Improving regulatory guidance for registered liquidators

Check against delivery

Good afternoon everyone.

It’s great to be here today – thank you to ARITA for inviting ASIC to be a part of your national conference.

I would like to begin by acknowledging the traditional owners and custodians of the land on which we meet today, the Yugambeh people. I pay my respects to their elders past and present – and extend that respect to Aboriginal and Torres Strait Islander people here today.

ASIC recognises the challenges associated with the duties registered liquidators perform and the often-difficult circumstances in which they are performed. We also acknowledge that the volume of insolvency work is growing. Much of which is either unfunded or underfunded.

If the current trend continues, it is expected that more than 10,000 companies will enter external administration or controllership this financial year – a figure not seen in over a decade.

In this context, the policy purpose of the reporting framework becomes ever more important. That is, to identify common, underlying causes and address misconduct (where it exists) – as a fundamental feature of a fair, strong and efficient financial system. Which is, after all, ASIC’s vision.

The regulatory framework, as a whole, has been the subject of much debate and advocacy by ARITA members. We have also heard feedback from registered liquidators about the current system being unduly difficult and frustrating.

The Parliamentary Joint Committee inquiry into insolvency has made extensive recommendations which impact the insolvency landscape, including in a comprehensive review. While the government has not yet responded, we have looked to find ways to reset expectations and guidance within the bounds of the existing framework.

We can’t change the ‘less than 50 cents in the dollar’ rule that drives the obligation to lodge so many reports. We can, however, provide guidance to lessen in volume and improve in value the amount of information collected and submitted. We can also improve what we do with that information.

It is with these considerations in mind, that we have proposed changes to our regulatory guidance.

I am pleased to announce that we are today releasing for consultation our proposed updated RG16 ‘External administrators and controllers: reporting of possible offences and misconduct’.

As part of this suite of work, we have also proposed changes to RG258 ‘Registered liquidators: registration, disciplinary actions and insurance requirements’. This is currently out for consultation – and I will discuss it in more detail shortly. But first to RG16.

Background to draft updated RG16
It is our intention that the proposed changes to RG16 will provide much improved guidance on what you need to report on and when – and in doing so cut unnecessary effort and expense.

I suspect the first question on most of your minds will be: why now? So I will answer that upfront.

This work has been on our agenda for some time. In delivering the optimal outcome, we have had to carefully consider and balance a range of legislative and stakeholder requirements – in an evolving environment.

This includes legislative reforms for reporting by liquidators in simplified liquidation, as well as an expanding body of case law – and we have incorporated more commentary on the relevant case law in the draft updated RG16.

We have of course taken into account your feedback and that of other interested parties. Such as industry associations, professional bodies, and parliament. This includes the findings of the PJC inquiry.

We have also been guided by our own observations. We are seeing outcomes that indicate to us that some registered liquidators are doing more than is required of them to satisfy their reporting obligation.

To address this, the draft updated RG16 is now much clearer on the base level of work ASIC expects to be done before an initial statutory report is lodged – and when and under what circumstances a registered liquidator might consider ASIC requires a supplementary statutory report.

Initial statutory reports
If we look at the changes related to the initial statutory report. The draft updated guidance now explicitly states that we do not expect an external administrator or controller to carry out extensive investigations – nor incur significant costs – in completing an initial statutory report. It is also not necessary to have completed all inquiries or to have formed definitive views.

Rather, at this stage, we are proposing that registered liquidators undertake basic enquiries – such as seeking access to a company’s books, interviewing directors – and maintaining a record of information obtained.

Those enquiries will usually have taken place in the first few months of an appointment to comply with other statutory obligations.

In short, we are proposing that the completion of an initial statutory report should not entail an exhaustive investigation – in particular where there is an expectation of a dividend of less than 50 cents, and there is no appearance of misconduct.

Supplementary statutory reports
Turning to supplementary statutory reports. The draft updated guidance makes clear that, in most cases, there will be no need for a supplementary statutory report. Unless the court requests one or there are additional matters you determine you should tell ASIC.

Sometimes ASIC requests a supplementary statutory report, which in the appointee’s professional judgement is not necessary. In such cases, the draft updated guidance encourages registered liquidators to submit a notice of intention not to lodge a supplementary report transaction through the ASIC Regulatory Portal.

Substantiation guide
Another proposed change to RG16 is the removal of the substantiation guide as a Schedule to the RG.

The substantiation guide is not intended to be a checklist. Rather it outlines the various offences that a registered liquidator may encounter – and the supporting evidence required.

The guide is still available on the Assetless Administration Fund Grant section of our website, where it better conveys the more limited circumstances in which we expect practitioners to follow it.

How ASIC uses these reports
We understand that you want to know more about what we do with reports lodged with ASIC.

The work registered liquidators undertake is key to identifying corporate misconduct. To address and prevent harms arising from this misconduct, we may use the information and reports to take administrative action – such as director bannings or to monitor illegal ‘phoenix’ activity.

We publish the aggregated statistics from initial statutory reports to our website. Both for reasons of transparency – and to inform other government agencies, departments and policy makers in their decisions around potential interventions and/or legislative reform.

We have heard feedback about inconsistencies and ambiguities in our internal processes around reports lodged by registered liquidators. In particular, when we request supplementary reports and don’t appear to be taking action.

We are embarking on a body of work to improve how we screen, analyse and action (where required) the reports we receive from registered liquidators.

ASIC Deputy Chair Sarah Court and I will oversee this work, which is still in the early development stage, while we prioritise the consultation process. The outcomes of the consultation process will help inform how we move forward on our internal processes. However, we will continue both workstreams in parallel.

In updating RG16 we have also carefully considered the guidance contained in RG258, which is currently out for consultation. RG258 concerns liquidators’ registration, ongoing obligations and disciplinary action that might be taken in the event those obligations are not met.

Proposed updates include new guidance for those applying for registration as a liquidator on how to approach their application and the committee process.

Importantly, where an applicant has less than 4,000 hours of relevant senior-level employment in the preceding five years, the draft RG258 now clarifies that it is open to a committee to register the applicant notwithstanding the shortfall in hours.

This is based on a body of committee decisions and is particularly relevant to applicants who may have had time out of practice for parental care or other reasons.

We have also updated our guidance on how we respond to industry notices, including those from ARITA. We have listened to feedback and now acknowledge such notices, even where the law doesn’t require it.

Lastly, on the draft RG258, we provide additional guidance on where ASIC might consider disciplinary action and step out the different powers ASIC can exercise if a registered liquidator appears to not be fulfilling their obligations.

We are aware that concern over ASIC disciplinary action may be another factor in registered liquidators doing more than is required of them to satisfy their reporting obligation. This “threat” of discipline has now been removed from RG16.

In closing, I want to assure everyone here today, that ASIC has listened to your feedback. We hear your concerns. We value your work – and we want to make it easier for you.

I hope you will take the opportunity to share your thoughts through the consultation process. If you have ideas on further improvements, we are keen to hear from you.

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