Yes, Stuart Ariff was a bad liquidator – but he is also a bad reason for law reform!
I think that if I see another picture of Stuart Ariff next to an article on the insolvency profession I am going to scream. His picture has resurfaced many times in the main stream media over the last few weeks amid calls for “keeping the liquidators honest” and other calls to fix the insolvency profession. The underlying logic of trotting those pictures out is just misguided and could well lead to knee-jerk reactions. I’ll do another blog in the near future that examines the proposed Insolvency Law Reforms. But here I’ll just have a look at some issues regarding Stuart Ariff and post a small warning on over-regulation.
Let’s have a look at the facts. Ariff committed a variety of frauds on jobs where he was acting as liquidator. Ludicrous out-of-pocket expenses, payment of personal expenses, massive overcharging of fees. He broke the law. And what was the outcome:
- he has a lifetime ban as a liquidator;
- he is currently serving a six year jail sentence;
- he is a bankrupt.
So I would have thought that the starting point for the conversation is that the law seems to have worked pretty well!
And yet I see constant calls for much more regulation of the insolvency profession, citing Ariff as a good reason to do so. Is the suggestion that if there was tougher regulation then Ariff would have…. oh I dunno…. read the new laws and had an epiphany that he shouldn’t steal from the liquidation bank accounts. Seems somewhat more likely that Ariff was fully aware that what he was doing was wrong and that extra laws would have had no effect whatsoever.
But let me get down off my hobby-horse for a moment and concede at least one point. It was also true that when creditors and shareholders of the companies administered by Ariff became aware of the possible overcharging, they found it very difficult to remove him as liquidator. One of the proposed law reforms is that creditors be empowered to remove a liquidator with a majority of votes at a creditors meeting. That’s a good idea – I vote yes to that one.
A result of Regulation – massive creditors reports
Let me look at the simplest liquidation matter there is. That would be a Creditors Voluntary Liquidation of a small company that has ceased to trade a few months ago, has no assets and maybe 3 or 4 creditors owed say $50,000 in total. Ig I am liquidator of that company, I am required to call a creditors meeting and to do so I send a Creditors Report around about one week into the job (so there hasn’t been much action to Report). What I have to put in that report is set out in the Corporations Act and in the Regulations of my Professional Body, ARITA. What does a creditor want to know:
- notification that the debtor company is in liquidation;
- time and date of the creditors meeting (the vast majority of creditors will not show up for that); and
- my guess as to whether there will be a dividend.
I say all of that in a big bold box on page 1. So how long is the report …. 24 pages!
I am happy to provide the information and schedules. But I am cautioning that there is a trend that whenever something inappropriate happens in the insolvency profession the tendency is to require more information and disclosures. We are actually at the stage where, I reckon, more information is a negative as the real information is lost in the noise.
Further, I do note that the overriding criticism of liquidators is overcharging. A 24 page creditors report comes at a cost. A larger one probably comes at a higher cost!