By Leonie Wood
The corporate regulator launched eight formal investigations into liquidators last year after fielding 426 complaints of possible misconduct in managing insolvent companies.
The Australian Securities and Investments Commission has also revealed today that more than half of the inquiries and complaints about insolvency practitioners that it handled in 2011 arose from a lack of understanding about liquidators' roles and the process of insolvency.
ASIC today released for the first time what will become an annual report covering a range of statistics on the regulator's monitoring and enforcement of standards among liquidators.
It comes six months after the former NSW-based liquidator, Stuart Ariff, was jailed for six years on 19 criminal charges arising from his management of a company between 2006 and 2009.
It also comes one week after ASIC told the Federal Court in Melbourne it wanted Melbourne-based sole practitioner, Andrew Dunner, barred from practice following allegations that he failed to investigate transactions involving several companies he supervised.
ASIC also alleges Mr Dunner had a conflict of interest, that he overcharged or paid himself more than creditors had approved, and it queries the accuracy of his reports.
But the release of the report follows intense criticism of ASIC over its supervision and discipline of the insolvency industry where the conduct of a few rogue practitioners jeopardised creditors' confidence in liquidators generally.
Regulator's work
ASIC's new report also spelt out the three key features of the regulator's work in 2011, namely: examining the competence of liquidators, including the adequacy of their investigations into failed companies and the way they kept books and records; the independence of liquidators appointed to manage a failed company; and what the regulator called "inappropriate self-gain".
The latter involves concerns about how much liquidators charge or liquidators agreeing to strike inappropriate deals with related parties.
ASIC said with eight new investigations opened in 2011, by the end of the year it had 10 formal investigations into liquidators in train.
Two of the investigations conducted in 2011 resulted in liquidators being disciplined: one was barred from practice for two and a half years and another has given undertakings to meet compliance.
Three of those new investigations focused on a perceived lack of competence by individual liquidators, two arose from concerns about remuneration rates, one was triggered by an allegation of unjust enrichment.
One of the investigations is focused on allegations against a liquidator who is said to have helped in the fraudulent "phoenixing" of a company - where creditors are left claiming against a shelf company while the underlying business is grafted into a new entity.
'Key concern'
ASIC noted that while independence of liquidators was a "key concern" for the regulator, almost half of the 98 reviews it did of independence declarations were deemed inadequate.
About 78 per cent of all companies that sank into administration in 2011 employed fewer than 20 people, and 97 per cent of the insolvent companies returned less than 11 cents in the dollar to creditors.
Of the 426 complaints about misconduct, 58 were referred for further review by ASIC investigators and 163 did not involve any breach.
The corporate regulator conducted initial reviews of the level of fees charged in 199 external administrations, and after focusing closely on 24 of these it managed to get the fees cut in two instances.