PART 1
The first part of this report has three chapters. Chapter 2
sketches the state of the insolvency industry in Australia, noting the
number of insolvencies over the past decade, the number of registered
liquidators, the size of liquidation firms, a profile of companies in voluntary
administration, a snapshot of different firms' hourly fee scales and data on the
number of complaints about insolvency practitioners.
Chapter 3 provides a fairly detailed explanation of the
various terms and processes in the operation of the insolvency industry.
It covers the role of liquidators, administrators and receivers, the voluntary
administration process including the first and second creditors' meetings,
creditors' scheme of arrangement and the 'fit and proper' provisions of the Corporations
Act 2001.
Chapter 4 gives a brief summary of the role of the
regulator, ASIC, the disciplinary body, the Companies Auditors and Liquidators
Disciplinary Board (CALDB), and the main professional body, the Insolvency
Practitioners Association of Australia.
Chapter 2
An overview of the corporate insolvency industry in Australia
2.1
This chapter presents some of the publicly available data on the
insolvency industry in Australia. It comes mainly from the Australian
Securities and Investments Commission's (ASIC) submission.
2.2
The data presented below is a highly truncated picture of the insolvency
industry. One of the main themes of this report is the need to improve the
collection and analysis of statistics on the insolvency industry. Presently,
there is clearly a lack of detailed data. These issues are discussed in more
detail in chapter 9.
2.3
Chart 2.1 shows that the number of insolvencies in Australia over the eleven
year period more than doubled, from 4,314 in 1999 to 9,437 in 2009. The largest
annual increase over the period was in 2008 when the number of insolvency
increased by nearly 18 per cent on the previous year.
Source: Secretariat using data from Insolvency Practitioners Association, Submission
36, p. 34.
2.4
The number of registered liquidators has fallen from 895 in July 2000 to
662 in March 2010. However, this decrease can partly be explained by inactive
liquidators ceasing their registration. ASIC estimates that 105 liquidators
fall into this category.[1]
Nonetheless, the data suggest that the ratio of insolvencies to practitioners
has probably increased.
Market size
2.5
ASIC noted in its submission to this inquiry that the Australian
insolvency industry consists of 662 registered liquidators and 492 official
liquidators.[2]
Each year there are between 7500 and 10,000 companies entering external
administration for the first time.
Industry profile
2.6
As of December 2009, there were 273 insolvency firms operating in
Australia. Chart 2.2 shows a profile of these firms based on the number of
registered liquidators per firm. It shows that 29 per cent of all registered liquidators
work in firms with only one registered liquidator. Half of all registered
liquidators work for firms with four registered liquidators or less. Roughly a
quarter of all registered liquidators are employed in firms that have 20 or
more registered liquidators.
2.7
The largest 13 firms have more than 10 registered liquidators. Together,
these firms have 251 registered liquidators and account for 39 per cent of
total current external administration appointments. These firms include
KordaMentha, Hall Chadwick, McGrathNicol and Pitcher Partners.
2.8
There are 248 firms with four registered liquidators or less. They
accounted for 50 per cent (331) of the registered liquidator population (see
Chart 2.2). Table 2.1 shows, therefore, that half the registered practitioners
work for the largest 25 firms (ie: those with more than four registered
practitioners).
Table 2.1
Number of insolvency firms (by number of
practitioners)
|
Number of practitioners
|
Largest 13 firms (more than 10 practitioners)
|
251 practitioners
|
Next largest 12 firms (between 5 and 9
practitioners)
|
80 practitioners
|
248 firms with 4 or less practitioners
|
331 practitioners
|
273 insolvency firms
|
662 practitioners
|
Source: Information gathered from
paragraphs 2.5 to 2.8.
Chart 2.2: Number
of registered liquidators by firm size (December 2009)
Source: ASIC, Submission 69, p. 101.
Table 2.2: Profile of companies in external
administration
|
2006–07
|
2005–06
|
2004–2005
|
Employees—Companies
with less than 20 FTE employees
|
82%
|
84%
|
83%
|
Assets—Companies
with assets of $100,000 or less
|
87%
|
86%
|
84%
|
Unsecured
creditors owed $500,000 or less
|
82%
|
82%
|
82%
|
Unsecured
creditors—no. of creditors less than 50
|
88%
|
87%
|
85%
|
Deficiency—EXADs with asset deficiency
$500,000 or less
|
76%
|
75%
|
75%
|
Dividends to unsecured creditors of 10
cents in the dollar or less
|
96%
|
96%
|
95%
|
Secured creditors—EXADs with no secured
creditor
|
73%
|
69%
|
66%
|
Source: ASIC, Submission 69, p. 103. EXADs—external
administrations
2.9
Table 2.2 shows that the majority of appointments involve small to
medium proprietary limited companies. In 2006–07, these companies had less than
20 employees (82 per cent), less than $100 000 in assets (87 per cent)
unsecured creditors owed $500 000 or less (82 per cent).
2.10
A large number of external administrations have no secured creditors (73 per cent).
A large percentage estimated a deficiency of up to $500 000 and most (96
per cent) estimated returns to unsecured creditors of less than 10 cents in the
dollar.[3]
2.11
Chart 2.3 shows the types of external administration appointments in
Australia from July 2008 to June 2009. Creditor winding-up accounted for 40 per
cent of all external administrator appointments. Court appointed winding-up
accounted for 24 per cent of all external appointments. Voluntary
administrations accounted for one‑fifth of the total.
Chart 2.3: Total external administration appointments, July
2008–June 2009
Source: ASIC, Submission 69, p. 104.
2.12
Liquidators undertaking an external administration are remunerated from
the assets of the company. Most registered liquidators will charge fees on a
time charged basis using a fee scale. The scale reflects the qualifications and
experience of the staff involved. Table 2.3 gives examples of different sized
firms' scales within the Sydney market.
Table 2.3: Examples of different firms' hourly fee scales
Position
|
Small firms
|
Medium sized
firms
|
Large firms
|
Registered
liquidator and partner
|
$460
|
$550
|
$690
|
Director
|
—
|
$440
|
$550
|
Manager
|
$340
|
$385
|
$435
|
Supervisor
|
$275
|
$270
|
$312
|
Senior
accountant
|
$225
|
$235
|
$250
|
Accountant
|
$165
|
$195
|
$210
|
Support
staff
|
$145
|
$130
|
$130
|
Source: ASIC, Submission 69, p. 104.
ASIC's activities
2.13
Table 2.4 shows the number of complaints and enquiries to ASIC on all
matters and on insolvency matters specifically. It shows that complaints on
insolvency related matters account for 3.6 per cent of all complaints to ASIC
over the July 2006 to December 2009 period. There were, on average, 3.5
complaints against insolvency practitioners for every 100 insolvency
appointments over the period.
Table 2.4: Complaints volume trend
|
2006–07
|
2007–08
|
2008–09
|
to Dec 2009
|
Total/Average
|
Total
complaints and
enquiries finalised
|
11,455
|
12,514
|
14,543
|
6,650
|
45,162
|
Total
insolvency appointments
|
11,966
|
12,524
|
15,567
|
7,028
|
47,085
|
Total
complaints and enquiries against insolvency practitioners
|
406
|
352
|
633
|
256
|
1,647
|
Total
complaints and enquiries against insolvency practitioners excluding
duplicates
|
344
|
317
|
438
|
230
|
1,329
|
% insolvency
practitioner complaints and enquiries of total complaints and enquiries
|
3.5%
|
2.8%
|
4.4%
|
3.8%
|
3.6%
|
% insolvency
practitioner complaints and enquiries of total appointments
|
3.4%
|
2.8%
|
4.1%
|
3.6%
|
3.5%
|
Source:
ASIC, Submission 69, p. 133.
2.14
Of particular note is the spike in the number of complaints against
insolvency practitioners to ASIC from 352 in 2007–08 to 633 in 2008–09.
Excluding duplicate complaints, the increase was from 317 to 438 complaints.
These increases were proportionately much greater than the increase in the
number of insolvency appointments between these years.
Final comment
2.15
This chapter provides a brief sketch of the insolvency industry in
Australia. Above all, it illustrates the paucity of data collected on the
industry.
2.16
Chapter 9 notes that ASIC has published a document titled External
administrators: Schedule B statistics 1 July 2004–30 June 2007.[4]
Schedule B statistics are required to be lodged by a liquidator under section
533 of the Corporations Act 2001. ASIC's report collated Schedule B data
to indicate the profile of companies in external administration, the causes of
company failure and estimated dividends to unsecured creditors. However, this
information is both limited and dated. Chapter 9 suggests the way in which the
regulator should analyse and publish a fuller picture of the state of the
insolvency industry.
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