More fuel for the ASIC fire
It was not a pleasant week for the corporate regulator. As if the revelations of the 16-month delay to investigate the cover-up in Commonwealth Bank's financial services division were not harrowing enough.
Then there came news that more than 100 low-doc loan victims who had filed formal complaints of fraud last July had been advised to "get a lawyer". Their supporting evidence was ignored.
When it comes to insolvency though, the Australian Securities and Investments Commission responds with the brutal efficiency of Seal Team 6, the special operations force that took out Osama bin Laden.
The disturbing evidence of two-speed regulation comes care of an accounting and disclosure expert from the University of NSW, Jeff Knapp. Documents obtained by Knapp under freedom of information laws show no less than nine senior ASIC people, including their top lawyers and division heads, got involved in the process to satisfy an application by a liquidator.
The liquidator, who formerly worked for ASIC and was chasing a special exemption from filing accounts for Kagara, managed to get a three-day turnaround. In light of the 16-month turnaround in the case of the CBA whistleblowers, this is evidence of military efficiency.
Our story begins with email correspondence from ASIC's special counsel, Stephen Yen, to senior manager, corporations, Amanda Zeller. On the CC are Julian Walsh, senior lawyer insolvency practitioners stakeholder team, Kyle Wright, senior lawyer corporations, Kate O'Rourke, senior executive leader corporations and the chief legal officer, Michael Kingston.
"Stefan Dopking just called me. In a nutshell, you will shortly be receiving an application from him for an extension, until February 2013, to lodge the accounts of the relevant bodies, etc ... I suspect they may seek some comfort from us that we will deal with their application in a timely manner."
The email is dated October 19, 2012. It shows that Dopking, the senior managing director at insolvency group FTI Consulting (formerly Taylor Woodings), contacted executives at the highest levels of the regulator by phone.
Dopking himself had headed up the insolvency division of ASIC from December 2008 to December 2010.
Three hours later, ASIC's Kyle Wright received a message from Mallesons lawyer Cameron Mew. Mew acts for FTI.
"Further to your telephone conversations with Mr Dopking and me this afternoon, we attach a draft application for financial reporting ... We would appreciate your comments on the draft application with a view to the application being finalised and lodged with you on Monday."
The Mallesons correspondence drew a swift response from the commission, thanking them for the email and advising there were "no comments in relation to the draft". Bear in mind that in the ASIC policy "Applications for Relief" there is nothing about "draft applications".
The piece de resistance in this freedom of information trove is the next email, this time from Stefan Dopking, to cap off the day's email flurry at 6.48pm on the Friday:
"Dear Team, Please refer to attached application. Originals and relevant fee will be delivered Monday morning ..."
It bears noting that, under the commission's own policy guidelines, no application had yet been made, since there was no such thing as a "draft application" for a start, and secondly, all applications have to be in writing and accompanied by the prescribed fee.
There was nothing attached to the Dear Team email, except perhaps an expectation. It was sent to Wright, Amanda Zeller and another ASIC staffer, Stephen Clarke, and CCeed to Mallesons.
The Dear Team email that arrived on Friday evening was followed by another email from Mallesons on Monday morning at 9.31: "Dear Mr Walsh, Further to our telephone conversation this morning, we confirm that the attached application for relief was lodged with ASIC on Friday evening ... We understand that ASIC expects to be in a position to assess and make a decision on the application today."
The response from the regulators, addressed to Stefan Dopking and Amanda Zeller, and CCeeing Cameron Mew and Stephen Clarke, arrived at 1.44pm, a little over four hours later: "Dear Stefan, I advise that we have decided to grant relief deferring the company's [Kagara's] financial reporting obligations ... I attach a draft order for your review."
If the "Dear Team" email enshrines the cosy relationship between liquidators and regulators, the "Dear Stefan" email tops it off. Accounting academic Jeff Knapp describes this as the "Do you want fries with that?" email.
A four-hour turnaround - with nine commission staff in the loop - is a good deal quicker than 16 months. So, if you have lost your house or if your life savings have been blown up by a blue-chip financial planner, your best bet is to forget about it. If you want results, become a liquidator.
Another email worthy of note was sent by ASIC's Kyle Wright to Stefan Dopking and Cameron Mew at 3.41pm on the Monday: "Dear Stefan and Cameron, I attach the signed order under S340."
Job done. Stephen Yen and Julian Walsh are Bcc on the email, blind CC that is.
This telling flurry of friendly correspondence is not good news for creditors of Kagara, who are demanding an investigation into the administration. Kagara has run too long, cost too much and administrator FTI has successfully won an exemption from producing financial accounts.
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