Monday 8 January 2007 LAWFUEL – Action by the Australian Securities and Investments Commission (ASIC) to crack down on the systematic misbehaviour of company officers who deliberately avoid their responsibilities to creditors has resulted in the removal of 40 directors.
ASIC Chairman, Mr Jeffrey Lucy, said today that ASIC was increasing its focus on misconduct by officers of assetless companies that have gone into liquidation and left behind unpaid creditors. In the last year, ASIC has banned 40 directors for a total of 144 years who have engaged in misconduct following company failures and repeat phoenix activity. Phoenix activity is typically associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The director then places the initial company into administration or liquidation with no assets to pay creditors, meanwhile continuing the business using the new company structure.
The enforcement program is supported by funding from the Assetless Administration Fund. Mr Lucy said the Fund enabled liquidators to carry out proper investigations and develop detailed reports which help ASIC decide whether to take enforcement action. In 2006, ASIC approved 158 applications from liquidators with a funding commitment of $1,363,916. This has resulted in the banning of 15 directors for a total of 58 years. Another 52 potential banning matters are currently being prepared by ASIC. ‘The Assetless Administration Fund addresses an important regulatory gap. More rigorous investigations and reports to ASIC have helped to improve returns for creditors, reduce the scope for phoenix activity and improve corporate conduct generally’, Mr Lucy said.
‘The progress and initial success of this scheme is encouraging, and sends a clear message that ASIC will not tolerate dishonest business practices and abuse of the corporate system to the detriment of the community.’ Of the 40 bannings last year, 15 were assisted by information provided by liquidators who had received funding under the Assetless Administration Fund. ASIC banned a further 25 people as part of increased and ongoing efforts to crack down on phoenix activity. ASIC has also commenced a surveillance initiative to ensure that company officers banned from managing corporations comply with their disqualification. ASIC will consider criminal proceedings against anyone who fails to abide by their disqualification.
Background In October 2005, ASIC was allocated $23 million over four years by the Federal Government to establish the Assetless Administration Fund. The Fund finances preliminary investigations and reports by liquidators into the failure of companies with few or no assets, where it appears to ASIC that enforcement action may result from the investigation and report. The Fund helps close the regulatory gap that arises when a failed company is not properly investigated. This can happen because liquidators are not obliged to incur any expense, other than an expense necessary to comply with their minimum statutory duties, unless the company in liquidation has sufficient available property to fund it. As a result, when a company is left with few or no assets, the liquidator often performs only a perfunctory investigation.
This may allow misconduct in the lead up to a formal insolvency to go undiscovered or without sanction. Further information with respect to the Assetless Administration Fund is available on the Insolvency & Liquidators homepage of ASIC’s website, www.asic.gov.au. Complaints relating to suspected phoenix activity may be lodged via our website at www.asic.gov.au or by writing to any of our capital city offices across Australia: Manager National Assessment & Action ASIC GPO Box 9827 IN YOUR CAPITAL CITY For further information contact: Danielle Huck ASIC Media Unit Telephone: 03 9280 3407 Mobile: 0417 540 769List your legal jobs on the LawFuel Network