ASIC reveals a lack of liquidators to handle COVID-19 liquidations
The Australian Securities and Investments Commission (ASIC) has pointed to a situation where there may not be enough registered liquidators (RLs) to handle COVID-19 related corporate insolvencies because many of the RLs are facing financial struggles themselves.
ASIC had revealed the dilemma to the Parliamentary Joint Committee on Corporations and Financial Services noting it as an area of “potential risk”.
“One area of potential risk that we are monitoring relates to corporate insolvency. The impact on ASIC internal resourcing from companies entering external administration following any withdrawal of temporary relief measures will depend on the timing, volume and complexity of company failures, and what other measures or legislative reforms the government introduces in future,” it said.
“A significant increase in corporate insolvencies under existing law would potentially see an increasing workload across several ASIC teams, particularly those involved in registered liquidator (RL) regulation, and dealing with misconduct, including illegal phoenix activity, reported to ASIC by RLs.”
ASIC said at 30 June 2020 there were 633 RLs – down from 711 at 30 June 2018.
“ASIC’s review of RLs ceasing registration since July 2018 indicate that the majority who ceased registration had been winding down their practice during the 12 months preceding cessation of their liquidator registration. There remains some RLs who are less active than others and some who for reasons such as voluntary suspension, are not currently taking appointments,” it said.
“Information published by the Australian Restructuring, Insolvency and Turnaround Association (ARITA) in the June 2020 edition of its journal and on its website indicates that COVID-19 had impacted RLs with more than half of insolvency firms registering for JobKeeper or intending to and some firms making their own staff redundant. This implies reduced RL firm revenue and less potential capacity to manage any significant or sudden increase in new insolvency appointments. The information published by ARITA does not indicate a significant number of firms expressing significant concern about their viability.”
“Importantly, it is possible that many companies entering external administration following COVID-19 may be asset-less. If so, it might be that no RL is prepared to accept a significant number of appointments to financially distressed companies because of the impact that unpaid remuneration from these appointments may have on the future financial viability of the RL’s business.”
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