ASIC insolvency statistics update


Australian Securities and Investments Commission (“ASIC”) has released the following summary and observations after a review of statutory reports lodged by liquidators, receivers and voluntary administrators for the year ending 30 June 2016.

• 10,078 external administrator reports were lodged, with NSW accounting for 38.2%.

• Of those, 79% related to companies with less than 20 employees.

• The industries with the highest levels of representation were business and personal services (31%) and construction (21%).

• 86% of the failed companies were assessed at having estimated assets of $100,000 or less with 61.2% had estimated assets of $10,000 or less.

• The top three claimed causes of failure comprised inadequate cash flow (46%), poor strategic management (46%) and poor financial control (34%).

• Possible causes of misconduct leading to insolvency included insolvent trading (61%), obligation to keep financial records (42%), and failure of directors to act with care and diligence (38%).

• Most categories of potential misconduct related to

alleged breaches of civil obligations (81.1%).

• The dividends estimate to unsecured creditors in

97% of cases was less than 11 cents in the dollar.

Director penalty notices – part 2

This is the second of a series of videos prepared by Insolvency Experts
Director penalty notices are notices that the Australian Taxation Office may send to directors of a company that has unpaid PAYG Withholding. The notice serves to make the directors personally liable for this debt of the company.
If the company makes payments to the ATO after receipt of a director penalty notice, but subsequently goes into liquidation, the personal liability of the directors may be revived. This video explains that trap.

Insolvency Experts have no connection with Thomson Hall. Apart from finding their newsletters and and videos quite useful, we know nothing of the quality of their work and offer no opinion on whether you should use them in preference to other insolvency practitioners.

Director’s duty to prevent insolvent trading

ASIC has today released regulatory guidance to assist directors to understand and comply with their duty under the Corporations Act 2001 (Corporations Act) to prevent insolvent trading.

The Corporations Act requires a director of a company to prevent the company from incurring a debt if the company is insolvent, or if the company will become insolvent by incurring the debt or a range of debts including the debt.

“ASIC first contemplated issuing guidance during the downturn in economic conditions when a rise in corporate insolvencies was expected. We thought that the market, including directors and their professional advisers, would benefit from clarification about the factors we consider when deciding to commence an investigation in relation to possible insolvent trading, and issued some proposals in November last year”, ASIC Commissioner, Michael Dwyer said.

“It is important that directors focus on their obligations to prevent insolvent trading and we expect this guidance will assist directors of small-to-medium enterprises, in particular, to fulfil this fundamental responsibility”, Mr Dwyer said.

Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors sets out four key principles which ASIC considers directors should follow to meet their obligation to prevent insolvent trading, That is, to:

* keep themselves informed about the company’s financial position and affairs;
* regularly assess the company’s solvency and investigate financial difficulties immediately;
* obtain appropriate professional advice to help address the company’s financial difficulties where necessary; and
* consider and act in a timely manner on the advice.

RG 217 also details factors which ASIC will consider when deciding to bring proceedings against a director for allowing a company to trade while insolvent (including criminal proceedings and proceedings to recover compensation for loss resulting from insolvent trading).