The role of the regulator, disciplinary body and industry representative:
ASIC, the CALDB and the IPAA
This chapter briefly outlines the intended role of the main agencies overseeing
the insolvency industry in Australia. Subsequent chapters critique the way in
which these agencies have performed their roles.
Australian Securities and Investments Commission
The Australian Securities and Investments Commission (ASIC) is the main
regulator for insolvency practitioners and stands above what it calls other 'gatekeepers':
Our oversight role in this industry is really complemented by
the roles of others, loosely called gatekeepers, to protect creditors. You
have, of course, the professional associations such as the IPA, and the
objective certainly seems to be that insolvency be administered as a
profession—like accountants, auditors and lawyers. ASIC has worked with the IPA
on the development of its code of professional practice, and ASIC supports IPA's
work in improving standards. You also have the courts: court-appointed
liquidators play an important supervisory role. You have creditor committees
that are elected for certain insolvencies. They play an oversight role in
providing advice and approving remuneration. You also have creditors
themselves, who play a pivotal role in appointing administrators and
maintaining the administration process.
ASIC describes its oversight responsibilities as including:
- administering the registration of liquidators to ensure that
applicants meet the minimum entry-level statutory criteria;
- encouraging compliance with the law by working to improve
guidance to insolvency practitioners regarding ASIC's expectations within the
legal and regulatory framework in which they operate;
- monitoring the compliance of insolvency practitioners with the
regulatory regime, through monitoring and acting on complaints and undertaking
reviews of registered liquidators and their conduct;
taking enforcement action where it appears there has been
- educating, informing and assisting stakeholders to ensure that
they are properly informed about insolvency laws and processes and their rights
ASIC describes a relatively minimalist regulatory approach:
The economic philosophy underlying the Australian regulatory
regime is that markets drive efficiency and that markets operate most
efficiently when there is a minimum of regulatory intervention. This philosophy
can loosely be called 'efficient markets theory'.
Insolvent trading and ASIC's role
A company is insolvent if it is unable to pay all of its debts when they
fall due. Section 588G of the Corporations Act 2001 states that a
director has a positive duty to prevent insolvent trading. A debt must not be
incurred if the company is already insolvent at the time the debt is incurred
or if by incurring a debt the company becomes insolvent.
One of ASIC's key responsibilities is to prevent insolvent trading: it
can take a director to court on a claim that he or she has traded insolvent. A
registered liquidator or creditor of a company may also bring proceedings
against a director to recover compensation for loss resulting from insolvent
In July 2010, ASIC published a regulatory guide to help directors
understand and comply with their duty to prevent insolvent trading. The guide
noted that directors should actively monitor the solvency of the company,
investigate financial difficulties, obtain advice from an appropriately
qualified person where necessary, and consider and act appropriately on that
The committee notes that the number of 'windings up' will depend to some
extent on the way in which directors of a company exercise corporate
responsibility. This, in turn, will depend on the adequacy of structures to
encourage this responsibility and deter companies from becoming insolvent. Mr
D'Aloisio was asked for his opinion as to whether the current framework was
adequate to promote corporate responsibility and prevent insolvencies. He
...in our system there will be corporate failures. The risk and
reward equation is that from to time to time there will be failures. What tends
to happen is that, at the smaller end of the market, there are more failures
because the risk taking, cash flow management and so on for those companies
probably is not as strong as it is with the large companies. I think overall
the system is working well.
Companies Auditors and Liquidators Disciplinary Board
The role of the Companies Auditors and Liquidators Disciplinary Board
(CALDB) is to determine the appropriate disciplinary action once ASIC has
identified some wrongdoing:
Our purpose is basically the protection of the public
interest in relation to the disciplinary function over auditors and
liquidators...We have no investigative powers ourselves. Cases are referred to us
either by ASIC under the act or by APRA. In dealing with those cases and making
our orders we are totally reliant on evidence presented to the board and on the
expertise of members of the panel.
The Chair of the CALDB described the Board's role as being:
...to protect the public interest by ensuring that the
regulatory system for disciplining members of the auditing and liquidating
professions who fail to perform their professional duty adequately are
appropriately dealt with.
Firstly, so that the particular person concerned is properly
dealt with and deterred from engaging in further conduct of the same or similar
Secondly, so that the other members of the profession can see
that that particular conduct has led to that particular result...deterring them
from engaging in the same or similar conduct.
Thirdly, to reassure the public that the regulatory system is
there and that it is working effectively...so that the public can have confidence
in the services provided by auditors and by liquidators...
After receiving an application from ASIC (or the Australian Prudential
Regulatory Authority) the CALDB panel organises a pre-hearing conference
(usually by teleconference) to allow the issues under dispute to be refined and
agreed upon by the two parties, and a hearing date is set.
The evidence is then gathered, with the parties exchanging documents so that
the hearing can be as efficient as possible. The process leading up to the
hearing itself generally takes around six months to complete.
can take 2–3 weeks, after which the panel gives its determination. If the
determination is against the respondent, a final, short hearing is held to
determine what order the board should make. The whole process should generally
be completed within 12 months.
If the respondent is unhappy with the decision, they can refer their case to
the Administrative Appeals Tribunal to be reviewed. It can subsequently be referred
to the Federal Court of Australia.
Insolvency Practitioners Association of Australia
The Insolvency Practitioners Association of Australia (IPAA) is the peak
membership body for the industry. It has over 1700 members including over 500
registered liquidators and 185 bankruptcy trustees.
This represents 85 per cent of registered liquidators and bankruptcy trustees
in Australia as of December 2009.
Membership is voluntary, and the IPAA is not involved in the registration of
liquidators in Australia. All IPAA members are affiliated with either:
- the Institute of Chartered Accountants in Australia;
- CPA Australia; or
- the Law Societies in each state.
The IPAA's regulatory role has three elements:
the setting of standards (guides and codes);
- the delivery of education through member training programmes; and
- the disciplining of members who are proven to have breached IPAA
The IPAA's Code of Professional Practice states principles of conduct
and gives detailed practice guidance, in many cases setting a standard above
the legal requirements. The IPAA also offers guidance to its members on the law
and practice of insolvency, through telephone and email guidance, web and
journal notifications, and training and conference sessions.
The IPAA has no formal investigative powers. If investigations by other
bodies establish that a member has breached the law, or professional codes of
conduct, the IPAA's primary sanction is to remove the member's IPAA membership.
Navigation: Previous Page | Contents | Next Page