ASIC orders about creditor-defeating dispositions

This is Information Sheet 261 (INFO 261).

A creditor-defeating disposition is a disposal of company property that prevents, hinders or significantly delays that property from becoming available for the benefit of creditors in the winding up of the company. For the complete definition, see section 588FDB(1) of the Corporations Act (Corporations Act).

ASIC or a court may undo this disposition if it is considered a 'voidable transaction' under the Corporations Act: see section 588FE(6B).

A liquidator may seek to recover a voidable creditor-defeating disposition by:

• applying to a court for orders to void the disposition, or
• asking ASIC to make an order undoing the disposition.

This information sheet (INFO 261) sets out how liquidators can ask ASIC make such an order. It covers:

• ASIC's power to make such orders
• what we consider when liquidators request such orders from ASIC – we also take these issues into account when deciding whether to make an order on our own initiative
• how liquidators can apply for Assetless Administration Fund assistance in relation to creditor-defeating dispositions
• what we must disclose when deciding whether to make an order.

ASIC's power to make orders about creditor-defeating dispositions

ASIC has the power to make orders undoing the effect of a voidable creditor-defeating disposition by a company that is subsequently wound up: see section 588FGAA of the Corporations Act. We may exercise this power on our own initiative or at the request of the company's liquidator.

We can make one or more of the following orders to the person who received the property:

• An order directing the person to transfer to the company the property that was the subject of the disposition.
• An order requiring the person to pay to the company an amount that, in our opinion, fairly represents some or all of the benefits that the person obtained (directly or indirectly) from the disposition.
• An order requiring the person to transfer property to the company that, in our opinion, fairly represents the application of proceeds of the property that was the subject of the disposition.

How to ask ASIC to make an order

A liquidator making a request to ASIC for an order will need to provide as much information and material as possible to satisfy ASIC that the disposition is a creditor-defeating disposition. Any determination of whether a disposition is void must be made by a court.

If insufficient information is available to a liquidator – for example, because the liquidator does not have access to the company's books and records – the liquidator may consider applying for external administration assistance from ASIC. The liquidator may also consider applying for funding from the Assetless Administration Fund to conduct investigations, such as public examinations, to obtain further information about alleged misconduct.

We have provided more information about how we consider a request for an order and applying to the Assetless Administration Fund below.

When ASIC cannot make an order

There are some circumstances in which we cannot make an order. We cannot make an order if the disposition was entered into or done:

• before 18 February 2020
• as part of a safe harbour restructure
• under a compromise or arrangement approved by a court under section 411 of the Corporations Act
• under a deed of company arrangement (DOCA) or by an administrator of the company
• by a restructuring practitioner for the company or under a restructuring plan made by the company, or
• by a liquidator or provisional liquidator.

We must not make an order if we have reason to believe that, if ASIC were a court, section 588FG would prevent it from making an order under section 588FF. This means that we must not make an order if we have reason to believe that it would:

• materially prejudice a right or interest of a person (other than a party to the disposition) who:
  • received no benefit because of the disposition, or
  • received the benefit in good faith and at the time had no reasonable grounds to suspect (nor would a reasonable person in the circumstances) that the company was insolvent, or would become insolvent as a result of the disposition
• materially prejudice a right or interest of a person who:
  • became a party to the disposition in good faith and, at the time, had no reasonable grounds to suspect (nor would a reasonable person in the circumstances) that the company was insolvent, or would become insolvent as a result of the disposition
  • provided valuable consideration under the disposition or has changed their position in reliance on the disposition
• materially prejudice a right or interest of a person (other than a party to the disposition) if it is proved that the person later acquired the property in good faith.

Dealing with a request for an order about a creditor-defeating disposition

When dealing with requests for orders, we must first:

• determine whether section 588FGAA applies
• determine if the disposition and request were made in the relevant time period
• consider the circumstances of the disposition and other relevant matters
• check whether the application includes all the relevant information.

Liquidators must submit their requests via email.

We also take these issues into account when deciding whether to make an order on our own initiative.

Does section 588FGAA apply?

Section 588FGAA of the Corporations Act applies in the circumstances set out in Table 1. All the criteria must be met for section 588FGAA to apply.

Table 1: When ASIC has the power to make an order under section 588FGAA

Circumstances	Explanation
1. A company in liquidation has made a creditor-defeating disposition of property under section 588FDB	A disposition of property of a company is a creditor-defeating disposition if: the consideration payable to the company is less than both the market value of the property and the best price reasonably obtainable in the circumstances it prevents, hinders or significantly delays the property from becoming available for the benefit of creditors in the winding-up.
2. The disposition of the property is a voidable disposition under section 588FE(6B)	A disposition is a voidable disposition if at least one of the following applies: it was entered into, or an act giving effect to it was done: during the 12 months ending on the relation-back day, or between that day and on or before winding up began when the company was insolvent, or the company became insolvent because of the disposition or act Note:  The 'relation-back day' is defined in section 91. the company enters external administration within 12 months after the disposition (or an act giving effect to it) as a direct or indirect result of the disposition or act. However, it will not be a voidable disposition if it was made by an administrator, restructuring practitioner or liquidator (including a provisional liquidator) of the company, or under a DOCA, restructuring plan or by way of a compromise or arrangement approved by a court under section 411.
3. The person has received money or property as a result of the disposition (see section 588FGAA(1)(c))	The person has received money or property as a direct or indirect result of:  the disposition, or the person's acquisition of the property after the disposition.

Were the disposition and request made in the relevant time period?

The provisions about creditor-defeating dispositions commenced on 18 February 2020. They only apply to dispositions made on, or after, that date.

The liquidator may only ask ASIC to make an order during the period between the relation-back day and the later of:

• 3 years after the relation-back day, or
• 12 months after the first appointment of a liquidator to the wind up the company.

A liquidator may also make an application to the court to extend the period: see section 588FF(3)(b).

What does ASIC consider when deciding to make orders?

Once we have determined that section 588FGAA applies, and the disposition and request were made within the relevant time period, we must then consider:

• the conduct of the company and its officers
• the conduct of the person
• the circumstances, nature and terms of the disposition
• the relationship (if any) between the company and the person
• any other matter we consider relevant.

Other matters we consider relevant will depend on the circumstances of the particular case. For example, they may include:

• the circumstances that led to the disposal of the asset
• the time that has elapsed between the disposition of the property and when the liquidator asked ASIC to make an order
• whether the person and the property are readily traceable and identifiable
• the conduct of officers of a company, including whether that conduct indicates any suspected or alleged contraventions of the Corporations Act in relation to the disposition
• the expected level of public benefit from an order, such as the prospects of a return to creditors and the likely availability of a nominated person to comply with any order to pay money or deliver up property
• the likelihood that an order will lead to a change in the person's conduct or that the business community is generally deterred from similar conduct
• mitigating factors relevant to the person who is suspected of making the disposition or the person
• the total deficiency (i.e. the shortfall between the estimated assets and liabilities) in the liquidation
• whether the liquidator has sought funding from creditors or third parties to pursue recovery of assets and, if so, details of those interactions
• the number of secured and unsecured creditors and the total amounts owed to each class of creditors
• the expected return to creditors if an order is made and if an order is not made.

Has the liquidator included all relevant information in the request?

To make a request to ASIC, a liquidator should complete the template request form and attach all supporting documents, including those already lodged with ASIC.

The information and documents in the request need to be sufficiently detailed to enable ASIC to assess the matter, including whether section 588FGAA applies to the disposition.

The most credible and useful sources of evidence will generally be the books and records that a company is required to keep under the Corporations Act. Liquidators may consider applying for external administration assistance from ASIC if the books and records have not been provided.

Submitting a request

Liquidators should lodge their request by email to ASIC.CDD.requests@asic.gov.au. This email address operates only to receive requests and is not monitored for general queries or requests for technical advice.

Assetless Administration Fund assistance

Liquidators may consider applying for funding from the Assetless Administration Fund to conduct investigations to obtain further evidence. The fund may be available if:

• the liquidator has insufficient evidence to substantiate the assertions in the request
• the company in liquidation is an 'assetless' administration. In this context, 'assetless' has the meaning given in relevant Assetless Administration Fund grant guidelines.

The Assetless Administration Fund makes it possible for liquidators to investigate and report to ASIC about offences, or recover assets through the courts. We will assess applications in accordance with the published grant guidelines for those types of funding.

Liquidators wishing to request funding from the Assetless Administration Fund must apply through the ASIC Regulatory Portal. If the liquidator wishes to:

• apply to the court for orders relating to creditor-defeating dispositions – they must use the 'asset recovery' process in the portal
• investigate and lodge a supplementary report about director misconduct, including offences relating to creditor-defeating dispositions and whether the requirements of ASIC making an order have been met – they must use the 'other matters' process in the portal.

What ASIC must disclose when determining whether to make an order

We must afford procedural fairness to a person directly or materially adversely affected by a decision to make an order. In this context, this means that we will give the person an opportunity to be heard. This will generally include access to those documents that we rely on when making the decision.

It will usually be necessary to disclose the liquidator's application and supporting documentation. In addition, we may also seek additional documents from the liquidator relating to potential defences available.

We will give access to affected parties on the condition that the information only be used for the purposes of preparation of submissions, or any hearing regarding our decision. We may also give access to a third party. If we do so, we will impose the condition that those documents cannot be copied or disclosed without our written consent.

Where can I get more information?

More information can be found in:

• Information Sheet 181 Providing information and documents to private litigants (INFO 181)
• Regulatory Guide 103 Confidentiality and release of information (RG 103).

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.