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Good afternoon, everyone. Thank you to the Association of Independent Insolvency Practitioners (AIIP) for the invitation to speak today and I would like to acknowledge that we are meeting on Gadigal country.

The key focus of my speech today is on insolvency professionals exercising their professional judgement at the insolvency frontline. Which you do, every day through the performance of your duties – where you are called on to make decisions that impact outcomes for business owners, creditors, employees and others.

Your work at the insolvency frontline, and ASIC’s guidance that supports that work, couldn’t be more topical. We are acutely aware of the increases in the number of insolvencies in Australia, and the wider cost-of-doing-business pressures that are placing high levels of strain on Australian companies.

To put a number to those impacts, last financial year, more than 11,000 Australian companies entered external administration for the first time. That’s a 39% increase on the year before.

In absolute terms, this is the largest number of company appointments ever. Though, it should be noted, that company failures are lower as a percentage of companies registered, than the peaks seen through 2011 to 2013.

Nevertheless, from the perspective of your profession, I suspect what matters most is the overall total – and, with it, the demand for your services.

No doubt, each of you here today is well aware of these challenges. As of course is the AIIP – with whom ASIC has a longstanding relationship.

ASIC has worked closely with the AIIP since its inception – and we value the contribution it makes in advocating for its members. Including at our regular liaison meetings, where we can always count on your representatives to give considered, constructive – and sometimes challenging – feedback on our work. Which they do, of course, on your behalf.

Today, I will speak to you about what ASIC has been doing in four areas that are relevant to your work on insolvency.

They are:

• changes to the guidance we provide on your reports to us on possible misconduct, that is, your exercise of professional judgement (ASIC Regulatory Guide 16)
• updating our guidance on registration, ongoing obligations and disciplinary action for registered liquidators (ASIC Regulatory Guide 258)
• insights and outcomes from an ASIC review on simplified liquidations, and
• insights and outcomes from an ASIC review on small business restructuring.

Regulatory guidance: RG 16 

I’ll turn first to the changes to our regulatory guidance in ASIC Regulatory Guide 16, which concerns external administrators and controllers reporting of possible offences and misconduct.

ASIC became aware over time that some registered liquidators are doing more than is required of them to satisfy their reporting obligation – driven by concerns over disciplinary action from ASIC.

We can see this in the volume of information contained within the reports we receive – and have heard first-hand, from registered liquidators themselves, that uncertainty around requirements is a cause of this.

Under the reporting obligations, you are required to lodge an initial statutory report (ISR) with ASIC if it appears to you there is potential misconduct. A supplementary statutory report (SSR) may also be lodged to provide additional information.

ASIC’s expectation is that you will exercise your professional judgement on these matters. We also recognise that regulatory guidance is one of a range of inputs that inform that professional judgement.

We have, therefore, made a number of changes to RG 16 to further guide you in deciding what you need to report on and when. So that you can apply your professional judgement with greater confidence.

Consultation on those changes has now ended – and I want to acknowledge the contribution of the AIIP throughout this process. Which included a formal written submission and participation in a roundtable we held in May.

We expect to publish the revised RG 16 and feedback report in September.

Importantly, that revised guidance now clarifies that extensive investigations and significant costs are not required to complete an ISR. It also clarifies that, in most cases, we would not expect that an SSR is required.

It appears some registered liquidators may be operating under a misapprehension that section 533 of the Corporations Act imposes an obligation on you to carry out an investigation in order to form a view that it appears to you that misconduct has possibly occurred.

In line with the case law, the revised guidance makes clear that you must form a genuinely held view as to whether it appears misconduct has possibly occurred. But how you arrive at that view – and the level of investigation of misconduct and offending undertaken to get there – is a matter for your professional judgement.

We acknowledge that as part of your duties and functions, you will investigate the company’s affairs to identify property that may be recovered to form part of the funds in the administration to be distributed in accordance with the law.

As part of these investigations, you may identify information or evidence that enables you to form a view that it appears an offence has been committed or misconduct has occurred that must be reported.

To reiterate, you may not need to carry out separate or new inquiries to be able to report offences under section 533, if your asset investigations provide sufficient information for you to form your opinion.

Other changes to RG 16 include the removal of any reference to disciplinary action. That guidance is contained within RG 258. We have also removed the substantiation guide. This is still available – if and when required – on the Assetless Administration Fund Grant section of our website.

The substantiation guide outlines the various offences a registered liquidator may encounter – and the supporting evidence required. We recognise that its inclusion in RG 16 may have inadvertently given the impression it was intended as a checklist – and one that should be applied routinely. This is not the case.

As mentioned, in most cases we would not expect that an SSR is required. If ASIC requests one, which in your opinion is not necessary, we encourage you to raise this with us – and the revised guidance outlines how to do so. Likewise, if we don’t request one, where you believe one is warranted.

We have heard through feedback – including from the AIIP – that most registered liquidators are reluctant to query SSR requests from ASIC. To be clear, when we say that we expect you to exercise your professional judgement, that includes challenging us in instances such as these.

A request for an SSR (or notice ASIC doesn’t want one) is triggered by our automated scoring system, after an ISR is lodged. During the course of our consultation, we received feedback from the AIIP and others on our internal processes – including our automated assessment.

We are already working on a comprehensive review of our processes for ingesting, screening, analysing and acting on (where required) the reports we receive. We will take into consideration the issues raised in the submissions received through the RG 16 consultation.

Another common piece of feedback was a request for a dedicated contact to respond to enquiries from registered liquidators about ISRs and SSRs. I’m pleased to let you know that we will be making that available.

The updates to RG 16 are aimed at supporting an improved process that helps reduce the time and costs associated with reporting. It seeks to do so by focusing registered liquidators’ enquiries – and the content of reports – on misconduct and offences. Thereby assisting our ability to use this information.

For ASIC, ISRs are an important source of frontline information about possible breaches of the Corporations Act. Likewise, ISRs and SSRs help us take administrative action such as director bannings and enforcement action, where appropriate.

The reports are also used for published statistics and intelligence purposes. As you are aware, we publish aggregated statistics from ISRs on our website to provide transparency to stakeholders.

We recognise the changes to RG 16 represent a shift from the existing guidance. We will continue to support the AIIP and members of the profession, while they transition to the new guidance, through our ongoing liaison. We will also continue to monitor whether additional guidance is required on specific matters and value your ongoing feedback.

Regulatory guidance: RG 258

Turning now to RG 258, which concerns liquidators’ registration, ongoing obligations and disciplinary action that might be taken where those obligations are not met.

We expect to publish the revised guidance and feedback report in late September.

Key proposed changes to RG 258 include enhanced guidance for those applying for registration as a liquidator on how to approach their application and the committee process.

Importantly, where an applicant has less than 4,000 hours of relevant senior-level employment in the preceding five years, the revised RG 258 now clarifies that it is open to a committee to register the applicant notwithstanding that shortfall.

It also encourages applicants concerned about a shortfall in hours to explain their circumstances in their application and to a committee when applying for registration.

This is based on a body of committee decisions – and will be particularly relevant to applicants who may have had time out for parental care or other reasons.

I can confirm that there have been instances where applicants did not meet the requisite hours, but committees considered they had the relevant experience and were suitable to be registered – in many cases without additional conditions.

Simplified liquidations

Moving to simplified liquidations. This process came into effect on 1 January 2021, following the introduction of legislation which changed the insolvency framework for small businesses.

These changes were designed to reduce costs and streamline the process of winding up small businesses with debts not exceeding $1 million.

To date, uptake has been very low. Earlier this month, ASIC published a report on simplified liquidations (REP 789), which found that in just 82 out of 4,867 creditors’ voluntary liquidations, commenced after 1 January 2021 and finalised by 31 December 2023, had the liquidator adopted the simplified liquidation process.

Another 3,978 creditors’ voluntary liquidations finalised in the period were eligible for simplified liquidation, based solely on the $1 million eligibility criteria, but liquidators didn’t adopt it.

Based on our observations, simplified liquidations were shorter – by 56 days, on average. In terms of returns to creditors, the picture was mixed. The percentage paying a dividend was higher, as was the total paid. However, among those paying dividends, the average rate for unsecured creditors was lower. There were no material differences in remuneration paid to registered liquidators.

The primary focus of our review was to collect, assess and share the data, rather than to form a view on the process itself. That was canvased previously in the Parliamentary Joint Committee Inquiry into corporate insolvency and is subject to a recommendation. However, we understand that potential reasons for the low uptake include its complexity, cost, efficiency, and the tight timeframes for adoption.

As a next step, ASIC will engage with registered liquidators who have used the simplified liquidation process to get a better understanding of the challenges and opportunities.

Small business restructuring

In contrast to the limited uptake of simplified liquidations, small business restructuring – which came into effect through the same reforms – has surged.

In 2023-24 restructuring appointments grew by over 200% on the previous year – and now make up more than 1 in 10 external administrations.

Our preliminary analysis indicates that around 90% of companies entering small business restructuring progress to a restructuring plan. Among those to have completed that plan, almost 90% remain registered. Of the other 10%, half have gone into liquidation and the other half were deregistered.

ASIC released a report on small business restructuring in 2023 (REP 756). We plan to carry out a follow-on review in the near future, focused on results from the small business restructuring process.

Following our initial report, we have had productive feedback from AIIP members on our restructuring plan template – and this month we consulted with a number of these members on proposed improvements.

Conclusion

Before I conclude, I want to return to the key takeaway from this presentation: professional judgement. This, of course, is developed over time, through the practice of your profession – where, as I said earlier, you are called on to make important and impactful decisions.

It is also developed through interaction with your peers, associations such as the AIIP and ASIC. That’s why engagement opportunities such as today’s event are so valuable. So I want to thank you again for having me today – and I look forward to taking your questions.