The government has allocated $23 million over the next four years to fund liquidators in their efforts to investigate failed companies when no funds are available to meet their costs (Assetless Administrations).
The Assetless Administration Fund Representatives from The Australian Securities and Investment Commission (‘ASIC’) explained during a meeting of de Vries Tayeh staff, ASIC’s new proactive approach of pursuing delinquent directors of companies that repeatedly offend.
The Assetless Administration Fund will be made available to liquidators in cases where ASIC believe that further investigation and targeted reporting may produce sufficient and credible evidence and that action pursuant to Section 206F of The Corporations Act 2001 would result in the disqualification of directors from managing a corporations for up to five(5) years.
ASIC has undertaken a pilot program over the past twelve months to test the feasibility of a possible model for an ‘assetless administration fund’. According to this model, an assetless administration is not limited to liquidations with no assets, but those administrations that have only enough assets to cover the very basic statutory obligations. Liquidators do not have an obligation to incur any expense unless there is sufficient available property to fund it. Assetless administrations will usually be considered where assets are less than $10,000. ASIC are geared to handle exceptions.
In recent developments, ASIC has advised that the Assetless Administration Fund will be implemented in two stages. As discussed above, Stage 1 deals with funding liquidators to approximately $5,000. to prepare statutory reports that will assist with the banning of directors pursuant to section 206F of the Corporations Act. This stage has now commenced.
Stage 2 will be released soon and will involve ASIC funding liquidators to prepare more complex reports in respect to alleged breaches of the Act. Such breaches would include insolvent trading and breaches of director’s duties and would require significantly more extensive investigations and comprehensive reports. Funding for Stage 2 reports may reach $100,000.
In response to the growing public concern highlighted in the report, the government and ASIC have demonstrated that phoenix activities will not be tolerated and those directors who participate in such activities will be disqualified. Therefore, directors and advisors should take serious note that ASIC has now drawn a line in the sand and will no longer allow lesser breaches to go unpunished because of the lack of funds to pursue them. ASIC will fund liquidators to assist them with reprimanding the delinquent director.
If one can see an underlying guiding principle that should be addressed by directors, it is that directors should intervene earlier with corrective action to avoid the damage now and in the longer term to them personally and to their corporate entities.
(Part TWO will conclude this article where we will cover the enhancements to the General Employee Entitlements and Redundancy Scheme – ‘GEERS’.)