexity of the matter and is not a fixed amount as it is in the abandoned company panel appointments. Registered Liquidators do not fund the Assetless Administration Fund through the Industry Funding Levy.
Q: What is the requirement for the incumbent liquidator and directors to interact with the Reviewing Liquidator?
A: The law gives powers to the Reviewing Liquidator to obtain information and documents.
Q: Can a reviewing liquidator be appointed to an external administration where a registered liquidator has been replaced by creditors pursuant to section 90-35(1)(b)?
A: Yes. If there are indicia of illegal phoenix activity, ASIC can appoint a Reviewing Liquidator to review both the original liquidator's work and also that of the replacement.
ASIC's quarterly insolvency statistics for the September quarter of 2018/19 financial year, shows an increase from the previous quarter of 7.1% in companies entering external administration (EXAD). Appointments totalled 2,182 compared to 2,038 in the previous quarter. The quarterly total was 4.6% higher than the 2017 September quarter (2,087). Read the September quarterly release.
ASIC recently published a new series of insolvency statistics. The new series 2A 'Detail of insolvency appointments' shows the: ACN and organisation name of the company, person appointed (lodging party only), appointment date, industry type, state of incorporation, appointment type, document number and form type (notifying ASIC of the appointment).
Series 2A expands on the insolvency appointments recorded in Series 2 and are published for appointments on or after 1 July 2017.
Note: we amended the methodology for compiling statistics for Series 2 commencing 1 May 2018. Series 2 and 2A will not reconcile prior to 1 May 2018 due to the series break in Series 2 statistics, but will do so after 1 May 2018. We have not amended Series 2 statistics published prior to 1 May 2018.
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Insolvency Practitioner team contact
Victoria & Tasmania
Yvan Dang (Snr Accountant)
Direct: (03) 9280 3405
New South Wales & ACT
Carl Sibilia (Snr Manager)
Direct: (02) 9911 2994
Adrian Furby (Snr Specialist)
Direct: (07) 3867 4840
Adrian Saggers (Snr Manager)
Direct: (08) 9261 4065
South Australia & NT
Hywel Thomas: (Snr Accountant)
mobile: 0431 909 079