The issue, he says, is not the ‘cowboys’ but remuneration. “In reality there are few cowboys in the sector; however, the position of insolvency practitioner is such a unique one that if one turns into a reprobate much is lost – the creditors lose money that could have been distributed to them, directors and owners can lose their livelihood, the profession’s reputation loses even more ground and government regulators are heavily criticised, losing face,” he says.
“What is much more widespread is a disregard for keeping fees to reasonable levels and the sector has its fair share of those wanting to make budgets and high earnings at any cost.”
[breakoutbox][breakoutbox_title]Table 1. Companies entereting into external administration[/breakoutbox_title][breakoutbox_excerpt]Insolvency by numbers – a snapshot[/breakoutbox_excerpt][breakoutbox_content]
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Keeping an eye on the industry
Adrian Brown, the senior executive leader of the insolvency practitioners team at ASIC, says that ASIC sees its work around the insolvency industry as part of a partnership with the professional bodies. He says ASIC had responded to the criticisms made by the Senate inquiry and had been doing extensive work on insolvency practitioners, or the so-called “gatekeepers” as it calls them, during the investigation. Indeed, the regulator had actually increased its surveillance.
From July 2006 to December 2009, ASIC had conducted 179 insolvency-related reviews. In the 18 months from January 2010 to June 2011, it had commenced 285 reviews.
“We didn’t simply rely on complaints,” Brown says. “Complaints do form part of our review, what we call our reactive review. The other part is our proactive surveillance program where we risk-profile the industry and we go and visit and conduct practice reviews of those practitioners. Certainly that has increased since the inquiry.
“It can be a proactive practice review, it can be a reactive one, it can be one where we examine a practitioner’s independence, their remuneration, their reporting and their insurance.”
Weeding out rogues
Brown says that in its risk profiles of the industry, ASIC targets the group that ASIC Commissioner Michael Dwyer has described as the “troublesome three per cent”.
“We risk-profile the industry and we look at those we need to look at,” he says. “These are a couple of handfuls of practitioners who don’t do the right thing and we have consistently said that we are targeting particular people and our intent is to remove them from the industry.”
He says ASIC is not just looking out for fraud but also for warning signals such as the dollar value of penalties incurred over the past few years and the number of late lodgements. “Those sorts of things seem to indicate systemic problems in their practice,” he says, and the changes proposed in the Government options paper would represent a massive change for the industry.
“If the Government embraces the changes set out in there, you would have the most seminal changes to the insolvency industry since June 1993, when the voluntary administration regime came in,” he says.
[breakoutbox][breakoutbox_title]Table 2. Companies entering into external administration[/breakoutbox_title][breakoutbox_excerpt]Analysis by appointment type – financial year to date*[/breakoutbox_excerpt][breakoutbox_content]
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Rebuilding confidence
The changes flagged by the Government come at a time when the reputation of insolvency practitioners in the community is at a low level. A study released by ASIC revealed that people who had lost money in investment schemes and failed companies lacked confidence in the Australian financial system, financial advisers, the Government and regulators including ASIC.
It’s a point taken up by Andrew Conway, chief executive of the Institute of Public Accountants. He says the insolvency regime would work best if the community had more confidence in the system. That is in the public interest.
“Insolvency is sometimes seen by the broader market as the great unknown and people only become aware of insolvency as a creditor or in times of bankruptcy,” Conway says.
“There is a need to remove the veil for the public to develop a greater level of awareness as to what actually takes place during an insolvency process. It is incredibly complex but an important area of the profession so I think a move to improve public confidence is a good thing.
“It is vital that the public has confidence in the insolvency process, that there is a public interest and benefit being served by qualified insolvency professionals and by the insolvency profession generally, and that the public interest ensures that there is a safety net in corporate Australia that prevents – or assists in the prevention and if you like, the mopping up of – corporate failure and corporate collapse.
“It is a vital safety net that exists and without it, creditors would be in freefall. The logical consequence therefore is that the insolvency profession has a duty to ensure that the broader public has a high level of awareness of its role, of its competence and its professionalism in discharging its duty.”
