The role of an insolvency professional is to take control of the
insolvent business, secure and recover its assets, achieve order for creditors
and employees and seek to maximise returns to creditors in accordance with statutory
priorities. Insolvency practitioners are required to act in the interests of
creditors and employees and in the public interest.
They are entitled to claim remuneration for necessary work that is properly
In performing this role, it is crucial that all stakeholders have
confidence in the insolvency regime and its practitioners and regulators.
The insolvency regime is an important part of a well-governed polity and
A well-devised regime will enhance the willingness of people to lend money to
businesses, minimise the costs incurred by vulnerable creditors (such as
employees), and promote overall business dynamism by allowing businesses to
reorganise rather than close.
Australia's insolvency regime has evolved from the United Kingdom's
practices and procedures. The system is designed to protect the interests of
creditors, who have control over the direction and pace of procedures. The
obvious contrast is with the United States where the debtor has control of the
The focus of the inquiry
This inquiry is concerned with the conduct of the insolvency profession
in Australia and the adequacy of efforts to monitor, regulate and discipline
misconduct. This conduct is regulated by the Corporations Act 2001, the
regulator's guidance and through industry codes.
The Australian Securities and Investments Commission (ASIC) administers
the insolvency provisions of the Corporations Act. The Act provides that
a liquidator must be registered with ASIC in order to practise in the industry
and details the requirements for obtaining registration as a liquidator. There
is no licensing regime similar to that for financial services. The registration
requirement aims to ensure that a person who wishes to practise as a liquidator
has the appropriate education, experience and is a 'fit and proper person'.
In addition to these provisions, insolvency practitioners must comply
with ASIC's regulatory guidance on the adequate and proper performance of their
Since 1996, ASIC has produced several regulatory guides relating to registered
liquidators, which include guides on criteria for registering as a liquidator
and the insurance requirements for registered liquidators. The guides are
intended to explain the principles underlying ASIC's approach, when and how
ASIC will exercise specific powers under legislation and practical guidance on
The Insolvency Practitioners Association of Australia (IPAA) has devised
a Code of Professional Practice to serve as a 'fundamental building block upon
which the insolvency profession sets and manages standards of professional
conduct'. The Code establishes the mandatory requirements that insolvency
practitioners must: be and be seen to be independent when accepting an
appointment; communicate with affected parties in a manner that is 'honest,
open, clear, succinct and timely'; attend to their duties in a timely way; and
provide sufficient, open and clear disclosure when making a claim for
Other peak bodies set their own (complementary) standards for insolvency
practitioners. The Accounting Professional and Ethical Standards Board (APESB),
notably, has recently issued a new professional standard which sets mandatory
independence requirements for insolvency practitioners.
The new standards are aligned with the requirements of the IPAA's Code of
Conduct of the inquiry
On 25 November 2009, the Senate referred to the Economics References
Committee an inquiry into the role of liquidators and administrators, their
fees and their practices, and the involvement and activities of ASIC, prior to
and following the collapse of a business.
The inquiry was instigated by Senator John Williams, National Party
Senator for New South Wales. Senator Williams has publicly expressed his
concern and frustration at the conduct of some insolvency practitioners, the
harm caused to businesses and creditors by this conduct and the perceived lack
of action by ASIC.
The committee advertised the inquiry in The Australian on 2
December 2009, 9 December 2009, 27 January 2010, 10 February 2010, 24 February
2010, 10 March 2010, 24 March 2010, 7 April 2010, 21 April 2010 and 5 May 2010.
It invited submissions by 12 February 2010. The committee received 95
submissions of which 50 were made public. Appendix 1 lists the public
The submissions that the committee made confidential fell into two broad
categories. Several were not made public at the request of the submitter. The
remaining confidential submissions contained adverse comment about individuals
and organisations and/or contained evidence relating to matters before the
As far as possible, the committee sought to make submissions public. In
some cases, it opted to protect individuals and organisations adversely named
by deleting their names while making the submission public. Some submissions
were made public with the submitter's name withheld.
While it received several submissions relating to specific cases, the committee
made no attempt to adjudicate on these details. To the extent that it did
consider these cases, its interest was purely in the observations that could be
made of the broader insolvency profession and regulatory regime.
The committee held public hearings in Canberra on 12 March, Adelaide on
9 April, Sydney on 13 April, Newcastle on 14 April and again in Canberra
on 23 April 2010.
At both its Canberra hearings, the committee heard evidence from ASIC
and the IPAA. At its hearing in Adelaide, the committee received evidence from
several academic experts specialising in the area of insolvency law. In Sydney,
the committee heard from the Companies Auditors and Liquidators Disciplinary
Board (CALDB) and the Insolvency and Trustee Service of Australia (ITSA), among
others. At its Newcastle hearing, the committee's evidence focussed on hearing
from the 'victims' of Mr Stuart Ariff, a Newcastle liquidator found guilty of
83 charges of gross misconduct. Mr Ariff has been banned as a registered
practitioner for life.
The committee received evidence in camera on three occasions. In
Adelaide, it went in camera to hear from Mr John Viscariello, whose evidence
related to matters before the courts. In Sydney, it took evidence in camera from
Mr Owen Salmon, who gave his evidence via teleconference. The committee also
received in camera evidence from Mr Ariff. It wrote to Mr Ariff on 10 March
2010 inviting him to give evidence at either the committee's Sydney or
Newcastle hearings. The committee heard evidence from Mr Ariff in Sydney
on 13 April.
Details of the hearings and the witnesses who appeared at them are
contained in Appendix 2.
The committee thanks all those who have assisted with this inquiry. It
is grateful to those who made written submissions and to those who contacted
the secretariat to check on the inquiry's progress. The committee appreciates
their efforts and interest.
The committee also thanks those who gave verbal evidence to this
committee. It understands that this inquiry has dealt with issues of personal
anguish, frustration and disappointment for many individuals. In this context,
the committee would particularly like to acknowledge the evidence given by Mr
Bill Doherty, Mr Ron Williams, Mr Bernard Wood, Mr Ian Fong, Mr Richard Wright
and Councillor Edward Maher. The committee sympathises with the plight of these
witnesses, most of whom are the 'victims' of Mr Ariff. Some of their
experiences are described in more detail in chapter 5 of this report.
The committee also thanks Ms Denise North and Mr Michael Murray from the
IPAA. Mr Murray in particular has given generously of his time and resources.
The secretariat would like to thank him for lending the committee some key
source documents and travelling to Canberra on 4 June 2010 to discuss various
inquiry‑related matters with secretariat staff.
Past inquiries and reform
Australia's insolvency regime is not a new area of inquiry. In 1988, the
Australian Law Reform Commission (ALRC) conducted a major review of Australia's
insolvency laws. The Harmer report, as it is known, was implemented by the Corporate Law Reform Act 1992.
This Act introduced
Part 5.3A of the Corporations Act. The aim of this Part is to provide an
opportunity for an insolvent company to reach an arrangement with their
creditors which addresses the creditors' debts and enables the company to
continue trading. As it is not always possible for the company to continue, the
Part also seeks to provide for the business, property and affairs of an insolvent
company to be administered in a way that results in a better return for the
company's creditors and members than would result from an immediate winding up
of the company.
In 1997, a Working Party comprised of a Treasury and an Australian
Securities Commission (ASC) official and private firm partners released a
report titled A Review of the Regulation of Corporate Insolvency
The report made several recommendations including:
- a cost-benefit analysis of merging the personal and insolvency
- broadening entry requirements for registration so that persons
with various combinations of qualifications and experience are eligible;
- making the passing of a written examination a requisite for
- making PI insurance an ongoing requirement of registration;
- an annual reporting statement by practitioners (rather than a
- educating creditors and practitioners about the different methods
of fee setting available and the rights which creditors have to establish fees;
- encouraging the practice of capping fees; and
- a better explanation of how hourly rates are calculated,
particularly in connection with overheads and disbursements.
In 2004, the Parliamentary Joint Committee (PJC) on Corporations and
Financial Services tabled its report Corporate Insolvency Laws: A stocktake.
The PJC made a number of recommendations including a proposal that creditors be
able to appoint a different person as liquidator when the administration ends
and the company proceeds into liquidation.
In 2007, the Corporations Amendment (Insolvency) Act introduced
several significant reforms to the insolvency regime. These included: protecting
the priorities of employee creditors; practitioners declaring prior advisory
and other relevant relationships; criteria for a court to assess the
reasonableness of a practitioner's claim for remuneration; enhanced powers for
ASIC to investigate liquidators and review their fees; and improvements to the
practitioner registration process.
These reforms were, in part, a response to the PJC report. The IPAA has noted
that 'many of these 2007 reforms still need time to gain traction for their
benefits to be recognised, and for any difficulties with them to be identified'.
The committee also notes that during the course of this inquiry, the
United Kingdom's Office of Fair Trading (OFT) released a study of the market
for corporate insolvency practitioners. The report focussed on the remuneration
and regulation of insolvency practitioners. It found that ineffective oversight
of the profession could lead to longer administrations, the sale of assets
below market value and inappropriate initiation of insolvency.
The OFT recommended establishing an industry-funded independent complaints
handling body with powers to review fees and actions, impose fines and return
overcharged fees to creditors.
Chapter 11 of this report considers some of these proposals.
Context of the inquiry
This inquiry was conducted at the tail end of the Global Financial
Crisis. While Australia avoided recession, insolvencies increased nonetheless
(see Chart 2.1). The number of external administration insolvencies rose from 7,521
in 2007 to 9,113 in 2008 to 9,437 in 2009.
It is particularly important in this environment that the public has confidence
in the insolvency regime and the profession responsible for conducting
Unlike the 1988 Harmer, 1997 Working Party and 2004 PJC inquiries, this
inquiry is set against a backdrop of various findings of insolvency
practitioner misconduct. Since July 2006, there have been 14 matters referred
from ASIC's Insolvency and Liquidators team to CALDB and the courts. Among
these matters is the life ban of Mr Ariff. Since July 2006, there have also
been nine other disciplinary outcomes relating to insolvency practitioner
misconduct from investigations commenced before July 2006. These include the
suspension of a number of practitioners.
These findings, and the media publicity they have attracted, have
undoubtedly tainted the reputation of the profession. Dr Colin Anderson, from
the Queensland University of Technology, has noted that if the success of a
profession is dependent on how well it maintains the confidence of its clients
and the public, 'perhaps the Senate inquiry suggests some confidence has been
lost in recent times'.
Certainly, the committee is concerned about this misconduct and the
effect it has had on the reputation of the industry. However, it rejects the
characterisation that this inquiry is in some way a knee-jerk reaction to the
case of Mr Ariff and a few others. While these cases are significant and
deserve attention, their real interest is in the questions they raise about the
extent of practitioner misconduct in the profession and the adequacy of efforts
to oversee and regulate the insolvency regime in Australia.
Key themes and the structure of the report
This report centres on three key themes: the registration of
practitioners; the remuneration of the profession; and the regulation of the
insolvency regime. The committee's evidence has raised significant questions
about the adequacy of existing arrangements in all three areas.
The report is divided into three Parts. Part 1 (chapters 2–4) provides
some background to the insolvency industry. Chapter 2 presents available data
on the state of the industry. Chapter 3 examines the role and duties of
liquidators and administrators in the insolvency process in Australia. Chapter
4 gives a brief summary of the role of the regulator, ASIC, the disciplinary
body, the Companies Auditors and Liquidators Disciplinary Board (CALDB), and
the main professional body, the Insolvency Practitioners Association of
Part 2 has four chapters (5–8). Chapter 5 looks at submitters'
perceptions of how the insolvency regime is currently operating. In particular,
it considers views on whether the Ariff case is an exception to an otherwise
well performing industry, or whether it reflects more widespread problems with
the conduct and oversight of insolvency practitioners.
Chapter 6 examines the adequacy of the regulatory framework. In
particular, it looks at the evidence that ASIC and the CALDB have been unresponsive
and ineffective in their oversight of the insolvency regime. It considers some
of the reasons why this has been the case, including claims that the regulator
is overburdened, unfocussed and inadequately resourced and that the
disciplinary body has inadequate powers.
Chapter 7 is concerned with the registration of insolvency
practitioners. It considers criticism that the process and standards for
registering practitioners is inadequate and needs to be strengthened. There are
three contexts to this criticism: that the profession recruits too narrowly;
that it admits without adequate checks; and that it is too difficult to suspend
or dismiss a liquidator once he or she is appointed.
Chapter 8 deals with the remuneration of insolvency practitioners. In
this and in previous inquiries into the insolvency industry in Australia, the
issues of the method, level and disclosure of practitioners' fees have been
highly contentious. The chapter discusses these criticisms and concerns that
practitioners have been able to inflate their fees through disbursement
Part 3 of this report builds on the evidence of Part 2 to consider the
options to reform the insolvency regime in Australia. Chapter 9 looks at the
vexed issue of insolvency data and in particular, the lack of detailed, free
and publicly available statistics on the state of the industry. It considers
the merit of a system of data collection and analysis.
Chapter 10 considers a range of options to sharpen the incentives for
both insolvency practitioners and regulators to act in the public interest.
Some of these options seek to develop existing practices through better
disclosure, complaints handling and outreach programs. Other options propose
significant structural reform including the creation of a single insolvency
regulator with a 'flying squad' to monitor practitioners and a system of
licensing. The final chapter of this report gives the committee's view on these
options and presents a number of recommendations.
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