What is the role of ASIC in regulating liquidators?

Estimated reading time: 6 minutes Small Business Restructuring, Voluntary administration, Company liquidation

In Australia, the Australian Securities & Investments Commission (ASIC) is the government body in charge of regulating liquidators and other aspects of the insolvency process. Here we examine ASIC’s role in detail and compare it with the approach taken across the Tasman.

Regulating liquidators - role of ASIC

Table of contents:

What is the general role of ASIC in corporate insolvency? 

ASIC has a broad responsibility for regulating and enforcing the corporate insolvency process in Australia. We consider the most important aspects of that role below. 

Receiving documents and publishing them

In liquidation, statutory reports to creditors must be submitted to ASIC. In addition, if liquidators call a creditor’s meeting, the minutes must be submitted to ASIC within one month. If a committee of inspection is convened, the minutes of their meetings must also be submitted to ASIC. At the end of the liquidation, an ‘end of administration return’ must be lodged with ASIC. 

All these documents are available (for a fee) on the ASIC register. 

Where a registered liquidator has been appointed as a voluntary administrator, they must publish notice of creditor’s meetings and submit the minutes of those meetings. Where appointed as the ‘deed administrator’, they must submit an annual administration return. 

As with a liquidation, where a committee of inspection is convened, minutes of any meetings must be submitted to ASIC. 

Reporting on the misconduct of directors to ASIC 

In all external administrations, registered liquidators are required to report any misconduct and potential criminal wrongdoing that they discover to ASIC. 

Initiating court liquidation

It is possible for ASIC to initiate the compulsory liquidation of a company. However, this power is used sparingly. Where a government body seeks to initiate a court liquidation, it is more commonly the Australian Tax Office (ATO) that does so. Because the ATO is a significant creditor in many liquidations, it has a strong incentive to do so. 

Pursuing directors who fail to comply with legitimate liquidator requests

This might include failures to provide the books or other documentation for liquidators to assess, or failures to attend meetings/ examinations. In more minor cases, it is common for ASIC to issue fines on the basis of strict liability. In cases of dishonesty or fraud, ASIC can prosecute. 

Appointing a reviewing liquidator

As well as appointing one themselves, creditors can apply to ASIC to appoint a reviewing liquidator. A reviewing liquidator reviews the fees and costs incurred by the liquidator. 

As yet, this provision of the Corporations Act 2001 (Cth) has not been frequently used.

ASIC’s role in liquidator registration

The final role for ASIC in external administration, the focus of this article, is their role in liquidator registration. The registration process proceeds as follows. 

Initial processing of application

If all documentation is in order, ASIC will forward the application on to a specially convened committee. This committee consists of three members; an ASIC representative, a registered liquidator chosen by the Australian Restructuring Insolvency and Turnaround association (ARITA) and one person appointed by the responsible Minister. Each member has an equal vote. 

Committee makes a recommendation on registration

This decision is in accordance with rigorous criteria including whether the individual has the qualifications, experience, knowledge and abilities; whether they have the capacity; whether they are a ‘fit and proper person’; and, whether they meet insurance requirements. 

ASIC registration

If the committee has recommended registration, and the applicant can provide evidence that they have the necessary insurance, ASIC is then legally required to register them.

Decisions can be appealed to the Administrative Appeals Tribunal (AAT) and these will be defended by ASIC.

ASIC’s disciplinary role

ASIC’s role with respect to liquidators does not stop on registration: they are also responsible for disciplinary issues. Where, in the opinion of ASIC, a liquidator has erred, they may be issued with a ‘show cause notice’. This notice may be issued where ASIC believes: 

  • The liquidator no longer appears to have the qualifications, experience, knowledge or ability to carry out the role; 
  • The liquidator has committed an act of bankruptcy, or been disqualified from managing corporations;
  • They have breached their obligations under the Corporations Act 2001 (Cth);
  • They have failed to maintain necessary insurance;
  • They are no longer a fit and proper person; or
  • They have been convicted of a fraud or dishonesty offence. 

If there is not an adequate response to this notice within 20 working days, ASIC can convene a committee to decide on disciplinary action for the liquidator. The committee may decide on: 

  • A public reprimand for the liquidator;
  • To impose conditions on the liquidator’s continued registration;
  • A requirement that the liquidator not accept any further appointments;
  • Suspension of registration; or 
  • Cancellation of registration. 

These disciplinary decisions are published on the website of ASIC.

It is worth noting that a complaint does not need to be made before ASIC initiates an investigation or disciplinary process. They appear to be taking a more active role in auditing liquidators of their own initiative in recent years. 

Contrast with the New Zealand approach to registration

In 2020, New Zealand introduced a different ‘co-regulatory approach’ to insolvency practitioner registration and discipline. In theory, this means that the Companies Office/ Registrar of Companies shares regulatory responsibilities with a private body, the New Zealand Institute of Chartered Accountants (NZICA). In reality, NZICA has the substantive regulatory role

NZICA is responsible for considering licence applications, issuing licences, setting professional standards, investigating complaints and potential breaches of insolvency requirements and taking disciplinary action where insolvency requirements have not been met. 

Note, NZICA has these responsibilities even where the liquidator/ insolvency practitioner is not themselves a chartered accountant/ member of NZICA. 

There are many similarities between this registration process and the Australian approach. NZ also applies rigorous experience and ‘fit and proper’ person requirements. However, the NZ approach is generally more permissive.

For example, in Australia all registered liquidators must have formally studied accounting. In addition, a subset of registered liquidators, restructuring practitioners, must be ‘recognised accountants (a member of Chartered Accountants Australia and New Zealand, CPA Australia Ltd or the Institute of Public Accountants). In New Zealand, there are no such requirements. Liquidators can qualify for licence and registration through membership of the Restructuring, Insolvency and Turnaround Association of NZ (RITANZ). And, aside from chartered/ certified accountants, a range of other professionals can join this association including: 

  • Practising lawyers who advise on insolvency-related matters;
  • Academics in the insolvency area; and, 
  • Financial services professionals deemed to have a connection with insolvency work. 

Note, in order to become licensed, these RITANZ members will still need to demonstrate to NZICA that they have the necessary practical experience with insolvency. 

As it is new, it remains to be seen whether this process will prove to be superior to the Australian approach. The Australian approach (in the author’s opinion) is driven by a lack of trust in liquidators compared to our NZ neighbours. 

Conclusion – role of ASIC in regulating liquidators

In Australia, ASIC has a range of roles with respect to liquidations and external administrations in general. One of its most important roles is overseeing the registration and disciplinary matters with respect to registered liquidators. Many of these functions are achieved via a specially convened committee appointed by ASIC. In the coming years it will be interesting to observe whether New Zealand’s more relaxed regulatory approach results in better liquidation/ external administration outcomes. 

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