Submission from Bob Nichols/Regional Brass Industries Pty Ltd
7th March 2013
Manager
Corporate Governance and Reporting Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
Re: Submission – Insolvency Law Reform Bill 2013.
Dear Sir/Madam,
We have studied with interest the proposals dated December 2011 with particular
attention to Ch10 Regulator Powers, CH11 Specific Issues for small business and
CH12 Corporate insolvency reforms following on to the Exposure Draft – Insolvency
Law Reform Bill 2013.
We are encouraged by the work that has been done to date and the changes that are
being proposed to address a range of issues in this area.
We are a small manufacturing business located in Ballarat in regional Victoria and
would like to bring to your attention in this submission two practical case studies. One
relates specifically to our company and the other relates to an article published by Mr
Karl Quinn of the Age newspaper in Melbourne. I recently met with Mr Quinn to
discuss these matters and we agree that both cases show remarkable similarities.
The purpose for our submission is to highlight apparent deficiencies in the operation
of the current insolvency process and regulatory environment. These examples are
being cited as benchmarks to test the proposed changes as effective solutions to what
is currently happening in practice. Currently there is a widely held perception that the
process does not achieve the goal of loss minimisation for the stakeholders,
particularly for the smaller creditors. An immediate objective should be to restore
integrity to the process to encourage more creditors to actively participate rather than
seeing involvement as a waste of time.
Our company specific case study relates to Lloyd Brewer Marine Pty Ltd, “ACN 102
511 692” trading as Kincaid Marine Rolco. whose principal place of business is at 15
Foden Ave Somerton and whose Sole Director/Shareholder is Mr Lloyd Brewer.
We have provided machined components to this firm from 2007 and known Mr
Brewer for a number of years prior to that and been supportive of his endeavours. In
February 2010 we withdrew credit facilities due to collection difficulties although we
still supported the firm by supplying on a prepaid basis while continuing to request
payment of arrears. Outstanding credit invoices relate to the period Dec 2009 to Feb
2010.
The company (“ACN 102 511 692) resolved on 9th October 2012 to enter voluntary
liquidation. The company changed its name a few days before entering liquidation.
The summary of affairs of a company (ASIC form 509) supplied by the liquidator
shows the assets as virtually nil ($3411) and a total deficiency of $972,378. The major
assets had been disposed of via a previous sale (date unknown) to another company
Ski Wake Boats Pty Ltd “ACN 152 677 033 with the same Sole Director/Shareholder (Mr Brewer) and the same principal business address. These details can be verified
from the ASIC website and as far as we know the business trading is ongoing.
We received from the appointed liquidator Mr Andrew Juzva of G.S. Andrews
Advisory of Carlton, Victoria notice of his appointment, form 509 (RATA) and
details of secured, preferential and unsecured creditors, details of creditors meeting
and fee structure etc which seemed to satisfy most procedural requirements. Although,
the concept of the company officers agreeing to pay the liquidators fees up to a limit
of $20,000 (limit set at Creditors meeting) seemed to have some problems with
respect to limiting the scope of the process. The amount stated as owing to our
company ($18,613.92) agreed with our records. Other significant debts included,
ATO – Insolvency team ($85,010.61), Lloyd Brewer Properties ($117,662.38), Other
(118,986.27 incl. $18,613.92 above) all unsecured.
The most significant secured debt was a debenture mortgage held by Lloyd Brewer
($585,000.00). The fuller implications of the issues relating to these items is worthy
of consideration at another time, not the least with respect to consequential losses to
Commonwealth revenue.
In a subsequent letter Mr Juzva (16/10/2012) indicated that he was conducting an
enquiry into the affairs of the company, and accordingly, if there were any matters
which we believed should be investigated could we please provide details and
supporting documentation.
Following an initial open and very cordial conversation with Mr Juzva on 13/11/2012
and a follow up confirmation letter from myself on 17/11/2012 a number of further
questions were raised. A number of these questions have been satisfactorily answered
through correspondence via email up to COB 21/12/2012, others have not.
Two of the most significant unanswered items were as follows.
Firstly, relating to a request for verification from the company and bank records to
support the $585,000.00 debenture mortgage to Mr Brewer. This was not addressed.
Note: This would seem to be a relatively simple matter of referencing the directors
loan balance in the company balance sheet in the previous tax return and verifying
movements in the loan account since.
Secondly, with respect to a request for copies of tax invoices relating to the sale of all
company assets, relevant company bank statements showing the receipt and
disbursement of funds and also a copy of the independent valuers report relating to
these assets. We were advised as follows “Persuant to sec 486 of the Corporations
Act, the court may make such orders for inspection of the books and records of the
company by creditors as the court sees just……”. It was then suggested by Mr Juzva
that “In the circumstances you may wish to make an application to the court for
inspection of the books and records”. Enough said.
In addition to the above we provided a copy of our detailed aged debtor invoice listing
to assist Mr Juzva with his assessment as to whether any insolvent trading had taken
place. Additional detail as to questions raised with the liquidator and the responses
therefrom are available if further detailed enquiry is of interest.
The second case study or example is related in an article in the “Age” Tuesday 8th
January 2013 By Karl Quinn regarding liquidation of a firm trading as HIT
Productions. A copy of the article is appended as a pdf image. It is mostly self
explanatory although again a look at the public revenue effects may be appropriateThe only other comment I chose to make is that I struggle to understand how a
company relying on government grants and obviously not making profits can
accumulate a debt to the Tax Office of $692,387.00
Insolvencies can cause immense damage to businesses and thereby individuals both
on a financial and emotional level especially if poorly managed and may also result in
a reduced confidence in our business frameworks. For example, a $10,000.00 bad
debt to a business operating at a 10% margin requires $100,000.00 extra sales to make
it up. Bad debts are therefore a significant risk to the viability of small businesses in
particularly.
After having reviewed the proposed amendments to legislation and encouraged that
they will improve the process, I believe, that a further step should be considered to
enhance the ability to expose poor corporate conduct and reduce the incidence of
these activities falling through the cracks between responsibilities of different
administrative bodies through poor communications. I also believe that the key is
through the insolvency practitioners in that they should be accountable to all
stakeholders and participate in a mandatory reporting regime to draw the process
together. The principal stakeholders include all Creditors, ASIC, Insolvency
Practitioners, Shareholders, Directors, ATO and relevant Courts.
Reporting should highlight where there are areas of concern with respect to one or
more of the following.
- Conduct and ongoing fitness of Directors and company officers.
- Verification of all claims especially debenture charges for Directors
- Identification of insolvent trading issues.
- Identification of non arms length asset disposals
- Identify possible Phoenix activity attempting to defraud creditors.
- Other areas as appropriate.
These areas as a minimum should be signed off in each insolvency case.
The Insolvency Practitioners are in the best position to assess these issues and be the
eyes and ears for the other stakeholders. They have the training, are in effective
control of the company and its assets, have control and access to the company records
and also direct access to the company directors and staff. They are therefore best
placed to indicate where further regulatory action may be needed to be taken,
In conclusion, I am personally available to provide further specific detail with respect
to matters raised in this submission and take this opportunity to wish you all the best
in formulating this legislation.
R.A.(Bob) Nicholls
Regional Brass Industries Pty Ltd
15 Lewers Court
Ballarat. Vic. 3350
PH: 03 5336 2314
Email: sales@regionalbrass.com.au
7 March 2013
m, wABN 86 429142995
Chartered Accountant
Registered Company Liquidator
BAS Agent
261 Bluff Road, Sandringham, Vic., 3191
Telephone: (03) 9597 0522
Fax: (03) 9521 0368
Email: keenan. pj@gmail.com
The Manager
Corporate Governance and Reporting Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
Email : insolvency@treasury. gov.au
Dear Sir or Madam,
SUBMISSION: re lnsolvency Law Reform Bill 2013
I refer to your invitation for interested parties to make written submissions in relation to the
abovementioned Bill.
I am a Chartered Accountant and registered liquidator who has worked in the insolvency
profession for 30 years.
My particular interest in this Bill is in the section headed "Statement of reports of affairs etc",
schedule 2, part 2, to do with proposed section 20688, "Automatic disqualification - failure to
give report etc to external administrator''. ln the Explanatory Document this subject is
discussed in chapter 3, paragraphs 1.48 to 1.50.
That interest comes through having carried out extensive research into the Report as to
Affairs (RATA) and into the ASIC's prosecution of directors. I have recently published two
substantial papers on the subject. p/
ln this submission I want to draw attention to what may be an oversight by Treasury
and the ASIC in not including reference to section 475(21of the Gorporations Act as a
reporting requirement in proposed subsection 20688(2Xa).
This proposed subsection refers to section 475(1). ln my view it should also refer to section
475(2).
Section 475(1) does not contain a provision enabling or authorising an official liquidator to
issue a notice of demand for a RATA. Therefore, in practice - and in keeping with the needs
of the ASIC's prosecutorial role used as part of its Liquidator Assistance Program - official
liquidators issue a demand for a RATA under section 475(2).
ln the interests of procedural fairness and of producing good evidence of an offence, the
practice has been for a notice of demand to be issued by the liquidator under section 475(2)and, where no RATA is submitted, for the liquidator to supply the ASIC with a sworn affidavit
or statement reciting the steps taken and the events (if any) that subsequently occurred.
This evidence may then be used by the ASIC should it decide to bring a summary
prosecution action against the director.
It appears to me that if section 475(2) is not included as a "reporting requirement" in
proposed subsection 206B8(2)(a), then the failure of a director to supply a RATA that has
been demanded under section 475(2) might not qualify as grounds for the director's
automatic disq ualification.
lf so, that would constitute a significant weakness in the proposed law.
Thank you for providing the opportunity to comment on the Bill.
Yours faithfully
,'1
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Peter J keehan
| Mr Scott Rogers |
Corporate Governance and Reporting Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
| Mr Scott Rogers |
Corporate Governance and Reporting Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
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