Insolvency clean-up starts at ASIC
There are 682 liquidators in Australia and a report by ASIC into the supervision of the profession reveals that it received 437 reports of alleged misconduct involving registered liquidators in the past year, which is up slightly on last year's 426 complaints.
It is not known how many of the 682 liquidators received complaints, but it would be illuminating to know whether they were directed at a handful of liquidators or more broadly.
Whatever the case, ASIC found that more than half of all the reviews it examined in 2012 were "inadequate". This is a 10 per cent increase on last year's number of inadequate declarations relating to disclosure about independence.
Declarations deemed inadequate by ASIC included "a failure to disclose a relevant relationship in pre-appointment dealings and/or, where such a relevant relationship has been identified, adequately explain why it does not create a conflict of interest".
This is an important issue and one way to get around it would be to improve transparency of reporting across the sector on jobs.
The ASIC report states that it launched 19 formal investigations or enforcement actions and most of the other 418 allegations resulted in "educative outcomes".
This is all well and good but more information is required on how ASIC dealt with the other 418 allegations of misconduct. In the report it says that in 94 matters it reviewed them further; in 292 matters there was "insufficient evidence" of an offence and in 51 matters, ASIC took no action.
ASIC has been found in a number of instances to have taken no action against rogue liquidators when action should have been taken. This raises the question of whether its dismissal outright of so many complaints was warranted or if they got caught up in bureaucracy and box ticking.
It was ASIC's poor record in investigating complaints that prompted a Senate inquiry into the sector in 2010, which resulted in some damning recommendations, including ASIC being stripped of its powers to regulate the sector.
A key reason for the inquiry was the actions of Stuart Ariff, a liquidator who is serving a six-year jail term after being found guilty on 19 counts of criminal fraud relating to HR Cook Investments.
A freedom-of-information request indicated that ASIC received at least 60 complaints about Ariff over the years, while he continued to practise and acquire more clients. ASIC finally acted after I wrote a series of articles exposing his conduct in relation to one of the companies he was liquidating.
But it raised the question why ASIC and the insolvency lobby group, the Insolvency Practitioners Association, which had received numerous complaints about Ariff in 2003 and earlier, had not acted on those complaints. If they had they might have recovered some of the millions of dollars Ariff illegally took from clients.
Nationals senator John Williams headed the Senate inquiry into the sector in 2010. When informed of ASIC's latest report card into the sector, he said: "It doesn't surprise me."
The inquiry exposed other cases similar to Ariff's that ASIC is yet to investigate.
Senator Williams said the problem was the Gillard government's inaction in terms of beefing up the regulation of the sector. He said the government had not acted on any recommendations that had come out of the senate inquiry and was yet to enact any recommendations it had set out in its proposals paper.
The Senate inquiry found that ASIC was a key problem and it had been asleep at the wheel when it came to monitoring the sector. It found that ASIC was "lax, slow and reactive" when investigating complaints. It concluded that without a significant overhaul of the regulator, and its process-driven culture, little would change.
The report released on Wednesday by ASIC shows that despite the Senate inquiry and the government's options paper, little appears to have changed.
ASIC commissioner John Price issued a press release on Wednesday saying: "Registered liquidators must be independent, competent and efficient. Creditors expect a liquidator to act in the creditors' interests in winding up an insolvent company in an orderly and fair way so they receive the maximum possible return of their money as soon as practicable."
He said the increase in inadequate declarations concerned ASIC. "Liquidators must make full disclosure to creditors when it comes to their independence. Given our guidance, and education programs through the IPA, there is no good reason for such a failure rate," he said.
A cynic could be forgiven for thinking there are a number of reasons for such a failure rate, starting with ASIC itself.
Frequently Asked Questions about this Article…
ASIC's report found rising concern in the insolvency sector: there are 682 registered liquidators in Australia and ASIC received 437 reports of alleged misconduct in the past year (up from 426 the year before). More than half of the reviews examined were judged inadequate, and there was a 10% increase in inadequate declarations about liquidator independence.
According to the report, ASIC launched 19 formal investigations or enforcement actions. Most of the other 418 allegations resulted in 'educative outcomes.' In further detail, ASIC reviewed 94 matters further, found insufficient evidence in 292 matters, and took no action in 51 matters.
ASIC said inadequate declarations included failures to disclose relevant pre‑appointment relationships or, where such relationships were identified, failing to explain why they did not create a conflict of interest. In short, liquidators must make full, clear disclosure about any relationships that could affect their independence.
Liquidators are meant to act in creditors' interests and help recover the maximum return from an insolvent company. If declarations about independence are inadequate or misconduct goes unchecked, creditors may get poorer outcomes or delayed recoveries. The report signals risks to transparency and trust in insolvency processes that affect everyday investors and creditors.
Stuart Ariff was a liquidator convicted on 19 counts of criminal fraud relating to HR Cook Investments and sentenced to six years in jail. A freedom‑of‑information request showed ASIC had received at least 60 complaints about him while he continued to practise. The case highlighted failures in oversight and helped trigger a wider Senate inquiry into the sector.
The Senate inquiry concluded ASIC had been 'lax, slow and reactive' when monitoring the sector and recommended a significant overhaul — even suggesting ASIC be stripped of some powers. The article notes that despite the inquiry and government proposals, little appears to have changed, as reflected in ASIC's latest report card.
ASIC commissioner John Price stressed that registered liquidators must be independent, competent and efficient. He said liquidators must make full disclosure to creditors about any matters affecting their independence and expressed concern about the rise in inadequate independence declarations despite guidance and education programs.
The article suggests improving transparency of reporting across the sector. Creditors and investors can reasonably expect full, clear independence declarations from liquidators and explanations of any relevant relationships. Staying informed about ASIC findings and asking for disclosure about a liquidator's independence are sensible steps based on the issues raised in the report.
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