ASIC Proposes Changes to Liquidator Registration

By Margot Clarkson

Background

On 8 October 2004, the Australian Securities & Investments Commission (ASIC) released its policy proposal paper, External administration: liquidator registration. ASIC intends the proposals in this paper to replace the existing ASIC policies concerning liquidator registration, Policy Statement 40 Registration of liquidators - experience criteria, and Policy Statement 24 Registration of official liquidators. If accepted, the proposal will significantly change the registration criteria for liquidators.

In its media statement releasing the proposed policy, ASIC indicated its intention to issue the new policy before July 2005. Written submissions will be received until 30 November 2004.

Proposed changes to registration criteria

The proposed criteria for liquidator registration supplement the statutory criteria contained in section 1282 of the Corporations Act 2001 (Cth) (the Act).

Qualifications
The proposed criteria in the policy proposal concerning the base qualifications set out in s1282(2)(a) are principally concerned with defining what is an 'equivalent' qualification, for applicants who have not graduated from an Australian university course with standing certification. These proposed criteria are likely to be of interest principally to applicants whose qualifications were not gained in Australia.

Experience
The changes to the level of experience required for liquidator registration is the most significant aspect of the proposed policy.

Under the existing arrangements, s1282(2)(b) prescribes that ASIC must be satisfied as to the experience of an applicant for registration in connection with corporate winding up, and Policy Statement 40 defines the relevant experience as:
  • five years in public practice;

  • a wide range of experience in external corporate administration under the direction of an official liquidator for a continuous period of at least three years; and

  • full-time supervision of external corporate administration for at least two consecutive years during the five years prior to the application.
The proposed criteria address experience somewhat differently. In relation to s1282(2)(b), the proposed criteria simply state that ASIC will only be satisfied with an applicant's winding up experience where it predominantly involves court, or creditors' voluntary windings up. ASIC explains that it will give little weight to members' voluntary liquidations because these are not a form of insolvent external administration.

In addition to the criteria proposed for s1282(2)(b), the proposed criteria impose additional experience requirements. ASIC proposes to interpret the requirement in s1282(2)(c), that it be satisfied that the applicant is capable of performing liquidator's duties, to include both 'personal' and 'practice' capacities.

'Personal' capacities include 'adequate corporate insolvency experience', which requires applicants to show that:
  • they have worked on external administrations under the supervision of a registered liquidator in Australia for the full-time equivalent of at least five years in the eight years prior to applying;

  • this experience includes at least three different types of external administration in Chapter 5 of the Act (other than Part 5.1), at least two of which are court windings up or creditors voluntary windings up and external administrations under Part 5.3A.

  • this experience has been gained at a very senior level for the full-time equivalent of at least three years out of the past four. The proposed policy states that ASIC will only consider experience to have been gained at a very senior level if applicants:
    • were partners of their practice or worked immediately below the level of partner;

    • reported directly to the relevant external administrator;

    • formed opinions and made recommendations to an external administration about the financial and potential legal position of the body corporate;

    • were directly involved in the planning and managing the conduct of the external administration on behalf of the administrator;

    • instructed solicitors and evaluated legal advice, as directed by the administrator; and

    • supervised staff reporting through the applicant to the administrator.

  • this experience includes dealing with a range of complex matters that typically arise in external administrations. Examples of complex matters include public examinations, investigations into insolvent trading, voidable transactions and breaches of directors' duties, large-scale litigation, trading-on a business with a view to selling it as a going concern and, external administrations involving listed companies.

  • they have demonstrated skill and diligence over the course of gaining their experience and have demonstrated sound judgement while working at a very senior level.
Completion of a course in Australian corporate insolvency law and practice will be regarded favourably, as will any non-corporate insolvency management experience, especially in the case of applicants with the minimum corporate insolvency experience.

Applicants previously working in overseas jurisdictions must demonstrate equivalent experience and at least one year full-time experience under the supervision of a registered liquidator over the preceding two years.

Practice capacities
In addition to the 'personal capacity' criteria described above, the new ASIC proposal includes criteria for applicants' practice capacity, requiring applicants to show that their practices have:
  • adequate human and technological resources to accept appointments;

  • appropriate processes for monitoring and ensuring the continuing adequacy of those resources;

  • appropriate processes for ongoing training and supervision of staff;
    appropriate operational procedures and manuals for the conduct of external administration; and

  • adequate risk management systems.
Fit and proper person
Currently the Act also requires that applicants for registration as a liquidator be fit and proper persons. ASIC proposes that individuals seeking registration have the:
  • overall capability of performing the duties and functions of a liquidator; and

  • overall honesty, integrity, good reputation and personal solvency.
ASIC does not regard a person who is disqualified from managing corporations to be a fit and proper person to be registered as a liquidator, regardless of any specific permissions to manage corporations granted to that person.

Security
Application for registration as a liquidator will not be granted unless ASIC is satisfied that the applicant is complying, or will comply immediately on registration, with the security deposit provisions as set out in ASIC Policy Statement 33. ASIC does not propose to change Policy Statement 33 at this time.

Transitional arrangements
ASIC proposes to introduce its new policy for liquidator registration without transitional arrangements. Applications lodged but not finalised before the introduction of the new policy will be assessed according to the new criteria.

Proposed criteria for maintaining liquidator registration

The policy proposal also sets out changes for maintaining liquidator registration. Liquidators must remain fit and proper persons and must maintain capability to perform the functions and duties of a registered liquidator. A failure to maintain adequate practice capacities may cause ASIC to consider that a registered liquidator is no longer capable of performing those functions.

Further, ASIC may consider that a registered liquidator who has not undertaken any work as an external administrator for a continuous period of more than 12 months, or who has not kept up-to-date with relevant continuing professional education, lacks sufficiently current Australian corporate insolvency knowledge to maintain registration.

However, under the proposed policy, registered liquidators who intend to take an extended absence from their practice can make arrangements with ASIC to ensure that these absences do not give rise to investigations for failing to maintain the requirements for registration.

Official liquidators

At present, the criteria by which ASIC assesses applications to become an official liquidator under s1283 of the Act are set out in Policy Statement 24, Registration of official liquidators.

Policy Statement 24 requires that applicants to become official liquidators:
  • have two years continuous experience in insolvency administrations since becoming registered as a liquidator, including some court-appointed administrations and working at the most senior level under the direct supervision of an official liquidator;

  • show involvement in liquidations, including contributions to decisions taken in the course of administering complex windings up ordered by the court;

  • have staff and other resource back-up facilities to be able to conduct an official liquidator's practice;

  • have appropriate training and operational manuals; and

  • must consent to accept any appointment made by a specified court.
ASIC however, considers that there is no significant policy reason to continue to distinguish between the experience and resources required of registered and official liquidators. Accordingly, under the proposed criteria, ASIC will accept written applications from registered liquidators to become an official liquidator that include:
  • a brief statement of the reasons why the applicant seeks to be registered as an official liquidator;

  • a written undertaking to ASIC that the applicant, if registered, will not refuse to act as a liquidator in a court-ordered winding up solely because the company has no assets, or insufficient funds to cover the anticipated professional costs of the liquidation; and

  • the prescribed registration fee.
ASIC proposes to introduce this new policy regarding registration of official liquidators without any transitional arrangements. Existing official liquidators will be able to replace their existing declaration of consent with an undertaking of the kind described in the proposed criteria.

Summary

The policy proposal External administration: liquidator registration represents a significant change in ASIC's approach to liquidator registration. In particular, applicants for liquidator registration will have to show greater levels of experience than under the present policy, with the proposed experience criteria increasing from thee years of corporate insolvency, including two working at a very senior level, to five years total experience, including three working at a very senior level. In addition, applicants for registration will have to satisfy ASIC that the practice has the necessary resources and procedures to conduct external administrations.

These changes in the requirements for experience and practice capability, if introduced, will also affect liquidators' maintenance of their registration, with ASIC announcing its intention to monitor continuing experience and levels of practice resources closely.

As a consequence of these changes, if introduced, the practical difference between registered and official liquidators will effectively be eliminated.

As indicated above, ASIC hopes to introduce its proposed policy in the first half of 2005. This should be kept in mind by those intending to apply in 2005, as there will be no transitional arrangements and applicants for registrations whose applications have not been processed by the time the new policy is introduced will be assessed according to the new criteria.

You can make written submission on the proposals to ASIC until 30 November 2004.


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