Hey P5 read this !!!Senate probe bodes badly for ASIC November...

Hey P5 read this !!!


Senate probe bodes badly for ASIC November 30, 2009



Senate probe bodes badly for ASIC


November 30, 2009



What now for ASIC?

WHEN the Senate launched an inquiry into Australia's corporate undertakers last week, it sent the insolvency industry into PR overdrive and opened a can of worms for corporate regulator ASIC, which is still stinging from its One.Tel loss. Unlike the previous six inquiries into the insolvency industry, the latest widens the brief to include ASIC's role in the lead-up to and collapse of a business.

With collapses including Great Southern, Timbercorp, Babcock & Brown, Westpoint, Fincorp, Opes Prime, ABC Learning and Allco still fresh, and the exponential rise of phoenix companies, an examination of ASIC could prove illuminating.

So too an examination of the role of liquidators, an area where community resentment has been brewing for years over excessive fees, abuses of power and gross misconduct, protracted settlements, lack of transparency, conflicts of interest and, in some quarters, even the promotion of phoenix schemes that allow companies to be reborn soon after they fail.

A Federal Government joint parliamentary report entitled Corporate Insolvency Laws: A Stocktake, published in June 2004, showed that criticisms of the industry were not just anecdotal; nor were they the inevitable consequence of being capitalism's undertakers. That inquiry revealed that few professions receive as many documented complaints.

ASIC estimates that insolvency practitioner complaints account for less than 2 per cent of total complaints and breach notifications. At face value this might seem small, but given that there are only 576 practising liquidators in the country and ASIC monitors more than 1 million companies, thousands of licensed financial services operators, market conduct and the role of directors, the more obvious conclusion is we have a systemic problem that needs to be addressed.

But we can't know because ASIC does not disclose whether it is spending more or less time investigating complaints against liquidators. Nor does it calculate an investigation referral rate specifically for insolvency practitioner complaints, or which go into a formal investigation.

While most liquidators act responsibly and effectively, a system heavily based on self-regulation appears to be giving too many opportunities for bad behaviour. And of those cases that ASIC deems worthy of taking action on, it too often refers them to the Companies Auditors and Liquidators Disciplinary Board, , which has the power to suspend an offender for a year.

The role of ASIC also needs to be examined. In many of the big collapses, ASIC was warned well in advance of concerning issues but appears to have done nothing, and in smaller cases, when a company was put into administration, it also turned a blind eye.

In the case of Babcock & Brown, which collapsed this year, ASIC has been silent and creditors, who have lost a fortune, had to stump up $500,000 out of their own pockets to create a fighting fund to investigate the actions of Babcock's directors and senior management in a public examination to be conducted next year. Meanwhile, the carcass is being ripped apart, and if ASIC eventually decides to investigate, the case will be cold and the damage already done.

In the case of Stuart Ariff, complaints about his conduct as a liquidator stem back to at least 2005.

ASIC finally did something two years later, in 2007, after adverse media attention when CarLovers' main creditor, the Malaysian-based Berjaya Group, frustrated with ASIC's uninterest, went to the media and revealed Ariff had ripped out $13 million in disbursements and fees over four years including lavish family holidays and limousines - about three times the company's original $4.5 million deficiency declared by Ariff on July 17, 2003, just after his appointment.

Ariff, who until recently had a powerful network of business associates, and who scored many of his administrative appointments courtesy of Tom Karas, a financier to underworld figures including Mick Gatto, was banned for life as a liquidator in August 2009 and ordered to pay $4.9 million compensation to the myriad companies he gouged while charged with trying to salvage them.

But the ordeal for the victims continues. Ariff has since been declared bankrupt and BusinessDay can reveal that his professional indemnity and fidelity insurance were cancelled in September 2008, which will make it difficult to claim from this policy.

If ASIC had been more vigilant when working on its case against Ariff last year, it would have discovered this and acted to cancel his registration. As a matter of law, section 1284(1) of the Corporations Act requires practitioners to maintain adequate and appropriate professional indemnity and fidelity insurance. If they do not, ASIC can cancel a registered liquidator's registration. Instead, Ariff was allowed to keep practising, and keep charging fees.

ASIC might also have been able to keep track of some of Ariff's files and company records on administrations he conducted. It is believed some of these files were destroyed on August 21, 2009, three days after he was banned as a liquidator.

The only hope for the victims is to secure section 305 funding so the trustee can examine Ariff's affairs

To tap into section 305 of the Bankruptcy Act the Government needs to direct that the Commonwealth underwrite these costs. The Government should stop dilly-dallying and just do it.

Source: The Age