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ASIC gives a profile of corporate insolvencies – sort of….

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ASIC recently published their annual report which summarises information from the formal Reports that liquidators lodge with ASIC during the year 2013-14.  For those unfamiliar with the process, section 533 of the Corporations Act requires a liquidator to lodge a Report with ASIC if they think there may be offences committed or if the liquidator may pay a dividend of less than 50 cents in the dollar to unsecured creditors.  So that mean the Report gets lodged in the vast majority of cases.  ASIC then acts on some of those Reports and can provide some meaningful data.

For quite a few years now, the section 533 reports have been tick-a-box forms.  That is, the liquidator ticks a box on the form in regard to most matters and there is only a small opportunity to provide some narrative.  ASIC will usually respond within two to three days (yes, that is not a typo… days) and in the majority of cases (90%) it is a “No Proposed Action” response.  However, the letter to the liquidator also says that if the liquidator thinks ASIC got it wrong, then we should tell them so.

Because it is a tick-a box form, ASIC can get some interesting statistics.  They could be a lot more interesting, but I’ll get to that.  So what came out of the reports for 2013-14:

  • ASIC received 10,073 reports from liquidators and in 7,218 of those matters, the liquidator reported offences;
  • ASIC asked for extra information via a Supplementary Report in 802 matters being 11% of the total;
  • In 19% of those cases (I assume that means around 152 matters), ASIC referred them for investigation, surveillance or prosecution;
  • Small corporate insolvencies dominate – 86% had assets less than $100,000 and 81% had less than 20 employees;
  • In 97% of those small liquidations, creditors will get between nil and 11 cents in the dollar;

So what do I reckon about all of that.

Firstly, it’d be nice to think that a liquidator would give lots of detail of investigation findings and wax lyrically on various topics so that ASIC is fully informed, but it just isn’t practical.  ASIC receives too many reports to look at them all manually.

Secondly, the system actually works pretty well.  Clearly ASIC has specific parameters that must be hit for it to register any interest (such as number and amount of creditors) and they also must have a watch list for certain directors.  The system allows ASIC to request further information through a Supplementary Report from the liquidator (which ASIC will fund) or if the liquidator thinks there are serious matters, they can request ASIC to have another look.

Thirdly, there is a pretty hefty drop off in offences to action by ASIC.  Putting the full line of statistics together, liquidators reported over 7,000 offences but ASIC only had a serious look at around 150 matters.

And lastly, a frustration…. I think we could have all guessed that most liquidations were small, most didn’t have much in the way of assets and most didn’t pay much of a dividend.  But the bands ASIC uses beg for more drill-down. Specifically, creditors get nil to 10 cents in almost all (97%) of matters – OK but how many of them are actually a dividend of just plain old $nil!!  And in those matters, how often did the liquidator take all realisations as fees?

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